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Saturday, Jan 09, 2016 - 23:23 SGT
Posted By: Gilbert

One Way Only

"Stock market can be in capitalism or socialism.
We should try. If we fail, just close it."

- Deng Xiaoping


Me: Another weekend, another writeup, eh, hamsters? So, how were your weeks?

Mr. Robo: Adjunct junior research assistant intern pro-tem reporting! General reading-up performed as requested. Eh... top news' the discovery of four new elements, including the first one to be named by an Asian group. Came across a piece on how directed evolution is tricky business. Briefly scanned the prospective proof for the abc conjecture, and recognized more or less only the rotation matrix on page ten, before I got a huge headache and gave up.

Me: Quite understandable. These papers naturally raise the question of a practical cap on the bounds of human knowledge, i.e. what an "ideal" individual can read and digest in a lifetime. Then again, since even top experts can and do take past results as granted in building atop them, I'd say we're far from the end of the road.

Still, it is a sobering thought that if the universe if finite, and if there is no upper bound on the length of meaningful proofs, then what truth can, or will ever be, discovered, will comprise but a vanishingly small subset of the whole... and by the way, Mr. Ham, did you just demote Mr. Robo again?

Mr. Ham: Coffee was bad.

Me: Eh, if I recall, your only defined task for last week - no, make that the last two weeks - was learning basic Perl, after you claimed that programming sucks, in docking Mr. Robo's annual performance bonus yet again.

Mr. Ham: Oh. Ah. That. The Camel Book, right. Nah.

Also pronounced "Yah lah"
[N.B. Translation]


Me: I don't see how...

Mr. Ham: Skip to 1:32.

Me: Yes...

Mr. Ham: Camel.

Me: You don't really think you're getting away with this, are you... but I have gotta admit, this has kindled a newfound appreciation of Arabic culture. Pity they kept the other parts. This could soften President-elect Trump's stance on the issue, all the more as he's caught up to Hillary in the polls. Okay, in consideration that I'm slowly getting up to speed with Git too, you get an extension, Mr. Ham.

And, some months after Microsoft debuted their automated "Guess Your Age" service, an ETH Zurich team has upped the ante with a "Hot or Not" addition... which has left at least one user dismayed that he was less attractive than a tent.

Mr. Robo: To be fair, it was a very structurally-sound tent.

Me: If you read the relevant papers, it appears that the predictions were accomplished by plain-old-deep-learning-ensemble, which almost seems too much of a silver bullet for this class of problem; at least, until one remembers that it swiped right on a wigwam, and that the failure cases don't usually make it to the press office. But more on this next time, since the undisputed headline of the week is...

Mr. Ham: China.

Me: For those out of the loop, the relevant part of the story goes back to July last year, when the CCP leadership's thoughtful response to a stock market crash was to ban all selling by major holders. And, you know what, it worked! Makes one wonder how those dumb capitalists could have missed out on such a simple solution to market dips...

Or it did for a month or so anyway, with the initial crash from over 5000 to below 3500 on the Shanghai Composite arrested by the ban, before another end-August dip that briefly took it below 3000. It then hung out in the mid-3000s, until people began to remember that the ban on big players dumping was due to expire. Smaller investors considered what would happen then - since the Party's promising 6.5% growth for five years, maybe they would decide to buy more? Nah, who are we trying to kid, let's sell before they do.

And thus, 2016 began with a 7% crash on the first trading day, which is the maximum allowed before the standing economic commissars flip a switch and reset all the computer terminals on the floor. Technically, there is a fifteen-minute time-out when the fall first breaks 5%, which was supposed to admit comrade punters a breather to reconsider their unpatriotic actions, but they wound up using the time to kick each other away from the bidding stations in a rush to be the first to sell everything, once the market begins sudden-death overtime.


Backsliding comrade punters will be generously re-educated
(Source: zerohedge.com)


Given that a plunging stock market represented a serious loss of face for the CCP, who had pledged More Good Years and a Moderately Prosperous Society, the selfless "National Team" was called in, and stemmed the rout the next day by snapping up everything in sight. With Harmonious Order restored, if some billions of yuan poorer, the national heroes retired after two days' hard work... only for it all to crash again on Thursday, with the 7% limit hit after a record 29 minutes.

In response, the regulators disabled the circuit breakers, which might have seemed a courageous move, until it was revealed that their longer-term fix was... to effectively ban major shareholders from selling, again. With that, and with the National Team bravely wading in to absorb the volume from those making a run for it, the day was saved... for now.

Watchers were not overly impressed, and made the fairly obvious observation that preventing market participants from selling might seem a swell idea, until potential buyers figure out that they might not be able to get their money back out in the future, and keep well away. Some have suggested that the CCP should just let the whole thing crash and burn, per Deng's dictum, all the more as it was basically a rigged casino.

Meanwhile, the yuan has been stealthily depreciating against the greenback despite the official line, with mainstream analysts coming around to the realisation, held here for some years, that it was actually overvalued all along. Some are beginning to realise that it could slide beyond the 7-to-1 level, and the People's Bank's response, as far as it is known, has been to... ban other banks from selling the yuan. Well, they have been nothing if not consistent in their approach.


This also got banned. Why, you ask?
(Source: imgur.com)


Of course, all of this is actually besides the point - the real question should be, what are the stocks and firms in the Chinese market really worth; then, if prices are above the true valuation, they should fall, and vice versa, because that's what a market is supposed to facilitate. Unfortunately, indications are that Beijing is viewing it the other way: since it is taken that the economy is strong, it follows that the market should be rising. Further, if the market is not rising, it does not imply that the economy is weak, but rather that the market has to be made to rise, because the economy is strong, you see.

Mr. Ham: Methinks they may have looked at the USA's debt-based economy, and thought, hey, why not have a go? Thing is, rolling over the debt indeed works, until you get a margin call and are forced to show your hand. Then, it's a matter of who blinks first, and if the continuing collapse of property developers is any sign, it's not looking great for Xi Dada.

My colleague Dr. Chang has presented the viewpoint of a typical developer previously, and I feel that it is worth attempting a macro explanation. Imagine a huge country with ten thousand townships, and a vast rural population. Now say that the rulers intend to shift 300 million farmers to the towns in a generation. Given three individuals to a family unit, this implies an extra 10000 housing units required per township. Moreover, since past experiences with central planning had not exactly been a roaring success, the rulers have delegated the details to the states and townships.

Township administrators will quickly realise, that okaying construction is more or less minting money - they earn on seizing and selling land to developers, and gain karma with higher-ups for generating GDP. Developers, as explained, can earn as long as property valuations are high, even if units are not actually sold. Banks, who are inevitably state-owned, have no incentive to lower property valuations either, since they likely hold a good chunk as collateral, and probably had been instructed to lend freely to boost GDP anyway.

So, everybody in this merry circle makes out like bandits... while prices spiral such that an apartment that might have taken an average worker ten years to afford, now takes fifteen, then twenty, then thirty, and so on... but who cares, since the worker doesn't lose out either, as long as he can offload eventually at a yet higher price, right?


卖不出, 没办法, 不要紧, 差不多, 白酒来, 再干杯!
(Source: jingdaily.com)


Not only that, even if warning signs begin to appear, there is always another consolation: The Country is Big. Maybe there is no way in hell that the villagers in the region can fork out US$100000 apiece... but surely, with over a billion citizens, finding 10000 of them who can do that can't be impossible! And if so, why stop at 10000 housing units for my township? Why not 30000, or 50000 instead? Nobody ever made a fortune by understatement!

Definitely, any single township could be the next Chengdu. Heck, dozens of townships could well be the next hamlet-to-megapolis story. What cannot be, however, is for all, or even most, of the thousands of townships to achieve that feat. But of course, every middling official dreams that his home turf will be the one to beat the odds. And if it doesn't, well, he isn't going to be the one who's going to lose out by building more, more, more, at the end of the day. What can the top guys get him on? Being too optimistic about the nation's future?

Me: A simple, gigantic, tragedy of the commons. Exacerbated by the product being, by and large, genuine. Quality notwithstanding, there is indeed concrete development, literally so, on an almost unimaginably vast scale. One can understand how planners can stand in front of the acres of new structures, stretching to the horizon, and be convinced that All This Must Be Worth Something.

Mr. Ham: *puffs on cigar* Old story, never changes, you've got to dance while the music is playing, they all do.

Me: The big names are getting twitchy on how it is all going to play out, and it's increasingly looking like there's no good solution left, with the CCP resorting to vanishing acts again. Which reminds me, on that daring piece about religion in The State's Times, it turned out to be the writer's parting shot before retirement. Good on him, went out with a bang.

And, with the local stock market also crumbling, the Singapore Business Federation has come up with the brilliant innovation... of pumping CPF money into it. Perhaps this was what our administration had foreseen, in vehemently denying that the GIC manages CPF money, until they had no choice but to admit it in 2014? Now, everyone's eyeing a piece of the pie. But then again, given how Our Most Successful Investment Firm and Greatest In Country have been performing, it might not even hurt that much, for all the measured opposition.


How much worse can it get? The face says it all.
(Source: mothership.sg)


Mr. Ham: To sum up: as the boys at the club like to say, when the invisible hand of the market w**ks, it is time to get away.

*dodges palm*

Mr. Ham: *triumphantly* Hah, did you think I'd keep falling for that "flattens hamster" move? No can do, human...

*hamster flattened by other hand*



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