In a quote from Kipling, “If: A fathers Advice to His Son”, he begins by saying:
“If you can keep your head when all about you is losing theirs and blaming it on you”,
“If you can trust yourself when all men doubt you”,
Mario Draghi, said they “will do everything” to protect the Euro.
These words are undoubtedly relevant to those who dare to go against the “herd mentality” that seems to direct the markets and economy today. This “herd mentality” relies on the words of bureaucrats and central bankers to direct the daily performance of the market and the near term direction of the economy. It is only through an understanding of the implication of the word “if“, that central bankers and politicians are able to prevent the market from collapsing. If they say certain things at the right time, they can surely prevent a market from plummeting and in some cases, send a market to new heights. A clear example was this week as the market was plummeting, the president of the European central bank, Mario Draghi, said they “will do everything” to protect the Euro. At the time of Draghi’s statement, borrowing costs were skyrocketing and equities were plummeting. His promise to do “everything” reversed Spanish borrowing costs and initiated a substantial rally in the world equity markets.
Keeping Your Head
It’s often during a market reversal which is based on such statements that investors lose their head and believe that “if” something is promised, those who make the promise actually know the “how”. In the case of Draghi’s statements, it’s evident that he has no idea of how to save the European Union now or in the prior years since the crisis emerged or he would have actually told us. The central bank in the U.S. uses the same strategy. They know that if they say what the market wants to hear, they will temporarily reverse declines and send markets higher. It has been evident that Ben Bernanke has no idea how printing money will help the economy, yet he keeps promising more liquidity and investors keep trusting him despite endless data that creating more liquidity has absolutely no positive economic impact. If investors keep reacting to the words of bureaucrats and politicians who were integral in causing this economic mess, they will certainly be disappointed. It is only when investors “keep their head” and not accept empty promises which avoid an explanation of “how“ these lofty promises will be carried out, that they will obtain the ability to prosper in the days ahead. Investors will forever be exposed to the whims of the market caused by the statements of self serving bureaucrats until of course, they stop listening.
At the core of every government induced market celebration is a flawed mindset that the government actually has some secret solution to every economic problem the world has to face today. The reason governments don’t have a solution to the economic problems of today is because they played a major role in creating them. The attention has been more recently focused on covering up the problems they created rather than taking responsibility for them. If an investor is to succeed in the current market environment, they must no longer participate in market celebrations induced by government promises that are not backed by reality. It is an acknowledgment that most politicians will say just about anything people want to hear to secure their political futures. The core philosophy of most governments and central bankers that caused the financial crisis is directly oppositional to the rights of the individual. We must save ourselves because few politicians have the ability or desire to rescue us.
The cornerstone to investment success is discernment, which is defined as the ability to grasp and comprehend what is obscure. In recent days when it has become evident that the market has surrendered to the words and whims of bureaucrats, it’s become necessary for investors to look beyond the ambiguous rhetoric and reckless promises to the facts. A statement or promise not based on facts is null and void and cannot have any relevance in investment strategy. Investment success can only be achieved by a firm understanding of the facts —not solely on false optimism or illusions. If an investor rigorously discerns information, ignores empty promises or statements not based on authenticity and executes an investment strategy centered on facts their success will be limitless although not instant. As Kipling says in “If” — if you can wait and not grow tired of waiting. The poem ends with “yours is the earth and everything in it” — as an investor, success will be yours only … if.