Even before last week’s stock market meltdown, you cannot avoid the news and views about how the world’s economy is going to tank and this time, the emerging markets will be along for the ride. Because in today’s society social and mass media are all over our lives, prophets of doom enjoy prime time attention.
And as the markets really did seem to collapse not quite in slow motion over a week, the cacophony of voices announcing a more serious impending doom seem to have increased. What’s eerie about it is that it is most likely going to be true as we have been convinced about its inevitability.
Still, there are economists who point out that while some numbers are weak, some are pointing in the right direction… enough to be promising. There is at least some glimmer of hope that a double dip isn’t going to be a slum dunk as some analysts say. But you sure have to be a pretty optimistic kind of person to think it will get better soon rather than worse.
I want to believe in that glimmer of hope but being in the communications business, I think we are choking all hope somehow. People are already talking themselves into a recession. In simple terms, all that talk of doom will prove to be self fulfilling.
It is really very simple. Experts tell us the world economies are sitting in a pile of s—t and we are soon about to see all that s—t explode in our midst. Of course any sane person will take cover and he does this by delaying plans to buy cars, appliances, a vacation and other discretionary spending. Imagine the economic contraction when more than a few million households simultaneously make the same decision to limit spending to the basics of food and shelter. That’s how recessions are made.
Governments use traditional formulas to jump start modern day recessions through increased government spending and so-called quantitative easing. But it isn’t as if there isn’t enough liquidity in the system. The problem is more of a crisis of confidence in the future caused by among other things, large government debts and yes, all the talk about how capitalism is about to implode.
So, what do people do? They save for that dreadful but apparently certain hard times ahead. What do companies do? They downsize and sit on their cash pile, afraid to make the usual investments that create jobs. Companies are afraid they will just pile up inventories as their markets would rather hoard cash than spend. Reverse multiplier effect takes hold as markets contract, jobs are shed and the recession comes home to roost. That explains the P1.4 trillion cash hoard in special deposit accounts parked in the safety of a Bangko Sentral vault, waiting for better times to invest.
There is more about the psychology of people in such crisis situations that we have to worry about. Gillian Tett of the Financial Times recently wrote about what she calls “the unmasking of our inner reptiles in times of crisis.” In simple terms, this is about every man looking out for himself.
I recall reading that Ms. Tett had been an anthropologist before she became one of FT’s more incisive financial writers. She now explains that “periods of acute stress offer intriguing examples of how our brains – or cognitive maps – work, giving a subtle twist to the age-old concepts of human ‘fear’ and ‘greed’ – or rational self interest, as the economic profession would argue.”
She cites research by Andrew Lo, a finance professor at Massachusetts Institute of Technology. Initially trained as an economist, Prof Lo has tried to knit together the work of psychologists, neuroscientists, biologists and economists. Here is how Ms. Tett describes Prof Lo’s work:
“He is fascinated by the idea that the evolution of the human species has left our brains with three parts. He identifies those as a central ‘reptilian’ core, which was the first to evolve, functions most rapidly and controls reflexive behavior; a ‘mammalian’ layer, that controls social desires and emotions; and then the outer, ‘hominid’ layer, which developed last and controls rational, sophisticated thought.”
Well, you guessed it. In normal times, our hominid brain prevails. The mammalian and reptilian instincts emerge strongly in crisis situations. Ms. Tett points out “this has an important implication for finance: while ‘rational’ economic theories can explain markets when our ‘hominid’ brains are predominant, they are inadequate when our mammalian or reptilian brains predominate.”
In other words, Ms. Tett explains, the efficient market hypothesis works only “when we are ‘hominid’ but not when we turn ‘emotional.’” This is not really a malfunction because Prof Lo says it is part of the adaptive techniques that have allowed humans to learn from their mistakes. Hence, the stock market may fall precipitously because of widespread fear of something unknown or unexplainable sentiment even if the numbers do not justify it.
Ms. Tett goes on to cite Peter Atwater a financial consultant who is convinced of the importance of looking at “horizon preferences”:
In times of calm, people plan for the long term, deal with strangers and reflect on the world as a whole. At times of stress though, time, social and geographical horizons collapse… Mr. Atwater believes the present slow burn sense of insecurity is fostering a wider, longer-term shift towards “narrow” horizons and this is influencing how finance and politics evolves.
I like most Ms. Tett’s conclusion: calling a banker a ‘rodent’ or a ‘snake’ may no longer be just a term of abuse. Right now, it may be a form of analysis too.
And that, my friends, is why a double dip may be closer to our lives than we say we want it to be.
Fast, flat & free
This year’s conference of the Management Association of the Philippines (MAP) on September 13, at the Makati Shangri-La has a most interesting theme: FAST, FLAT & FREE: Leading in the New, Convergent World. We often hear people say the rules of the game have changed dramatically. The conference seeks to share what business leaders have learned about how to not only survive by thrive in the present environment.
The opening keynote address on “THE MULTIPLIER EFFECT: Why Businesses are On-Board the Social Network Bandwagon” will be delivered by Mr. Peter Pezaris (Florida, USA), Founder and CEO of Multiply, Inc.
The second session will delve on the topic “TRANSFORMATIONAL LEADERSHIP THROUGH ANALYTICS” with MR. AUBREY JOACHIM (Australia), Global President 2009/2010 of Chartered Institute of Management Accountants, as speaker.
“The Dawn of the Social Business: Working Smarter in a Socially Intelligent World” will be the topic for the third session. MS. SANDY CARTER (New York, USA), Vice President for Social Business and Collaboration Solutions, Sales & Evangelism of IBM Corporation, will be the speaker.
The fourth session will be on “ORGANIZATIONAL CULTURE OF THE FUTURE: No Red Tape, Only Red Carpet Treatment” with ATTY. LILIA B. DE LIMA (Philippines), Director-General of Philippine Economic Zone Authority (PEZA), as speaker.
MR. SIMON TREACY (Singapore), Group CEO of MGPA, Trustee of Urban Land Institute (ULI), and Chair of ULI South Asia, will be the speaker for the fifth session. His topic will be “The Next Business Model for Real Estate Development.”
MR. SIMON DAVIES (Singapore), Vice President Enterprise Sales for ASEAN & Greater China of Salesforce.com, will be the Closing Keynote Speaker. He will talk about “New Foundation for Unleashing Business Transformation.”
There may still be time to make sure you are there to listen and learn from this fine line-up of speakers. The MAP Secretariat will be happy to help. Visit their websit at http://www.mapceoconference.ph or contact MAP via telephone (751-1149 to 52) or email (map@globelines.com.ph or mapsecretariat@gmail.com).
Alligators
Rosan Cruz shared this one.
An old farmer in Florida decided to go down to a pond in his property that he hadn’t visited for a while. He took a five-gallon bucket to bring back some fruit. As he neared the pond, he heard voices shouting and laughing with glee. As he came closer, he saw a group of young women skinny-dipping in his pond.
He made the women aware of his presence and they all went to the deep end. One of the women shouted to him, “we’re not coming out until you leave!”
The old man frowned, “I didn’t come down here to watch you ladies swim naked or make you get out of the pond naked…” Holding the bucket up he said, “I’m here to feed the alligator.”
Some old men can still think fast.
Boo Chanco’s e-mail address is bchanco@gmail.com. He is also on Twitter @boochanco