Changing the calendar

It has been a strange year. Here in France it began with a morning murder of cartoonists and all but ended with an evening massacre of revellers. Meanwhile French pilots have been killing people on a regular basis in Iraq and Syria. If this is war then it really is an asymmetric one, foot-soldiers with assault rifles and explosive vests on one side, and supersonic jets with very deadly ordnance on the other, ball-bearings vs. cluster bombs. Over there, towns are reduced to rubble. Over here, some restaurant facades and a concert hall are damaged. Asymmetric wars, however, have the nasty habit of never ending.

Apart from ethnicity and sectarianism, it seems that the Jihadists are motivated by the expectation of a brave new world. The present times have failed and are doomed, and assisting their destruction will reveal a bright new dawn. A similar promise fuelled social movements and popular uprisings with unabated fervency throughout the last century. The End of Time myth is old and very powerful. It drove the early Christians to willing martyrdom and, again, during the Protestant Reformation. Countless Communists have sacrificed their lives to the final class struggle, and the Age of Aquarius will bring peace and love, so just drop out. In the present case, ancient prophesies have cross-fertilised with contemporary heroic fantasies. The freemen of “Dune” come immediately to mind, as must the Jedi Knights of “Star Wars”. It is all about fighting an oppressive super-empire, with puny means but with the prescience of a prophet, or with the “Force” on their side, or the presumed will of God. And for a while some sort of force was with the Caliphate. America has to some extent produced the ideas it is trying to eradicate, and every bomb dropped reinforces them.

Another surprise in 2015 was the stock market. Historically it has hesitated, stumbled or fallen in spring and autumn. This year the moments of weakness occurred in summer and winter. Is this a sort of El Niño effect, when financial flows reverse their direction? The investment frenzy in China has peaked and a mass of capital is moving elsewhere, but it has an Eastern time-table not a Western one. China’s traditional calendar is referred to in the entire region and orchestrates holidays and festivities. It starts the year 5 to 7 weeks after the Gregorian one, which could explain this change of market seasons. If it becomes the norm, it will spell the end of August bank holidays and yuletide cheer as share indexes wobble on the brink, a sure sign of Western economic and cultural decline.

All this adds up to the logical prediction that 2016 will be even hotter than 2015, an accelerated, intensified version of this year. And all the incantations about reducing CO2 emissions, creating jobs and growth, and destroying Isis will get louder and more frenetic as temperatures, poverty and violence rise unrelentingly. On the good side, a few more citizens of the world may now consume cannabis resin without the permanent threat of police intervention, arrest and prosecution. And a couple of aged (there seems to be a missing generation) lefties are reaching young audiences on both sides of the Atlantic. These days, silver linings are micro metric.

Ups and downs

Markets come in all shapes and sizes. Most concern goods and services that will not change hands again in their original form and value, though some are exchanged again, either transformed or as second hand. Commodities that can be stored, minerals, cereal, fossil fuels, often change hands several times before they are used. Debts are constantly being bought and sold preceding to their terms, with a natural preference for those contracted by state treasuries. Then there are jewels, gold and art works that may return to the market innumerable times as they are almost eternal. This repeated buying and selling of the same things at varying prices also occurs on the stock market, with a far greater frequency and on a much grander scale.

Stocks, or shares, have the same lifetime as the companies whose ownership they represent, and that can be secular. The amount of stock on a particular market – New York, Frankfurt, Shanghai, Tokyo, etc. – tends to grow because more new companies join the market than old ones leave it, and because companies may increase the shares they have on the market. However over a short period, say a year, the stock on the market is fairly constant. In this case prices will rise if more money is put into the market than is taken out, and they will fall if more money is taken out than is put in. Either money is chasing shares or shares are chasing money.

Fresh money on the stock market pushes up share prices, and it seems that its main source has been for quite a while the companies themselves. They have borrowed to buy back their shares and scrap them. This is a reversal of usual practice where shares are sold to reduce debt. But these are unusual, even exceptional times. Interest is nil and money is for free. Quantitative easing by central banks created cash and exchanged it for Treasury and company bonds held by banks. This cash was supposed to be lent out for productive investments. But most companies have excess productive capacity already, so some of them have borrowed to buy back shares, reduce their numbers on the market and mechanically increase each dividend. The same company profit will pay a larger dividend per share because there are fewer shares around. The increased dividend attracts buyers and the share price rises. This mechanism brings new money and has a buoyant effect on the whole market, encouraging punters and general bullishness. When production growth is flat it gives the illusion of more, a fantasy that is already crumbling.