|Friday, 11 May 2012|
AFTER decades of trying to make sense of the daily finance grind Michael Pascoe* has come to the earth-shattering conclusion that when it comes to China, Chicken Little is really a chook.
There are worse jobs than finding excuses for the daily gyrations of stock, commodity, currency and money markets. Cleaning toilet blocks comes to mind, but that at least is honest and necessary toil. I’m not sure the same can be said for the former occupation. Michael Pascoe is an Australian finance and economics commentator with more than 30 years experience in publishing and broadcasting.
Confession: I’ve spent many years trying to make sense of the daily market noise and sound convincing while I did it.
In fact, forced by this column to stop and consider the matter, more than half my working life has included the grind of daily waffle – more buyers than sellers, more sellers than buyers, Wall Street’s lead, interest rate jitters, interest rate hopes, consumer sentiment, investor confidence, gloom, optimism, headwinds, tailwinds, bulls, bears, dogs, stags and turkeys, all the cliches have rolled off my tongue or keyboard at one stage or many.
I feel a little guilty about it and spend much more time attempting to impart some perspective to the daily confusion – and there’s certainly plenty of that. (Confusion, I mean, not perspective).
Indeed, the noise grows louder to the point of screeching cacophony with instant “analysis” of every sneeze and wheeze imagined or otherwise. The once or twice a day market report is never ending. That way madness truly lies.
But it is not just the amount of verbiage with 24-hour business channels and the internet’s ultimate evolution into YouTwitFace. It is the speed and faked urgency demanded of every report.
It is tempting to blame the Fox News-ation of journalism, so I will – the greatest source of journalistic degradation since William Randolph Hearst was a boy. (Reference for students of journalism history, engineers need not concern themselves.) When any fart is reported as a cyclone and complete knowledge is instantly claimed, when comedians have trouble parodying news reporting because news reporting is a parody of news reporting, the door is open for Chicken Little to rule the roost.
And all this is a digression on the way to Exhibit A, the bit that might concern the reader: Shock horror! Beijing reduced its growth forecast from 8% to 7.5%! Disaster, mayhem and general unruliness during first grade colouring in practise.
The lunacy of instant analysis by the uninformed (i.e. Chicken Little) snapped into action. China is slowing! The sky is falling! Capitalism will fail! Sell! Sell! Sell!
In the self-perpetuating nature of such mania, the China growth forecast downgrade ran through the markets and become that 24 hours’ excuse for a fall. Oh pullllease!
It is the churn ’em and burn ’em nature of the 24-hour news cycle demanding constant crisis that perspective did not get a look in while the chook ruled. The kids and panic merchants manning and womaning the front line know no better.
I have visions of Perspective in the manner of a classical Muse. She is beautiful beyond description, but carries a burden of sad resignation, of having seen too many follies to be joyful.
A wan, fey, heart-breaking beauty. She refuses to give in to the dark witch Despair, buoyed by her sister, Hope, and having the multi-millennial experience to know the kiddies eventually muddle through, that the species progresses, but, oh, the needless losses along the way.
Ms Perspective has greater tragedies than a 24-hour market blip to consider, so let’s deal with it on her behalf.
In brief, Beijing’s growth forecast, as anyone who concerns themself with the century’s biggest story knows, is a baseline, not a prediction. If Beijing says 7.5%, it will be no lower and the odds are that it will be more. After all, an 8% “forecast” still delivered double digit growth.
The nature of a command economy and the dictatorship of the proletariat is that upside results are allowed, but downside shocks are not.
Wiser heads than Chicken Little kicked in fairly quickly on that one and the market went on to the next kerfuffle. The China-cuts-growth-forecast lasted only a session for the excuse reporters.
But here’s a headline the chook missed: China’s real growth rate, not the cadres’ pretend figure, really is going to fall. According to a joint study by the World Bank and the Chinese government’s own think tank, the Development Research Centre, growth will average 7% in the second half of this decade and be down to 5% in the second half of the next.
The chook and its followers should have had fun with that but such a considered opinion must have skated over their heads. Ms Perspective would have been pleased, the weight of her knowledge momentarily lightened, perhaps granting a momentary half smile.
Perspective knows the report’s brave forecast is excellent news. Of course China’s growth rate is going to fall. It must as China morphs into its destiny as a large, maturing economy. Good heavens, it is already the world’s second-largest and will be number one soon enough.
At a simple level, adding 10% to 100 isn’t all that hard, but adding 10% to 100,000 becomes a logistical challenge – and that is just for starters.
At the most simple level, even the chook should be able to comprehend that, say, 7% of 200 is more than 10% of 100.
(If you don’t get the point of that, I suggest a career with Fox News. Just remember: Democrat evil, Republican good, Rupert Murdoch God and you’ll do fine.)
China is continuing to change, reform and evolve. It is not easy, as the Middle Kingdom’s internal politics are as byzantine as the Labor Party’s and then some. There are massive vested interests resisting the next Great Reform Forward. However, there are also very intelligent and dedicated people fighting the good fight of liberalisation and sustainable development.
There is appalling corruption and malfeasance within China but there also are people who know Perspective well.
I was hired last month to chair an investment road show for a global funds manager, Fidelity.
The visiting talent was Amit Lodha, Indian by birth and now London by employment, running, among other things, a global real assets fund.
When discussion turned to relative sovereign risks and such, Amit said what he looked for was leadership with a longer-range vision than the next election. He said that when he goes to Beijing, he meets people who produce a plan for the city’s subway system in 2050. It is the sort of experience he just doesn’t get anywhere else.
When it comes to China, Chicken Little remains a chook.
*A version of this story orginally appeared in the April 2012 edition of Australia's Mining Monthly.
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