There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys, how’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”

—David Foster Wallace, This Is Water

Turning and turning in the widening gyre The falcon cannot hear the falconer; Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world, The blood-dimmed tide is loosed, and everywhere The ceremony of innocence is drowned; The best lack all conviction, while the worst Are full of passionate intensity.

—William Butler Yeats, The Second Coming

I told the above fish story as we opened the Strategic Investment Conference this week. Most investors and fellow citizens have no idea what water we are swimming in. They swim in a pool of agreed-upon, commonly understood narratives. And that’s all well and good until the water changes.

 

It is very important to know your water and what to do when it changes. Currently, the narrative says that central banks and governments “have our backs” and will do “whatever it takes” to make everything, including the water, go on as usual. Call it kicking the can down the road or whatever metaphor you like, but most investors extrapolate the recent past into the far future.

And that’s usually the right move. The cautious optimist usually wins, which in our current social and political circumstances means that the one most important thing to know is: