Volume XII, No. II

Don't worry, we won't be talking about tender expressions of love, or those smacks on the cheek from your cousins and your sisters and your aunts - or even those tiny, tasty Hershey's chocolate concoctions some of us love to pop into our mouths. Our title refers instead to the idea of keeping things simple – one of the themes that have tied these letters together over the last year or so.

To refresh your memory:

Or, if you prefer, the kinder, gentler version: Keep It Super Simple. What's different this time is that I've been wondering whether a KISS approach to the world's ever-more-complex problems really works any more.

It's no news that our world keeps getting more complex. But is it possible that it has gotten too complex? For example, one day we read:

• The housing market has bottomed.
• The Greek sovereign debt crisis is solved.
• GDP is up, indicating the economy's picking up steam.

The next day, it turns out that:

• Housing dropped again in January, continuing its long-term trend down.
• Not only is the EU's Greek debt solution failing, but Portuguese, Irish and Spanish debt may be the next to implode.
• The Fed announces it will hold interest rates low for the foreseeable future due to concern that the economy could be on the verge of a new downturn.

We're not talking about interpretations of the facts or even disagreements over the best course of action. We're talking about completely contradictory statements coming from the same people and organizations - economists, government officials and, yes, even those international business experts known as "technocrats" who took over the reins in Europe last year who were supposed to know just how to turn everything around. It's made me wonder:

Could we be at a point where no one really knows what's going on?

But we're getting ahead of ourselves. To properly set the stage, let's take a step back and recall where we left off last time:

When I wrote those words, I believed that each of us could and should face the future square on with a sharp, open mind. By developing the twin skills of reason and common sense, I thought we could:

• Ignore the power-pushers in government and their election year politics.
• Put the Wall Street profit-pushers in their place before they could scare us into believing we all must always be fully invested in their products to avoid missing the market's next big move.
• Turn a skeptical eye on all those money-pushers at the Fed, the European Central Bank, indeed all the central banks of the world – the ones who keep pumping more and more new "money-created-from-nothing" into the world to (they claim) save us from economic and financial disaster.

I still think we can do all that. But something happened last week (which I'll explain in a moment) that caused me to pause and consider something we all "feel" in today's world, but few of us talk about: complexity.

To be sure, we've talked around this all-important subject in the past. Last time, for example, while making the case for each of us to develop the habit of actively using our reason to better understand our world, we discussed the problem of "information overload":

Information overload diverts our minds from the real world. It both obscures and distorts the clear understanding of reality we need in a frequently confusing world. A rational person can and should understand and accept this and work towards developing the habit of facing and dealing with reality as it is. Taking this a step further, we should be on guard against all forces – whether in the form of technology, people, or institutions like corporations and government – that would dull our minds and incite our passions to sway us this way or that for their own purposes.

But let's assume for a moment that we successfully guard ourselves from undue influence and that, in addition, we sharpen our minds to successfully surf those waves of information without being swamped by distractions and distortions. What if the world itself has indeed grown too complex? Can we still hope to make sense out of it?

Lo and behold, in her recently published book, The Watchman's Rattle: Thinking Our Way Out of Extinction, author Rebecca Costa claims that because the world has grown too complex, and because we dislike, even shun complexity, a growing number of us see the world according to our belief about what is true, rather than the facts. We've reached a point where we can no longer think for ourselves.

If you agree with the idea that we should deal with reality as it is, rather than as we'd like it to be, this is a rather ominous trend.

And so what happened last week motivated me to attack this thorny issue of complexity sooner rather than later.

Without any warning, an engine belt in one of our cars broke last week while it was being driven home. You'll soon see how this rather mundane occurrence taught me that the world may indeed have gotten too complex.

My education began when – for a fleeting moment – I thought I could buy a belt and just fix the thing myself. I remembered that I had replaced a belt on my very first car. It wasn't that big a deal. Why not skip the expense and inconvenience of getting the car towed when I could just pick up a part and – zip, zip, zip – take out the old, put in the new. (Heck, I had replaced a windshield wiper a couple of years ago in a pinch.) Yes! It would be like the old days. I'd do it myself!

That bit of foolishness lasted until I saw the diagram in the manual provided by the auto manufacturer. Things had changed since that first clunker of mine. Back then, I had replaced a belt that went around the engine crankshaft pulley that turned the fan and the alternator pulley. (The car was manufactured without air conditioning – imagine that!) We used to call such belts "fan belts." Pretty simple stuff.

On the other hand, here's a diagram of what belts look like today:

Mind you, that's a single belt that snakes around all those pulleys. Good-bye fan belts, hello serpentine belts. Talk about complicated, the name alone intimidates, doesn't it?

So I came to my senses and got the car towed to my mechanic. After replacing the serpentine belt, he explained that two of the pulleys had to be replaced too, as they had caused the belt break. So it wasn't, after all, that the belt was worn out. One of the pulleys froze and that caused the belt to burn up. As for the second pulley, he told me it was making noise and he replaced that too.

Then a thought hit me: What about the other pulleys? Shouldn't we replace all of the pulleys? After all, if one of those older pulleys freezes, the belt will just break again, won't it? As my mind raced through the scenarios of future frozen pulleys, he showed me the bill for parts and labor to replace the belt and two pulleys. At that point, the idea of replacing the other pulleys quickly dissipated. I quit while I was ahead and paid the bill.

While that rather large bill lightened my wallet, the whole issue of complexity began to weigh on my mind. Of course, it's not as if the idea had just occurred to me, but now the whole issue of complexity took center stage. It's not just cars and financial crises. Heck, just going to the supermarket can drive you crazy. For example, have you checked out how many cleaning and disinfecting products fill the shelves these days – in how many sizes, scents, with special promotions, never mind the ones you can't find because the manufacturer changed the packaging? I think you get the point.

And so it struck me that I had missed something critical in our discussion last time.

I still believe we need to cultivate the ability and the determination to use our reason and common sense to understand our world. After all, if the claim that people have given up on facts in favor of beliefs is correct, the next step could very well be more of us succumbing to a herd mentality, following who knows what strange and dangerous sorts of ideologies. (Indeed, this is exactly what the author of The Watchman's Rattle: Thinking Our Way Out of Extinction finds to be the current trend.)

But what happens if the answer to the question, "Has the world gotten too complex?" is "Yes!"? Do we throw our hands up and simply say the world is too hard to understand and – heaven forbid – follow the herd into one or more of those strange and dangerous sorts of ideologies? I hope you agree that's not the way to go. So I tried to attack this dilemma by thinking that a world grown too complex might be something like a person suffering from dementia.

But what happens if the answer to the question, "Has the world gotten too complex?" is "Yes!"? Do we throw our hands up and simply say the world is too hard to understand and – heaven forbid – follow the herd into one or more of those strange and dangerous sorts of ideologies? I hope you agree that's not the way to go. So I tried to attack this dilemma by thinking that a world grown too complex might be something like a person suffering from dementia.

If you've ever known a person suffering from this condition, you know that understanding the condition is critical to communicating with the person while at the same time keeping your own sanity. However, any attempt to "straighten the person out" by appealing to logic only leads to frustration. And, at the moment, trying to reverse the disease isn't possible. The best that can be hoped for is to slow down the progress of the disease. Clear thinking and emotional stability – worthy goals for the rest of us – remain beyond the reach of a person suffering from dementia.

In the same way, a world grown too complex may be beyond the reach of those who would "straighten things out." In such a world, the most we can hope to achieve by using our reason and common sense might be to lessen our frustration with ongoing problems that continually elude solution or with persistent conditions that only seem to grow more complex, indeed worse, with the passage of time. Maybe our first – and possibly only – concern should be learning to live with the world as it is. While not ideal, it's certainly better than ignoring facts and making things up or joining a herd that's rushing over a cliff.

The more I've thought about this problem of a world grown too complex, the more pressed I feel to confront it. The book we referenced, The Watchman's Rattle: Thinking Our Way Out of Extinction, provides valuable insights on a certain level. But next time, we'll tie the phenomenon of growing complexity directly to our current crisis – the biggest economic and financial crisis of our lifetimes. We'll be exploring:

• What Makes Our Society Too Complex
• Why Some Complex Societies Have Collapsed – and Some Have Not
• Whether Reason and Common Sense Will Be Able to Steer Us Away Trouble
• The First Lesson to Learn and Immediately Apply to Your Investment Decisions
• How Complexity Makes the Threat of Currency Wars – Yes, Wars - a Clear and Present Danger

While "complexity" is clearly one of those "big picture" themes, I'll do my best to keep our discussions concrete and specific. On the other hand, if my initial notes are on target, we may find ourselves confronted by a unique combination of complexity and crisis – one which may already be changing the shape of the "modern" world that emerged after the Renaissance into a form few of us could have imagined.

Quick Update

Meanwhile, as we look to the future, the present continues to challenge us to find ways to make money. After a 2011 that found most asset managers – most especially those "genius" hedge fund managers – dead in the water, 2012 hasn't been all that reassuring, in spite of the stock market's initial burst out of the starting block in January. Note especially these comments from two luminaries of the investment world:

Notice the common theme of "defense"? Now there's a simple concept that makes sense even in a complex world.

Happy Easter!

Happy Passover!

P.S. – Here are two special treats for the holidays; First, a reasonable view of what's happening with the so-called Greek bailout. Even better, watch this feisty Irish journalist stand his ground while trying to get a German EU official to face the truth about what's really happening to Ireland.

Richard S. Esposito, ChFC
Lighthouse Wealth Management LLC
405 Lexington Avenue, 26th Floor
New York, NY 10174
Tel: 212-907-6583/Fax: 866-924-1952

Email: resposito@lighthousewm.com