May Rain

One might wonder how a rainy May afternoon in the midst of finals produces optimism, but somehow this afternoon, as I trudged through an overly-gloomy Cambridge afternoon, I felt another twinge of optimism start to bite.

It was surely not hindered when I turned down to my “device” a few moments later to see yet another optimistic headline from our good friend Mr. Buffett (Buffett Says Credit Crisis Ebbs for Wall Street Firms). However the causation was from another source, with this being yet another example of easy mistakes when like outcomes correlate in expected ways.

Instead, the source of this optimism arose from a somewhat unusual source; in the midst of a recent revisit to the existentialist angst of my undergraduate years over the last few weeks, I realized that one of the implications of the imperfect system of our financial markets is that one can err both on the downside and the upside. The same inability to predict the markets that caused quantitative hedge funds driven by the minds of brilliant PHD’s to crack creates the possibility for better than expected outcomes if we all band together in optimism.

Whether characterized in terms like: consumer confidence, irrational exuberance, or more simple ones like enjoying the weather; people’s perception of world events have very real impacts on how those events materialize in the world. One can see this in concrete terms in the area of quantum mechanics where our observations of subatomic particles literally impacts where they appear in the world. So if we can impact particles, why can’t we make waves in the financial markets?

I would argue that we can, and we will. Whether through the herds that almost submerged Lehman after Bear broke or the dot-com mania of people’s first introduction to the Internet, we have clearly observed that crowds move markets – both on the upside and the downside.

So although we will surely see way too many people lose their homes over the next year, and unfortunately we will also see friends and neighbors lose their jobs. Maybe we can reach out a helping hand to brush off our collective dirty knees…and get back to making this country the great place that it is. Because you never know, it might be sunny tomorrow, or it may rain.

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