Ritholtz on the "Uncertainty Trope"

Many have been blaming the stock market’s and economy’s recent troubles on uncertainty — uncertainty about Europe, uncertainty about the U.S.’ own debt situation, uncertainty about the regulatory environment. But Barry Ritholtz of FusionIQ says uncertainty is nothing new in the financial world.

“Since [2009], the uncertainty trope has become the general catchall for explaining (or mis-explaining) a variety of future events,” Ritholtz recently wrote on his blog, The Big Picture. “The list of uncertainties are long: The fiscal cliff, US tax policy, US health care laws, what happens in Greece, will we have a recession next year or not, is Housing recovering, what happens to the Eurozone, with the Euro currency collapse, what about the US elections? [But] I do not recall anyone saying investing was difficult due to the uncertainty caused by a potential nuclear conflagration between the US and USSR during the Cold War. Is the Greek situation today more dire and uncertain than the policy of MAD — mutual assured destruction — ever was?”

Ritholtz said that what has happened in recent years is not a big increase in uncertainty, but instead a somewhat rare acceptance by the masses that we live in an uncertain world. “Most of the time, Humans exist in a happy little bubble of self-created delusion,” he writes. “We lie to ourselves constantly. We rationalize everything we do, past and present. We engage in selective perception, seeing only the things that agree with us. Our selective retention retains the good stuff and disregards most of the rest. In the mind’s eye, we are all younger, better looking, slimmer, with more hair than the camera reveals.”

But the “Uncertainty Trope” surfaces when those delusions fade, he says. “We are not so happy with the naked truth and prefer the comfortable lie,” he explains. “These brief instances where the facade fades, the curtain gets pulled back, the ugly reality becomes known to us. We get a glimmer of understanding our own lack of understanding. That’s when the grim reality of the human condition is revealed — and it scares the hell out of us.”

Bottom line: Things are always uncertain, Ritholtz says. It’s just that sometimes we are far more aware of the uncertainty, like most investors seem to be these days.