Cyreenik Says
Panics are surprising, and the Blunders which follow even more so. Such is the case with the Charleston church shooting that happened this month, and the media and social media storm over the Confederate flag which has followed. This incident has become a textbook case of Panic and Blunder.
The shooting, while tragic, is small potatoes compared to the unrest that has already happened this year in, say, Ferguson and Baltimore. It should have been a molehill on the American racial violence scene.
But it resonated with millennials' instinctive thinking about the racial abuses of the Jim Crow era, and as a result it has grown into a media and social media mountain. And being a Panic, it has called for action... Fast Action!, and that action is becoming a Blunder: in this case the deep vilification of the Confederate Battle Flag. An example of how far this Blunder has spread already is this 25 Jun 15 USA Today article, Apple removes games with Confederate flags by Mike Snider.
From the article, "The drive to remove the Confederate flag has now reached the virtual world. Apple announced Thursday that it would be removing apps from its App Store that it deemed offensive."
This is a Blunder because a month ago this topic wasn't even on anyone's "To Do" list. Now, just eight days after the shooting, it has become top priority. This is a sure indication of hot-headed, instinctive thinking being acted on, and it is a sure indication that the actions being taken are going to be expensive in the long run, not beneficial.
Welcome to Blunderland.
Update: There is some cool-headed action mixed in with the hysteria: This 29 Jun 15 Reason article, Civil War Games and Apps Return Online by Scott Shackford, indicates that some cooler-headed thinking is now happening. Civil War games and Civil War history apps are coming back.
There is a pattern emerging: a "Watch out!" one.
Business and finance go through cycles of booms and busts, and the cycles always surprise people. They surprise people in what booms, what busts, and when the peaks and valleys happen. This has been true for at least three hundred years. What is constant is that the cycles happen, and people try hard to predict them.
And once again, I'm taking my turn.
In 2015 the stock markets of mainland China (Shanghai and Shenzhen) have been on a roll -- the values of the stocks on both markets have been dramatically increasing. Some of this rise is due to a flood of newcomer middle class Chinese participating in these markets. This has increased demand for the stocks, and is leading to a condition of "irrational exuberance" -- a term then-Federal Reserve chairman Alan Greenspan used to describe the US housing market in 2000 when it didn't join in on the dot-com bust. Instead it kept rising.
In the Chinese markets of today, these are beginner investors, and these markets are being described as already frothy by veterans and outside observers, so a bust is coming, right?
The BIG question is "when".
In the Greenspan example, Greenspan was seeing things correctly, but it wasn't until eight years later, in 2007, that the chickens finally came home to roost. The housing market rose for eight long years after his call. Ouch! That was a long pause between seeing the problem and having the market react to it.
This is the same issue now facing these frothy Chinese stock markets. At some point their bubbles will burst. But when, and what happens then?
Then we are going to have the mainland China equivalent of 2007 -- there are going to be fortunes lost, sad stories of widows and orphans losing their nest eggs, lots of unhappy investors who are going to get angry and scared as well as unhappy, and contagion -- the bad news and damage will spread out of China and affect other markets.
But, once again, how the bubble will burst, when it will burst, how much damage will be done, and where the damage will spread to will be surprising. The bust could be small, and quickly forgotten, or it could be big and memorable. This magnitude issue is part of the surprise.
In the 2007 episode, the souring of housing prices surprisingly created a bond crisis, and then a massive credit freeze all around Wall Street. The long term housing price decline was a surprise when it happened, and credit freeze response to it was an even bigger surprise. This is why 2007 got so scary for everyone involved in US finance.
But the pattern doesn't end there. Another surprise to follow the 2007 bubble burst was the Arab Spring of 2012. This happened because in the process of rescuing the US financial market, and the world financial markets that are connected to it, the dollar started acting strangely in local commercial markets around the world, such as the food markets in northern Africa and the Near East. These local market gyrations got the local people unemployed, and scared, and angry, and... poof! the Arab Spring started.
When the Chinese Stock Market Bubble bursts, watch out. If it turns big, ugly, scary and contagious, a year or three later a wave of virulent nationalism could rise up among the East Asian countries. The current arguing over South China Sea islands and reefs could turn into some kind of shots-fired confrontation.
That said... keep in mind that Bubbles and Bubble Aftermaths are surprising. No one that I know of was predicting that rescuing American banks in 2008 was going to trigger history-making unrest in North Africa and the Middle East in 2012 -- including me, I was as surprised as the rest of the world, until I saw this pattern after the events had happened.
These kinds of surprises are what keeps current events interesting to watch, and Cyreenik constantly babbling.
Update: This 18 Jun WSJ article, Let China Have Its Internet Laggards by Aaron Back, describes several Chinese Internet companies that are delisting from US stock markets and relisting in the mainland Chinese ones.
From the article, "Qihoo 360 Technology is the latest Chinese Internet company to seek a delisting from the U.S. stock market. Investors shouldn't mourn its passing.
Qihoo offers a number of Internet security products, such as a secure Web browser, and operates China’s second-place search engine behind Baidu. On Wednesday the company received a buyout offer from a group including its chief executive in a deal worth $9 billion, making it by far the largest of the more than dozen U.S.-listed Chinese companies to try to go private this year. ...The companies going private evidently believe they will fetch better valuations on China’s bubbly domestic market. Qihoo trades at 24 times estimated 2015 earnings. That is not especially cheap. But a lesser-known peer offering Web browsers and other software, Shanghai 2345 Network Holding Group, fetches 113 times earnings in Shenzhen.
Little wonder, then, that some U.S. listed Internet companies, especially the underperforming ones, are coming home. Before Qihoo, the most well-known Chinese peer to seek a delisting was Renren, once called the Facebook of China but really more like Myspace —- a declining social network whose prime has passed."
The pattern I see here is that of the Florida land boom of the 1920's. These companies are moving to the latest hot "greener pasture".
The dark side of this I have talked about, the market froth, but there is another aspect worth mentioning: This moving to greener pastures and "good riddance" attitude on those left behind is also like another pattern -- the pattern of the ambitious leaving the Midwest inner cities behind. This second part of the pattern is another waving yellow flag of a completely different pattern, this pattern is that of the ambitious migrating to China, and this pattern may prove to be a more enduring and world changing pattern than the market froth pattern.
One of the chronic obstacles to more material progress in our living styles is urban legends that tell stories about why disruptive change is terrible for humanity.
This month I read articles about a couple of vivid examples so it becomes a Cyreenik Says topic.
This thought was inspired by a 4 Jun 15 WSJ editorial, The EPA Fracking Miracle Andrew Cuomo’s ban on drilling is exposed as a fraud., which talks about the latest EPA ruling on fracking. (conclusion: that it is safe)
From the article, "So even the Environmental Protection Agency now concedes that fracking is safe, which won’t surprise anyone familiar with the reality of unconventional oil and natural gas drilling in the U.S. But if no less than the EPA is saying this, then the political opposition doesn't have much of a case left. ...EPA’s conclusion really is remarkable. The agency has yearned for an excuse to take over fracking regulation from the states, which do the job well. So if there was so much as a sliver of evidence that fracking was dangerous, the EPA would have found it. Think of this as the Obama Administration’s equivalent of the Bush Administration failing to find weapons of mass destruction in Iraq."
This result is the converse to what a lot of urban legend describes. One vivid example being the movie Promised Land which Matt Damon both wrote and starred in. This is a tale of fracking going sour with some really neat scary effects such as putting a match to tap water and having it burn. This kind of story works, as in, it is popular because lots of people want to believe it. It resonates with their instinctive thinking.
The cost of acting in line this urban legend is the expense of not progressing -- not utilizing our resources to their fullest efficiency. This waste makes humans living on earth a more expensive activity than it needs to be, and that extra expense is as anti-green as any other resource wasting activities environmentalists like to point out.
This thought was inspired by a lengthy 21 May 15 article in Forbes, Special Report: The war on big food by Beth Kowitt, which talks about the revolution going on in what Americans are eating.
From the article, "Try this simple test. Say the following out loud: Artificial colors and flavors. Pesticides. Preservatives. High-fructose corn syrup. Growth hormones. Antibiotics. Gluten. Genetically modified organisms.
If any one of these terms raised a hair on the back of your neck, left a sour taste in your mouth, or made your lips purse with disdain, you are part of Big Food’s multibillion-dollar problem. In fact, you may even belong to a growing consumer class that has some of the world’s biggest and best-known companies scrambling to change their businesses. ...Steve Hughes, a former ConAgra executive who co-founded and now runs natural food company Boulder Brands, believes so much change is afoot that we won’t recognize the typical grocery store in five years. “I've been doing this for 37 years,” he says, “and this is the most dynamic, disruptive, and transformational time that I've seen in my career.”"
The issue being discussed is the trend towards eating organic, eating less mysterious ingredients, and similar food trends. As Mr. Hughes points out over the last few years this has become a surprisingly big change.
Once again, as with fracking, one of the big questions is productivity. These ingredients and techniques that are being shunned were implemented to make foods faster, safer, more attractive, and less expensive. When large parts of the public are saying we don't want these, they are staying we want food that is more expensive, more limited in quantity, more variable in quality, and not as safe.
It is ironic, but not completely mysterious: We live in a prosperous society, so we can indulge our instinctive thinking on food more lavishly now than our parents and grandparents could. The serious question to answer in this case is: Are we aware that we are indulging our instinctive thinking, and aware that we are paying a big price to do so? (because the food is more expensive to produce)
If we are, that's fine. If not, this is another case of progress being hampered by urban legend, and another big expense that we don't have to indulge in if we use more of our analytic thinking.
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