Kass: The Lion's Share
A month ago, I was speaking to the legendary Ira Harris (one of the most influential Wall Streeters extant back in the day when he ran Salomon Brothers' Chicago office), who mentioned that he could not remember a time during his investment career when there was so much uncertainty as there is now.
In other words, there exists, as Sir John Mauldin points out in his commentary this week, more than the usual lurking "lions in the grass" (and in the open fields) these days.
In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
-- From "That Which Is Seen and That Which Is Unseen," an 1850 essay by Frédéric Bastiat (hat tip John Mauldin)
As John wrote over the weekend, most lions are readily seen -- they are known, in front of us and are usually anticipated. The lions in the grass and their distant cousins, the more random black swans, which have been spotted with a frightening frequency over the past decade, however, are not readily foreseen -- those are the scariest and the most market-upsetting. They spring upon us suddenly, unexpectedly (and some of them even inhabit my annual surprises lists), sometimes taking off an arm or a leg or causing our investment portfolio to plummet in value.