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Cyreenik Says

May 2016 issues

Cincinnati Zoo Incident: Panic and Blunder... of the armchair quarterbacks

The Cincinnati Zoo Incident involved a 4-year old boy getting into a zoo enclosure with a 17 year old gorilla in it who took an interest in the boy and was subsequently killed to rescue the boy.

So far, so straightforward. Then the social media types got involved in a massive way commenting on what should have happened.

The panic and blunder in this incident is all this side commentary, not those involved in the incident itself.

Why is this? Because this was a one-in-a-million incident. The boy managed to get through four different barriers to get in. This rarity makes it both novel and scary, something that is likely to produce both panic thinking and a blunder. What happened subsequently was dominated by sports thinking (my term) on the part of the zoo staff -- they are well trained to deal with these animals. Their actions were not a blunder.

The blunder has been the social media armchair quarterback types trying to pin blame for this tragedy on someone -- the list includes the zoo staff, the parents, the child and the gorilla. The debating and language on the social media circles have both been heated.

What all these armchair quarterback types are missing is that this is a one-in-a-million incident. When something is that rare there is no blame to be laid -- sometimes things just happen.

If this transforms into a one-in-a-hundred, if it is the beginning of a new trend, then talking about blaming people makes sense. Until that transformation happens, the Blunder of this incident is the social media types trying to find someone to blame.

This 30 May 16 WSJ article, Cincinnati Zoo Says Killing Gorilla to Save Boy Was Right Decision Death of Harambe, a member of an endangered species, has led to public outrage and criticism from animal rights groups by Alejandro Lazo, also provides basic details plus the video.

From the article, "The boy survived without serious injuries, but the death of the gorilla—Harambe, a member of an endangered species, who had turned 17 one day earlier—led to public outrage and criticism from animal rights groups. On Monday, Zoo Director Thane Maynard said officials made the right decision in killing the animal because the child was being injured by the 420-pound gorilla and was at risk of losing his life."

A new finance mystery: Why is there a big valuation difference between US and China stock markets?

An issue related to the irrational exuberance issue (following this one) is "Why are Chinese companies delisting in the US and relisting in mainland Chinese markets?" This 13 May 16 WSJ article, Homesickness Cure for Chinese Firm Stranded in New York by Jacky Wong, describes one of several examples I have read about this year.

From the article, "Dozens of overseas-listed Chinese firms, in New York and Hong Kong, have kicked off a wave of “going-private” deals in hopes of cashing in on higher valuations on mainland stock markets."

The stated reason is getting a higher valuation for the company in mainland China markets. But why is this happening? And why are these companies willing to risk becoming part of some kind of bubble? Less than a year ago the mainland markets demonstrated their high volatility in a huge swing, first up, then down. Why the valuation difference? And why are companies willing to take on this risk?

This is a new trend, and one worthy of gaining better understanding.

Possible answer

Part of the answer may be that this is a case of End of World (EOW) quiet investing mania being initiated and sustained by the strong Time of Nutcases being experienced in the US and Europe these days.

One of the patterns I have identified is that when EOW doom and gloom thinking rises in profile, along with that rising high-profile media activity comes a rising in low-profile risky investing activity. Two examples of this being: 1) As media people were worrying about the Hong Kong Turnover coming up in 1997, lots of investors were supporting office building projects all around the Pacific Rim, 2) As Y2K doom and gloom was getting high media profile, Dotcom investing mania kicked in. In both cases a big crash followed. (read more here)

If this pattern is being followed again, the high-profile US election doom and gloom and Euroskeptic doom and gloom (such as the coming Brexit vote) is supporting a low-profile investing-in-China mania bubble, and a crash of some sort will follow some time after the November US election results... when the world doesn't end.

One difference between this case and those example cases is the duration of the mania. In the example cases this mania lasted for years, in this case the mania is going on for months. This will make a difference.

Is China suffering from "irrational exuberance"?

This 7 May 16 Economist article, The coming debt bust It is a question of when, not if, real trouble will hit in China, talks about China's growing debt and the upcoming hard landing it will bring about.

From the article,"China was right to turn on the credit taps to prop up growth after the global financial crisis. It was wrong not to turn them off again. The country’s debt has increased just as quickly over the past two years as in the two years after the 2008 crunch. Its debt-to-GDP ratio has soared from 150% to nearly 260% over a decade, the kind of surge that is usually followed by a financial bust or an abrupt slowdown. China will not be an exception to that rule."

This reminds me a whole lot of Alan Greenspan warning about "irrational exuberance" in America's housing market in 1996. It turned out he was right... but way, way ahead of his time, the bust happened twelve years later in 2008. (this was because the 9-11 Panic and Blunder Chain caused a big delay in the day of reconning)

So, the first big question is one of timing: When is the trouble coming to China? The next big question is: What form will the trouble take? How will China and the world experience this hard landing?

Sadly, these are both hard questions to answer beforehand. This is why finance is still such an exciting profession.

Trump Triumph: Panic Time? Blunder Time?

The big political surprise of the first half of 2016 is Donald Trump's popularity as a presidential candidate. Six months ago he was thought of as yet another curiousity, but instead of fading into the wallpaper like the homely girl at the dance his profile kept growing.

Now this surprise rise is a scary time for the Republican establishment, and it could lead to both panic thinking and a blunder response as the party leadership tries to adapt to this spooky surprise. It could be blunder time.

The biggest hope that a blunder won't happen is because this is a fairly slowly developing situation. It is taking place over months, not minutes. This, in theory, will give cooler thinking time to prevail.

But, panic or no panic, these are interesting times in US politics.

 

To review: My definition of when panic thinking happens is as follows:

o An event happens that is both novel and scary to the person (or community) involved.

o The person perceives that quick action is necessary to end the scariness.

o Because of the perceived need for quick action, the thinking process focuses down. It ignores most of what is happening around it. Instead of trying to grasp the big picture, thinking looks at only those things needed to assist in getting Plan A accomplished. (Plan A is the first action that comes to mind. Plan A can be: do nothing, just watch for a while longer.)

o Once Plan A is accomplished the thinker checks if things are still scary. If they are the thinking then focuses down on getting Plan B accomplished, and so on until the scary situation subsides.

 

Panic thinking is the opposite of big picture, cool-headed thinking. It is also the opposite of "sports thinking" -- dealing with a scary situation that is well understood and dealing with it in a way that has been practiced many times beforehand.

This thinking difference is why panic thinking can produce such strange and expensive plan-of-action choices.

 

The Time of Nutcases is growing stronger

With Donald Trump clinching the Republican nomination, the Time of Nutcases is continuing full steam ahead.

Trump's rise has demonstrated that the Republican party leadership is out of touch with the rank and file. As House, Senate and governorship controllers, the party is also demonstrating that it is not accomplishing much, which is adding to the frustration. Blame for this current decade of acrimony we are experiencing is falling heavily on Republican shoulders.

Again, the result of this frustration that many Americans are feeling with the conventional leadership is that they are willing to seriously listen to what in more conventional times are voices in the wilderness. That is what Trump and Sanders would be if this was not a Time of Nutcases.

And again, it is not Trump and Sanders who are making this happen. They are simply resonating with the groundswell of frustration that many members of the community are feeling.

Blame the people, blame the conventional leaders, don't blame the talkers for this phenomenon.

Age of Caesar coming to the US?
Keeping the government responsive to the people

Keeping a community's government responsive to its people is always a big challenge. Historically, the rise and fall of kingdoms and empires is synchronized to their ability to meet the needs of the community. When the governing class is doing a good job, the community and the governing class thrive. When the governing class gets corrupt and ineffective, the community and governing class suffer.

The Industrial Age has shaken up the definitions of good governing styles, but that basic foundation remains. It is an axiom that applies to all governing styles.

Which brings us to the United States and its government of today.

Is it being responsive? Is it meeting the needs of the community? Given the anemic economic growth of the last two decades and the severity of the Time of Nutcases we are experiencing in this election cycle, the answer would seem to be: Not as well as twenty years ago, and we sure need some improvement!

In theory, effective adapting to change is the virtue of having a democracy ruling an Industrial Age society, such as America is. A democratic form of government can respond more quickly to surprising changes than Agricultural Age monarchy or imperial styles resting on a class of nobles can.

That's the theory, but here is a pattern I see that may explain why the responsiveness seems to be lacking in this decade.

The basic US government structure -- the democratic republican form and the Constitution and other founding documents and policies -- were all designed when the nation was a collection of thirteen colonies huddled on the east coast of a huge, unexplored North American continent.

America has grown some since then, in many ways. This means that in many ways it has outgrown the design. The Senate, as an example, has grown from 26 members to 100, and this is one of the smaller expansions. This is important because 26 people don't organize themselves and deal with issues the same way 100 people do.

This growth and the changes it causes in governing styles is why returning to small government is such an important task. A symptom of failing at this is that the Washington, DC metro area is now big and one of the most prosperous regions in the nation. In Washington's day it was a small remote city. These days we have a lot more government.

This 6 May 16 WSJ editorial, So Many Rules, So Few Opportunities A wave of regulation coincides with weak hiring and growth., talks about the magnitude of this issue.

From the article, "On Wednesday Wayne Crews of the Competitive Enterprise Institute rolled out his annual report card on federal regulation, “Ten Thousand Commandments.” Beltway rules are now imposing $1.9 trillion of annual costs on the U.S. economy. That’s the same level as last year, but when combined with on-the-books federal spending, which is $3.9 trillion, the feds are taking a record-setting bite out of private commerce and wealth.

The regulatory burden is staggering for the economy and for all who live and work within it. The annual tab for complying with directives from Washington is now larger than the entire economy of Russia. The cost of federal red tape amounts to nearly $15,000 per U.S. household each year.

The Obama Administration was the first in American history to generate more than 80,000 pages of new and proposed rules in the Federal Register in a single year. Mr. Obama and his minions have now managed the feat three times. They are responsible for six of the top seven years of red-tape creation in the country’s history. His legacy is a Washington leviathan atop a private economy that grows increasingly less able to support it."

 

Looking back through history for a similar pattern, this resembles the Roman Republic at the time of Caesar. Over the previous century the Roman Republic had grown mightily and the government along with it. And in the decades before Caesar came to power the Senate had become acrimonious and dysfunctional, and the Roman citizens could see this clearly.

Caesar and the various triumvirates were the solution to the Senate dysfunction.

The moral to this story is that the United States community needs to be watching out. A dysfunctional government is a good reason to enact big changes in governing style. If the legislature won't take on this burden of reforming government to make it responsive and functional, some aspiring Caesar, supported by a lot of frustrated citizens, will.

The time is now. It is vital for the legislatures at the federal, state and local levels to recognize how important it is for them to get their acts together. A big part of that is slimming down. Slim down the legislatures themselves, and slim down all the regulations and bureaucrats surrounding them.

Let the governments get light on their feet again, and let businesses get light on their feet again by slimming back all the capricious and micromanaging policies and regulations. Let managers, workers, suppliers and customers get back in the habit of dealing with each other directly to solve their problems, not working through laws, regulations and third parties.

 

 

-- The End --

 

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