Walking the allegorical plank on US financial markets
I spent the past couple of weeks in the US, north and south, and, when not on my new-found grandfatherly duties, I found myself looking for allegories that might illustrate the current economic state of the Union.
I found the first on 34th street in mid-town New York near the junction with Fifth Avenue. There you will find VR World, two floors of games and “experiences” in the new universe of virtual reality entertainment. It is housed in what must have been one of the traditional retail outlets that used to dominate this part of the city, which in itself is something of an allegory.
In VR World you can have a shoot-out with robot zombies, fly through the Grand Canyon and practice being a virtual burger-flipper. But the activity that caught my attention was called “The Plank.”
In this, you are whisked in a high-speed lift to the top of a New York skyscraper and invited to walk a narrow beam that projects out over Manhattan below you. Though the rational side of your brain tells you that you are at floor level with a headset and hand-controllers, the birds and wisps of clouds below tell you, terrifyingly, otherwise.
At the end of your walk, you are invited to step off the plank and jump into the blue yonder. When you hit the sidewalk dozens of floors below, the world goes white, symbolizing the end.
Even the hastening prospect of a global trade war cannot dampen US markets
What could better illustrate the current state of American, and therefore global, financial markets? They are sky-high, with indices nudging record heights every week, but it all has a touch of unreality, and many experts are predicting that at any minute some event will nudge them off the narrow plank and into the abyss below.
The S&P 500 is again topping the 2,800 level it surpassed earlier in the year, and once again there is exuberant speculation about it soon hitting 3,000 for the first time in history. Corporate earnings growth, fueled by the tax-cut program of President Trump’s administration, is still beating expectations in profits and revenues.
Even the hastening prospect of a global trade war cannot dampen US markets, it seems, despite all that they stand to lose from a full-blown confrontation with China. It is pretty close to all-out war on this front, and economic experts predict such a scenario would knock up to 1.5 percentage points off GDP growth of the two biggest economies in the world. Yet the MSCI global equity index, the best measure of the health of the world’s financial markets, is still close to all-time highs.
By a stack of other criteria too, markets are looking pretty unreal. A couple of weeks ago, the Financial Times’ guru Gillian Tett — who can claim to have been one of the few opinionaters to have predicted the 2008 global financial crisis — wrote a sobering article pointing out the oddities in bond markets, interest rates, currencies and real-estate prices, all of which seem to be behaving according to some “through the looking glass” logic.
She concluded with the possibility that “years of ultra loose monetary policy have made investors so complacent that they are mis-pricing risk.” With China, Iran, Russia and Brexit all looming ominously on the horizon, there are plenty of risks to be mis-priced.
I encountered the second allegory of my US trip just outside the quaint city of Charleston in South Carolina. The visit there rounded off a short tour of the “Old South” after business trips earlier in the year to Georgia and North Carolina.
The heart of the Confederacy was not as I expected. Sure, the white mansions and live oaks were there aplenty, but there was also a buzzy high-tech business environment with engineering, medical, technology and manufacturing companies, many from outside the US, opening up in the American lowlands, taking advantage of state tax regimes and cheaper labor forces.
A 10-minute drive from historic old Charleston city center you will find Wild Blue Ropes, a rope climbing challenge course that, as I experienced it, was the closest I’ve been to an army assault course.
I chatted to the owner, Hugh, originally from Philadelphia but who had worked in mortgage-backed securities for a big Wall Street bank until the crisis of 2008, when, along with thousand of others in the big meltdown, he was let go. He had sunk all his savings into Wild Blue, and appeared not to have a moment’s regret about getting away from the stressful world of New York finance.
But stepping out nervously after my 9-year-old daughter, who had crossed the swaying steps 40 feet up with youthful confidence, I was reminded immediately of the “The Plank.” Unlike US financial markets, I had a harness.
- Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai