Friday, June 24, 2016

Bringing Sanity to the Brexit Meltdown

The markets around the world essentially collapsed in the wake of the decision Great Britain’s citizenry made to leave the European Union.  And, like my friend, Diane, who wrote on Facebook earlier today, any and all of us who have money in the markets – in 401ks or IRAs or any brokerage account – the sense is that her retirement outlook just got worse.

So, I make my living as a financial planner and a psychotherapist.  Some people think that’s an odd combination, but only a little thought would show that money and one’s emotional / physiological life are intimately related.   Stripped down to its functional attributes, money is about power.  And I define power as the ability to get what you want and/or need.  Looked on from this perspective, it’s easy to see that any diminishment of one’s personal power can and generally does, have a psychological impact.

Certainly this is not the place to dispense investment advice – if only because everyone’s financial situation and goals are so different – but there is something that I might say that could help my friends deal with the anxiety this seems to have engendered.

Anxiety is fear without an object.  This means you have all the feelings of fear, but don’t know where or how or when the threat will manifest.  So, you’re radically limited in what you can mount as a response.  If you see a truck barreling towards you, you can see and understand the threat and you can respond very specifically to get out of harm’s way.  What financial people – stock traders being the best example – have never really gotten a handle on is a proper appreciation of the role anxiety plays in market behavior.

In October, 1987, I was a stock broker when the stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average (DJIA) fell exactly 508 points to 1,738.74 (22.61%).  I was in Reno at the time, planning on getting married later that morning.  I recall thinking, “Those people in New York are have a panic attack!  They’re making each other crazy!” 

If fight or flight are the primary means of responding to threats, then surely flight is the preferred option with financial people.  The British exit from the EU is nothing if it is not about economic uncertainty.  Tune in to any talk show today or over the next few days and the common question, asked in a thousand forms is, “What does this mean for our economic well-being?”  And the answer – the real answer – is, “No one really knows.”  That “no one knows” is the heart of the anxiety.
In 1987, after remarking to myself about just how crazy the people in New York were behaving, I had another thought that has served me and my clients well for all these years, through all the financial crises we’ve seen, including the huge breakdown of Lehman Brothers and the fallout from that – the 2008 recession.  Creel Froman, a professor of political science at the University of California, wrote a series of books, all with the title, Language and Power.  There is a treasure trove of insights on power in these books, but the one idea I had in the face of these various financial meltdowns is Froman’s idea that “power always takes care of itself!”  If, as he argues, reality gets created in language, then whoever gets to say what is, is, is the powerful person at the table. 

So, whether you talk about Wall Street, or establishment politicians or corporate king/queen pins, we are talking about people who get to say what is is and Froman would say, these folks are not going to let anything happen that would deprive them of the privilege power can wield.

The economy wasn’t really in trouble in 1987 and so I thought, “we’ll be okay.  It’ll just take some time to sort this out.”  And, history confirms that this is what happened.  My clients who are close to or in retirement have a more conservative mix of investments then my younger clients who can invest for the long terms.  We rebalance regularly, so we sell when the investments have gone up and buy when prices have fallen.   

We don’t know what the fallout will be of Great Britain leaving the European Union.  That’s a significant reason to be anxious, to be sure.  But we can rest with a certain assurance that power will take care of itself – meaning in these instances that those in power will use that power to stabilize the markets, no matter what it takes such that while we may, indeed, see a drop in our 401ks, Pundits on Bloomberg are quick to say, “It's scary, and I've never seen anything like it, A lot of people were caught out, and many investors will lose a lot of money."  Well, we have seen this.  We’ve had depressions and recessions.  We’ve had world wars. We’ve had states come and go.  We’ve had all the scary things imaginable.  We’re humans – not gods, so it’s never been and it’s never going to be perfect.  This is not heaven.  Keep your head in your game.  Talk to your advisor.  Rebalance.  See a therapist if that’s appropriate.  But be assured, that sort of a nuclear war, we’ll find a way to muddle through to our next series of victories and the predictable unpredictable collages.  Be well