[SCMP Column] Life Goes On

February 15, 2016

Now we have talked ourselves into a black funk over the state of the world economy, over stock markets, over oil, over China, over commodities, over the future of the world as we know it, George Soros appears to have come up with a very dull word for it – reflexivity.
I am sure that was not what Chicken Licken ran around shouting as he felt the sky falling in on him, but the principle is the same. The herd has panicked. All have decided that dreadful things are happening around them. And they have flocked to sell shares. The collapse in share prices then panics everyone afresh, and more selling cascades. Reflexivity. I wonder how long before it happens in the property market?

This is not what everyone here in Hong Kong had been expecting of the year of the Monkey. Monkey years are supposed to be good years. Timothy Lau, head of the Heung Yee Kuk, last week picked an auspicious fortune stick for 2016 – the first lucky stick picked out for years. And yet Hong Kong’s market had its worst open of the new year since 1994. And if you take our calendar year, most markets across the world have seen their worst start in decades. Even last Friday’s God of Wealth Day, with lavish distribution of Yuan Bao (golden ingots), could not preempt a further 1% fall.

In a week when the investment bank Morgan Stanley agreed to pay the US financial authorities US$3.2bn for its role in peddling sub-prime residential mortgage-backed securities in the run up to 2008 – taking the total in fines for “deceptive practices leading up to the financial crisis” to US$64 bn – my own question to George Soros is not “Why reflexivity?” but “Why now?” Reflexivity ought to have been staring us in the face for seven years, and it seems that only now are those responsible for it beginning to recognize the colossal harm they have done. We do not need the Adam McKay film, “The Big Short” to remind us of the origins of today’s ailments, but the film certainly helps remind us of the basic plot.

The roots of the market slump that has swept across equity markets worldwide over the past month seem to have grown from Janet Yellen’s dubious call on raising interest rates in the US. But to be fair, her logic was not wholly flawed. We did indeed have early evidence of some recovery in the US economy, at least as measured by falling unemployment rates, and nothing in the real global economy has got so much worse in the past month to justify the sell-downs recorded. The fall in oil prices and commodity prices is traumatic for some, but on balance cheap oil and iron ore has to be good for the majority of us. China’s leaders may not be as infallible in managing their economy as some had come to believe, but they are still making steady (if slower than hoped) progress in restructuring the economy to rely more heavily on domestic consumption.

Perhaps more profoundly troubling is the “altered universe” being created by the quantitative easing being pursued by key economies like the US, the EU, China and Japan. As we edge into a world of negative interest rates – where we all pay banks to keep our money for us, rather than earn interest – we move into uncharted territory – a bit like the world of Einstein and quantum physics. And as the three economies with the world’s largest reserves – China, Japan and Saudi Arabia – begin to unload those reserves in increasingly desperate efforts to keep their currencies pegged to a fast-rising dollar, we move even deeper into unfamiliar and uncharted territory.

But on Friday, as I was about to join the rest of the investment community in slitting my wrists, two wholly random – and completely surreal – snippets of news brought me back from the precipice.

First was the news from the American Association for the Advancement of Science that many of today’s human ills – ranging from blood disorders, skin diseases and even mental ill health – are caused by the DNA from Neanderthals that homo sapiens interbred with some 50,000 years ago.

“Perhaps spending a few nights with a Neanderthal was a small price to pay for many thousands of years of adaptation to the environment,” said one of the research team: “But today, Neanderthal interbreeding does not seem so good for us.”
Main messages here? What seems to have been good for us for 50,000 years can still all those millennia later turn out to be not so good. And the price of our sins can haunt us for a very, very long time.

The second surreality came from the exotically-named US Advanced Laser Interferometer Gravitational Wave Observatory (Ligo). It seems two huge black holes 1.3 billion light years away have bumped into each other, and sent out gravitational waves that have sent ripples through space and time – something posited by Einstein a century ago, but never before proven. Apparently these gravitational waves can actually be heard by us humans as “chirps above the background rumble”. When the black holes bumped into each other, for a period of less than a second they released 50 times more energy than all of the stars in the universe.

Main messages here? First, I am amazed that as we rush around in panic about the financial world imploding, there are scientists calmly and meticulously studying one-second bumps between black holes that happened an incomprehensibly long time ago – so long ago that it has taken 1.3 billion years for the light around the event to reach us here on earth. And second, that in spite of bumps that generate 50 times more energy than all the universe’s stars put together, life in Hong Kong goes on pretty much as usual.

Reflexivity may seem a big deal to George Soros and colleagues on the world’s equity markets, but in the bigger scheme of things, this is barely a bump in the night. Perspective is a wonderful thing.
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