[Originally Published October 20, 2014] There is sure a lot going on in the world and the headlines are not pretty causing many to worry. As a lover of great music and particularly poetic, moving, and interesting song lyrics, I like to use songs from time to time to help bring insight, wisdom, and clarity to life in general and the world of investing more particularly. When it comes to global events there are two clear divides that can be best delineated by two outstanding singers, songwriter, musicians – Sarah McLachlan and Billy Joel. Both use fire as a metaphor to describe world conditions, yet they have different points of view. The former is much more emotionally impacted by what is going on in the world while Billy Joel is more matter of fact in asserting that conflagration is the natural state of affairs.
World on Fire – World of Worry
Let’s start with the more pessimistic version, which is Sarah McLachlan’s World on Fire. The title has an alarmist overtone but the lyrics are actually quite inspiring.
Hearts are worn in these dark ages
You’re not alone in this story’s pages
The light has fallen amongst the living and the dying
And I’ll try to hold it in, yeah I’ll try to hold it in
The world’s on fire and
It’s more than I can handle
I’ll tap into the water
(Try and bring my share)
I try to bring more
More than I can handle
(Bring it to the table)
Bring what I am able
I watch the heavens but I find no calling
Something I can do to change what’s coming
Stay close to me while the sky is falling
Don’t wanna be left alone, don’t wanna be alone
Hearts break, hearts mend
Love still hurts
Visions clash, planes crash
Still there’s talk of
Saving souls, still the cold
Is closing in on us
We part the veil on our killer sun
Stray from the straight line on this short run
The more we take, the less we become
The fortune of one that means less for some
The world is getting her down..temporarily. She realizes that if she wants to keep her sanity she has to do what she can to bring some goodness and light to others. Joseph Campbell said that it’s incumbent upon everyone to “participate in the sorrows of the world joyfully.” Sorrow and pain are inevitable, but we don’t have to succumb to it. So what fires are smoldering right now from my perspective?
- Tensions with Russia
- Sunni-Shia divide
- Exacerbated by lower oil prices affecting OPEC countries differently
- China slowing
- Hong Kong protests
- Germany could be headed into recession
- German Industrial Input Falls
- Japan’s economy is softening
The market sees tremendous parallels between Germany and Japan.
- Weak retail sales
- Weak manufacturing report in New York
- Big sell-off in the stock market
- Carnage in energy stocks with oil prices plummeting
Now let’s look at things from a different perspective. Billy Joel said We Didn’t Start the Fire. Every generation always thinks that it’s unique with regard to its problems. He traces monumental events going back 60+ years to show there are always fires smoldering.
Harry Truman, Doris Day, Red China, Johnnie Ray
South Pacific, Walter Winchell, Joe DiMaggio
Joe McCarthy, Richard Nixon, Studebaker, Television
North Korea, South Korea, Marilyn Monroe
Rosenbergs, H-Bomb, Sugar Ray, Panmunjom
Brando, The King And I, and The Catcher In The Rye
Eisenhower, Vaccine, England’s got a new queen
Marciano, Liberace, Santayana goodbye
We didn’t start the fire
It was always burning
Since the world’s been turning
We didn’t start the fire
No we didn’t light it
But we tried to fight it
Yes there are always fires and yet the United States economy keeps growing and living standards are improving around the world. It’s not always pretty and there are still not enough people living happy, healthy, and productive lives. One interesting way of showing this divide in the United States is how confident people are based on their income levels.
This is from the Bloomberg Consumer Comfort Index:
It’s been proven that money doesn’t necessarily buy happiness but from the chart above it sure looks like it buys comfort (perceived economic security). I don’t think this is very surprising, yet it is revealing to see it so starkly quantified as the chart above depicts. My suspicion is the lower two cohorts are more impacted by job statistics while the upper-income group is more reactive to financial market conditions.
So yes the world is on fire, but it’s always on fire and some people are doing far better than many others. This is the normal state of affairs so we must not get lost in all of the negativity and try to look for what might be going well. So what positive things are going on?
- Lower gas prices
- Jobless claims reach 14-year low
- Big jump in industrial production
- Consumers feeling more confident
- Continuation of Quantitative Easing?
- Lower interest rates
Much of the drop has been attributable to declining inflation expectations as the following chart shows.
People tend to be more concerned about the future than their present circumstances as the following chart shows.
Source: Bloomberg Consumer Comfort Index
In virtually every time period over the nearly seven years covered in this chart, more people thought the economy was getting worse than better. Not by a lot for much of the time but enough to conclude that people tend to have a bit of a pessimistic bias. They’re ok today but a little worried about the future. Yet things are not as dire as they appear and maybe the recent stock market rally on October 17, 20 was reflecting that.
The stock market rally with the Dow up over 20,000  is a good sign.
Yes, there’s always something bad going on in the world to be of concern but we shouldn’t lose ourselves in the negativity. The fire has always been burning and always will be but we can do our part to make the world a bit better despite the problems. And as investors, it’s important to try to look through the negativity to see if markets have overreacted to all of the problems. Markets are said to climb walls of worry. Investors should worry when there is nothing to worry about.
As Warren Buffett has said famously, one wants“to be fearful when others are greedy and greedy when others are fearful.” Warren BuffettClick To Tweet