The Importance of Doing Nothing
by Bill Bonner
by Bill Bonner
The nation's newspapers and TV blabbermouths have been in full-throated yelp against inactivity. In the wake of the New Orleans inundation, they surf for sound bites. In those crucial hours, local officials "did nothing," they say. Federal officials, too, including the highest official, were nowhere to be seen, doing nothing.
Nothing. Nada. Zilch. The null category gets no respect. The hollowness of it is repulsive. The emptiness of it is unbearable. Even nature is said to abhor a vacuum. The poor man who has nothing to say is a pariah. He is like the investment advisor with nothing to recommend, save cash. He will get no work as a hedge fund manager; he will not drive a fancy car, nor live in a beach palace at the Hamptons.
And zero? For centuries the number couldn't even be found. Mathematicians didn't know what to make of a number that was not a number at all; but an absence of numbers, a graphic display of nothing… a round, empty hole.
And pity the poor renters. While everyone else has been getting rich, the renters have been left behind, stranded… like people who showed up too late at an airline counter in Duluth just before a snow-storm, doomed to spend a weekend there.
Imagine the conversations between husband and wife:
"You did nothing! This was the biggest housing price boom in American history, and we missed it. Now, we'll never be able to afford to buy a decent house."
Few things are as damnable as inaction. In politics, it is cause for recrimination. In marriage, even the Catholics allow for annulment in case of non-consummation. In finance, it is cause for regrets. In war, it is cause for firing squads. In conversation, an absence of words is embarrassing. When a man stares you in the face and says nothing, you assume he is thinking something dreadful. Unless he smiles; then you think he has lost his mind.
The other problem with inaction is that there is never any excuse for it. Stalin's generals, charged with inaction during the early days of the German assault on Moscow, might have explained that they were busy with their mistresses, or attending a child's birthday party. Either excuse would be perfectly satisfactory to a civilized man, for both were better than killing people in order to defend the Soviet Union. But Stalin was scarcely civilized. And while the Soviet Union was abominable, Hitler seems to have offered something even worse. But how could they know that?
And how could the poor husband know that house prices would rise? Of course, he could not; but his wife nevertheless holds him responsible, as if he not only saw the train coming, but intentionally failed to get on board.
No, dear reader, inactivity is almost always unpardonable. But here, nevertheless, we say a kind word for it, maybe two. First, we point out that doing nothing is usually the best course of action, especially in public affairs and investments. Second, we deny the possibility of ‘doing nothing' in any case.
Since the entire world nurses a prejudice against inaction, the burden of proof is clearly on us. So, let us bend to our work like a field hand, knowing that our labors will be many, our rewards few.
In public affairs, as in private ones, there is a powerful compulsion to ‘do something.' The problem on the Eastern Front was not really caused by inaction, but by Hitler's desire to ‘do something.' After the invasion and capitulation of France; and after the Battle of Britain, he found himself with time on his hands. Western Europe was buttoned up, from Poland to Spain; he was master of all and everyone. Only Britain held out. But he had not the means to invade Britain, so his eyes wandered across the map — as Napoleon's had done many years before — and saw Russia.
He would have been much better off staying home. Then, Stalin's generals could have continued to bounce their mistresses on their knees, and hand out candy at birthday parties. Inaction would have begotten more inaction, in other words. And the world might have been a better place.
And now we read in the news that the administration and Congress have finally sprung to action on the bayous. They are going to spend more than $50 billion! That the money will be almost certainly squandered seems to trouble no one. That every penny of the money could otherwise be better spent by the people who earned it, bothers neither conservative nor liberal. The impulse to ‘do something' is so powerful, no one wants to stand against it.
But our beat here at The Daily Reckoning is money. Are you ever better off doing nothing with your money? The answer falls in our lap like a ripe cocktail hostess: Of course.
Warren Buffett holds billions in cash. He is probably the best investor who has ever lived. If he cannot find anything better to do with his money than to leave it in cash — effectively doing nothing with it — how can the average lumpeninvestor expect to do better?
Is this the time to buy stocks? Probably not. Stocks are still relatively expensive. The idea is to buy low and sell high later. When stocks are high already, there is no alternative; you must do nothing.
Is it time to buy bonds? Again, probably not. Bonds are expensive, too; yields are low. Will they become even more expensive? Will yields go even lower? Maybe. But we cannot predict the future. All we can do is look at the present and the past. We know, from past experience, that bonds have become more expensive almost every year for the last quarter of a century. At today's prices, you are not likely to make money in bonds, especially corporate and junk bonds. It is better to do nothing.
But there is always real estate, isn't there? Since 2001, investors have made such rapid advances in the property market they would have made Guderian or Rommel envious. In the late summer of 1941, Guderian, the leading proponent of panzer-led blitzkrieg warfare, was racing towards Moscow. The man could not bear inaction; he took to the offensive even against his Führer's orders. On the other side, the Russians were full of action themselves. Guderian faced Zhukov, who was beginning to understand how to beat the panzers. You know what happened next: Action produced reaction. Finally, the whole campaign ended in a bloody mess.
But it is still sunshine for America's house buyers. Should you join them while the getting is still good? Or should you do nothing? ‘Do nothing,' is our advice. Most houses are too expensive. You will get more for you money as a renter. Most likely, you will be able to buy later…at better prices.
"You are either long or short," said our old friend Mark Hulbert, 20 years ago. "There is no such thing as a hold."
What Hulbert was describing was the impossibility of inaction in the investment world. You may like to do nothing, but you can't. If you do not buy stocks, you buy something else. ‘Nothing; cannot exist; it has no meaning. If you have money, you must have it in some form. You must be ‘long' something. You may be ‘long' cash, as Buffett is, but that is just as much a something as being ‘long' property or stocks.
The real question is not whether you will do something or nothing, but: What will you do? When all major asset classes are expensive, the sensible thing to do is nothing. But since you can't do nothing, our advice is to do as little as possible.
The trouble with cash is that it is much more something than nothing. Dollars are a gamble. They are IOUs issued by the world's biggest debtor. Despite nearly a hundred years of decline, the dollar is still expensive in our view. That is, they still buy something, but that they will buy less in the future is practically assured. Buffett hedges this gamble by buying foreign currencies. But it is still a gamble.
A more perfect ‘nothing' is gold. It is a sort of anti-asset. It pays no interest. It issues no press releases. It offers no guidance on quarterly earnings; it has no earnings. It does no mergers, no acquisitions and it never restructures. It hires no celebrity CEOs. It offers no discounts. It makes no excuses. But it is the thing that goes up when other assets, including dollars, go down.
Gold is as close to ‘nothing' as you can get. Buy it.
September 19, 2005
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.
Copyright © 2005 Bill Bonner