Using the see-the-forest metaphor, we’ll first acknowledge that, for virtually all of 2011, we’ve been mired deeply within the trees; debt ceilings, budget deficits, sovereign debt, payroll tax holidays, Japan tsunami, Middle Eastern/North African uprisings, regulatory expansion, market volatility, commodities inflation, etc…
It’s all too easy to get lost in the woods, to lose perspective and self-fulfill some pundit’s prophecy for our portfolios… I.e., to panic and sell in the midst of a market decline… To, sometime later, wake up to the painful fact that the devastation we feared, was simply, once again, the market doing its business…
Yes, governments can start fires, but whether the trees ultimately burn is determined entirely by natural forces… Nature will inevitably burn the dry, decaying foliage… If man steps in with a scientifically concocted fertilizer, nature may allow some immediate stimulation, but, where necessary, it will nonetheless cull the forest…
When nations lever themselves up, and promise more than they can deliver, the market (nature), through higher borrowing costs, brings them down… Man may intervene, but ultimately, the market determines the outcome…
Stay Tuned…