The Confidence Game

If you own stocks, anywhere in the world, there’s a good chance that the markets’ wild ride this week upset your stomach. But, worried as you were, you probably felt some confidence that the US and European economies are relatively stable, that governments in those places know what they’re doing and are relatively transparent about it, and that markets would recover.


Now consider a day in the (not-so-distant) future when a market meltdown begins not on Wall Street but in China. Imagine further that when that day comes, China is the largest economy on earth (by some measures, it already is). Will you be as confident in China’s leadership and markets are you are in the US and Europe’s?

A few thoughts:

1. In China, all the big political and economic decisions are made behind closed doors by seven men — the Politburo Standing Committee. No one alive today has ever lived in a world where the largest economy on earth was governed in such secrecy.

2. Last week’s stock market rollercoaster started in part because of expectations that the US Federal Reserve will soon raise interest rates to keep the economy from overheating. Investors don’t like higher interest rates, but they know how the Fed works and what it wants to achieve. The Fed has a responsibility to explain its decisions. Imagine the uncertainty when investors are instead hanging on the words of China’s central bank, where decisions must be approved by politicians who feel no need to explain their actions.

3. Starting this year, Chinese stocks are included in the MSCI EM index, one of the largest indices of stocks from “emerging market” economies. Because many American pension funds hold the MSCI EM Index, they — and maybe you — now have direct exposure to China’s domestic stock market for the first time, even if you’re not aware of it.

4. Today, China’s economy appears strong, but many analysts say economic statistics produced in that country are more vulnerable to political manipulation, particularly at the local level, than stats from countries like the US, Germany, or Japan. In fact, several Chinese provincial governments admitted recently that they faked their GDP data for 2016. Investors shrugged off this news because they’re confident in smooth sailing for China’s economy. But what happens when the waters get choppy and investors get queasy?

5. Investors know that, in a crisis, China’s leaders will worry about political stability first and the credibility of state-generated information a distant second. So even if China produces accurate info, will panicky investors believe it? How long will it take for confidence to be restored?

Confidence is the fuel that powers economies forward — at the local, national, and global levels. Today, China and its economic engine inspire confidence. That may no longer be true on the day when real trouble shakes an economy governed by secretive leaders who care more about political survival than the credibility of the information they share with the world.

That day is coming.

Scientists, engineers and technologists are turning to nature in search of solutions to climate change. Biomimicry is now being applied in the energy sector, medicine, architecture, communications, transport and agriculture in a bid to make human life on this planet more sustainable and limit the impacts of global warming. New inventions have been inspired by humpback whales, kingfishers and mosquitoes.

Learn more at Eniday: Energy Is A Good Story

The drumbeat for regulating artificial intelligence (AI) is growing louder. Earlier this week, Sundar Pichai, the CEO of Google's parent company, Alphabet, became the latest high-profile Silicon Valley figure to call for governments to put guardrails around technologies that use huge amounts of (sometimes personal) data to teach computers how to identify faces, make decisions about mortgage applications, and myriad other tasks that previously relied on human brainpower.

More

January 27 marks 75 years since the liberation of Auschwitz-Birkenau, the largest Nazi extermination camp. But even as some 40 heads of state gathered in Jerusalem this week to commemorate the six million Jews who were killed, a recent Pew survey revealed that many American adults don't know basic facts about the ethnic cleansing of Europe's Jews during the Second World War. Fewer than half of those polled knew how many Jews were killed in the Holocaust, and close to a third didn't know when it actually happened. Here's a look at some of the numbers.

1: The Greek parliament has elected a woman president for the first time since the country's independence some 200 years ago. A political outsider, Katerina Sakellaropoulou is a high court judge with no known party affiliation. "Our country enters the third decade of the 21st century with more optimism," Greece's prime minister said.

More

A quarantine in China– Local authorities have locked down the city of Wuhan, the source of the outbreak of a new and potentially deadly respiratory virus that, as of Thursday morning, had infected more than 540 people in at least six countries. Other nearby cities were also hit by travel restrictions. Rail and air traffic out of Wuhan has been halted. Public transportation is shut, and local officials are urging everyone to stay put unless they have a special need to travel. Wuhan is a city of 11 million people, many of whom were about to travel for the Chinese New Year. We're watching to see whether these extraordinary measures help stem the outbreak, but also to see how the people affected respond to the clampdown.

More