Genghis Khan and the Great Wall of China
Question: What do the Great Wall of China and our House of Representatives Have In Common?
But first, let’s talk about the President’s speech to both houses of Congress last week. We will start by forgiving him for interrupting the opening football game of the season. At least he didn’t interrupt a debate by the Republican candidates for President. Of course, to be perfectly honest, it is quite unprecedented for the Speaker of the House to refuse a President’s request to address both houses of Congress.
Those may seem like small issues. They are, just as the tip of a small iceberg was enough to sink the Titanic. Perhaps somewhat like the rather small hordes of Genghis Khan. Old Genghis was a small thorn in the side of a number of Chinese Emperors. History tells us that the Chinese called a joint session of their feudal lords and decided on a major public works project to put people to work and save the kingdom by building the Great Wall of China.
Even if building a Great Wall here would put millions of Americans to work, it is quite apparent that our leaders would find ideological reasons to dismantle the project. It may be that we need that Great Wall. Not to keep out Genghis’ thundering hordes, of course, but as a symbol of action that could lead to at least a partial solution of our protracted unemployment challenge. Estimates are that the proposals might lower the unemployment rate by 1%.
Let’s be clear: there are no easy cures for the ailments that plague our economy. At the same time, let us be completely candid and recognize that we are facing systemic modifications to our way of doing business. By systemic we mean that many of the pillars of our political system and the structure of our economy are being disassembled and retooled based on a structurally different architectural rendering.
This is significant. Yet we are not hearing this kind of candor from anyone in positions of power. Think about the fact that it is quite unusual for the President of the United States to ask to address a joint session of Congress. The Constitution sanctions the joint session to permit the President to discuss the State of the Union, and also during times of crisis. With the fabric of our economic system fraying and facing entrenched unemployment which will threaten the well-being of the middle class, we should be inferring from the President’s appearance on Capitol Hill this past week that we are indeed facing a crisis.
Investment techniques during periods of crises must change to reflect the nature of the risks we face. At Silver Oak, we are convinced that the critical element of investing in today’s world is controlling risk. During normal times, designing portfolios with numerous asset classes that move in somewhat opposite directions to market stimuli and that create textbook diversification is smart. However, using those techniques when it is obvious that they are not keeping portfolios safe in this new paradigm is not smart.
Risk-controlled investing is a systematic methodology to investing during periods when black swans and other unusual but potentially catastrophic financial crises occur with more regularity than could ever be predicted. Silver Oak has been a leading proponent of this technique since 2008 and with great success.
We are eager to share our approach with anyone who has concerns about their own portfolio management. There is an excellent article written by a prominent money manager on creating portfolios by focusing on controlling risk that we would like to share with you. Please contact us to request a copy of this article.