Saturday, October 11, 2008

Understanding the world through Pseudo-Sumo (rev 1)

I have the opportunity to speak to our staff in a week about the potential impact of the financial distress that dominates the news today. I am comfortable speaking to a big room full of people and being a bit theatrical, so my message won't simply be Death by Powerpoint. I want our staff to be able to think clearly for themselves, not to respond blindly to blandishments from others. In my message I think it will be useful to distinguish between the Economy, the Financial Markets, the Media and our own lives. I am working on an analogy that may help explain things, so please let me know with a comment whether or not the following is helpful.

"Lots of people in this room are concerned about what is going on in the economy and whether it will affect our jobs. In truth, we are in uncharted waters. No one can say for sure what will happen, or when. But our own levels of stress are reduced if we have clearer ways of thinking about what concerns us most. I hope this illustration helps you better understand what is going on.

"The Economy is not the same as the Financial Markets, and the Media is in turn different from each of them. Here is one way to view what is going on:

"The Economy is where people and companies buy and sell things. Farmers are still farming, oil wells are still pumping, kids still need running shoes and a ride to school.

"The Economy needs the Financial Markets, which are and always have been like a wrestling match between a giant named Opportunity and a giant named Risk. Opportunity is the good-looking one, the one with the swagger and the bulging muscles. Risk is the faster, sneakier one, who strikes when Opportunity gets too puffed up.

"But the match is a lot like Pseudo-Sumo, and money is the air in the sumo suits. Opportunity gets puffed up with air money, and by the middle of every round in the fight he gets to look really big. But later in the round Risk always comes in and steals the air from Opportunity, and that makes Risk look really big and Opportunity suddenly looks tiny. Six months ago, Opportunity looked huge; right now it is Risk's turn. The important thing to remember is that this fight is never decided, no matter how much it looks as if one or the other is winning. And the fight is in the Financial Markets, not the Economy.

"Commenting on the Financial Market fight are the wrestling announcers we call the Media. The Media are there to tell us what is going on, but we should remember that one of their objectives is to get us to tune in again tomorrow. So they like to get us excited and a bit fearful. They don't always care about the distinction between the Market and the Economy. They are entertainers at heart.

"And out here in the world is Us. We need to recognize the Economy is still real and active, although it is reverting to a normal level from being overheated. Recognize the recurring battle between Opportunity and Risk in the Financial Markets, and note that we don't know the length of each round. We need to recognize that the Media gives both news and entertainment, and not get too wound up by what is said. And at this point in the battle, where money is in short supply, we need to both take care of our own money and make doubly sure we give our customers full value for their money. Be diligent, prepare for uncertainty, think for yourself."

Comments, dear reader?

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