Managing risk and navigating uncertainty can often feel like a daunting challenge. In a world where unpredictability reigns, how do we approach these complexities?
Recently, the Popocatépetl volcano erupted, creating a spectacular yet alarming scene of smoke and ash, along with 1,500-foot-high lava fountains. This striking event serves as a reminder of nature’s unpredictable fury.
El Popo, as it’s affectionately known, is located approximately 45 miles southeast of Mexico City, where around 25 million people reside within a 60-mile radius.
The eruption led authorities to elevate the alert status to “yellow phase three,” indicating that residents should be prepared for potential evacuation.
While we hope the volcanic activity will diminish soon, the sheer number of people in proximity to the volcano makes evacuation a challenging endeavor. Historical examples illustrate the chaos that can ensue; during the 1992 Los Angeles riots, desperate residents found the highways choked with traffic as they attempted to flee, leaving them vulnerable to opportunistic vendors selling essentials at exorbitant prices.
About fifteen years ago, we traveled by bus from Mexico City to visit relatives in Amecameca, a town just 15 miles from El Popo. The views of the volcano are breathtaking.
Standing at 17,800 feet above sea level, El Popo dwarfs Mount Whitney, the highest peak in the contiguous United States, which reaches just 14,500 feet. In comparison, the highest point in the Smoky Mountains, Clingmans Dome, is a modest 6,643 feet.
In a word, El Popo is enormous.
Acceptance
The name Popocatépetl derives from two Nahuatl words that collectively mean “smoking mountain.” Years ago, from a third-story terrace, I marveled at its formidable presence while contemplating the looming risks associated with living near such an active volcano.
However, Tío Miguel displayed little worry regarding the volcano’s potential dangers, much like residents of Portland, Oregon, regard distant Mount Saint Helens. For many, El Popo is a beloved icon adding to the region’s stunning landscape.
Perhaps the best approach to life’s threats is to accept them when there’s no immediate action you can take. If you were to move away from El Popo, you might encounter entirely different risks, leading to the question: Would relocating merely introduce another form of uncertainty?
Yet, there are moments when it’s prudent to heed the warning signs and leave. On August 24, 79 AD, the residents of Pompeii awoke without a care in the world. After nearly seven centuries of continuous progress, their lives seemed secure and full of promise.
Homes were elegant, equipped with heated rooms and running water, and fresh provisions were always available. Life appeared blissful, and everything seemed to be improving.
Against the Gods
Then, just when life appeared most stable, Mount Vesuvius erupted, unleashing a torrent of ash and gas that swiftly claimed lives and buried the town under 60 feet of debris.
What followed was a deep silence that lasted nearly 1,700 years.
As Pliny the Younger recounted, “You could hear women lamenting, children crying, men shouting… Some were so afraid of death that they prayed for it, while others believed that there were no gods, and this was their eternal night.”
Looking back, it’s clear that warning signs leading to this disaster were ignored. Seventeen years prior to the eruption, a devastating earthquake had already compromised many buildings in Pompeii. In the lead-up to 79 AD, smaller tremors became frequent—but few paid attention.
In the end, fate intervened. The day after the Vulcanalia, the Roman festival in honor of the god of fire, Vesuvius erupted.
Today, the United States faces its own looming crises, yet many ignore the warning signals. Investors remain focused solely on interest rates and the stock market, often distracted by political wrangling over a trivial debt limit.
Simultaneously, fervent investors enthusiastically support a potential debt deal to continue inflating another technology bubble, one driven by the allure of AI. But is something crucial being overlooked?
How to Face Risk in an Uncertain World
From our viewpoint, the debt ceiling and the AI craze only divert attention from more significant problems. Decades of poor decisions have created a situation where an easy resolution is unlikely.
With careful analysis, one can discern the factors that align toward a potential economic collapse, financial downturn, and societal breakdown.
In many American cities, the situation is already dire, with pervasive homelessness and chaotic flash mobs pilfering without repercussions. Imagine the chaos if inflation doubled and unemployment approached 15 percent.
What can one truly do? You could become consumed by the effort to manage risk, perhaps investing in put options, yet uncertainty remains unmanageable. So why not simplify your approach?
Consider a balanced strategy: allocate your resources among gold, cash, quality stocks, and real estate. And perhaps set aside a small amount for speculative investments in the promising yet volatile field of AI.
With a bit of spiritual insight, you can then focus on savoring the joys of life.
The outcome is ultimately uncertain; sometimes losing can be an unexpected victory, and winning may not feel like a triumph at all.
Take, for instance, Thomas Douglas Allsup, who passed away on January 11, 2017. Had he lost a coin toss, he would have been on the ill-fated flight on February 3, 1959—the day the music died.
Instead, Ritchie Valens won that coin toss for the last seat and famously exclaimed, “That’s the first time I’ve ever won anything in my life.” Tragically, shortly after, the plane carrying Valens, Buddy Holly, and The Big Bopper crashed, claiming their lives. Diversification could not have saved them.
What does this illustrate?
Life is rife with uncertainty, and nothing can shield you from future events. To tackle risk in an unpredictable world, prepare as best you can with the resources at your disposal.
Then, make the most of the present moment and cherish the company of those around you.
As Lord William Rees-Mogg aptly noted, “Even our happiest moments are picnics on the slopes of Vesuvius.”
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Sincerely,
MN Gordon
for Economic Prism
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