China’s Stock Market Crisis and the Modern Day Sisyphus

Fund manager Tim Price sees the Chinese government’s approach to resolve her stock market crisis as a modern day Sisyphean act.

From the Cobden Center:(bold and italics original)

As symbols of futility go, that of Sisyphus takes some beating. In Greek mythology, Sisyphus was captured by the gods after having freed humanity from Death. They punished him, of course: he would spend the rest of his days pushing a boulder up to the top of a mountain. Just when he reached the summit, as perpetual torment for his efforts, the boulder would inexorably roll back down again. Sisyphus was condemned to push the boulder uphill for all eternity. His was the original rolling stone.

The American author Henry David Thoreau would go on to echo the essential pointlessness of Sisyphus’ struggle. In his own memorable phrase,

“Most men lead lives of quiet desperation and go to the grave with the song still in them.”

Today’s Sisyphus is China. More particularly, the Chinese authorities. They are determined to roll that boulder uphill.

The path of least resistance for the boulder, however, is downward. Gravity, after all, is a bitch. The Chinese stock market is still comparatively young, and as stable as any toddler overwhelmed by parental expectations.

With their boulder beset by the giant suck of gravity, China’s Sisyphus first cut rates, and trimmed banks’ reserve ratios.

The boulder continued to roll downhill.

So Sisyphus announced plans to slash brokerage costs. But the boulder was not in a mood to listen.

Sisyphus is nothing if not persistent. Next up: a relaxation of rules on margin trading. But the boulder remained impassive, and continued to roll downhill. Sisyphus threatened to look into illegal market manipulation, and to round up the usual suspects. Bothered, replied the boulder as it kept on rolling.

Sisyphus tried to repeal gravitational laws. He banned numerous accounts from selling the market short. But the boulder rolled on down.

So Sisyphus knocked heads together on the exchange, and rustled up a package of 120 billion yuan to help support the boulder. The boulder still fell.

Sisyphus tried to tackle supply. Over two dozen Chinese companies suspended their IPOs. But the boulder remained deaf to these efforts.

Sisyphus strong-armed his friends to put money into the market. The boulder was impassive.

Sisyphus warned of “panic” and “irrational selling”. The irony: Sisyphus warning of irrationality. Still, down she came.

Sisyphus began looking for a new market regulator. Good luck with that, replied the boulder as it resumed its imperious decline.

Sisyphus started moving pension fund money into the market. But the boulder kept falling.

Sisyphus tried to persuade anyone who would still listen that the real problem was not his own currency devaluation but fears over a looming interest rate rise by the US Federal Reserve. The boulder allowed itself a quiet giggle, and resumed its fall.

But Sisyphus will be back tomorrow, with new plans.

Global investors are right to be spooked by the example of Sisyphus. But they are learning the wrong lessons. Sisyphus is alive and well and active in western markets, too. He has been busily trimming interest rates across the developed world. He has been bidding up the price of bonds, with some kind of ‘cargo cult’ belief in a magical, trickle-down economic paradise. He has been distorting, warping, manipulating and destroying all he touches, in a fond belief that the State knows best.

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Central banks of today have all signified as the modern day version of Sisyphus.

Quote of the Day: Never confuse faith with the discipline to confront the most brutal facts of your current reality

On September 9th, 1965, US Navy pilot James Stockdale was shot down over North Vietnam and seized by a mob.

He would spend the next seven years in Hoa Lo Prison, the infamous “Hanoi Hilton”.

The physical brutality was unspeakable, and the mental torture never stopped. He would be kept in solitary confinement, in total darkness, for four years.

He would be kept in heavy leg-irons for two years and put on a starvation diet.

When told he would be paraded in front of foreign journalists, he slashed his own scalp with a razor and beat himself in the face with a wooden stool so that he would be unrecognizable and useless to the enemy’s press.

When he discovered that his fellow prisoners were being tortured to death, he slashed his wrists to show his torturers that he would not submit to them.

When his guards finally realized that he would die before cooperating, they relented.
 

The torture of American prisoners ended, and the treatment of all American prisoners of war improved.

Jim Collins, author of the influential study of US businesses, ‘Good to Great’, interviewed Stockdale during his research for the book. How had he found the courage to survive those long, dark years ?

“I never lost faith in the end of the story,” replied Stockdale.

“I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining moment of my life, which in retrospect, I would not trade.”

Collins was silent for a few minutes. The two men walked along, Stockdale with a heavy limp, swinging a stiff leg that had never properly recovered from repeated torture.

Finally, Collins went on to ask another question. Who didn’t make it out ?

“Oh, that’s easy,” replied Stockdale. “The optimists.”

Collins was confused.

“The optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’

And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’

And Easter would come, and Easter would go. And then Thanksgiving. And then it would be Christmas again. And they died of a broken heart.”

As the two men walked slowly onward, Stockdale turned to Collins.

“This is a very important lesson. You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

This discipline versus faith narrative, which is very relevant to the current risk environment, is from Tim Price at the Sovereign Man