COMMENT: Surprised Dragons

By bne IntelliNews December 20, 2011

Plamen Monovski, CIO of Renaissance Asset Managers -

We hope you enjoy this special edition of Renaissance Asset Manager's "Friday RAM" report, which peers, tongue-in-cheek, into some unexpected occurrences in 2012. It mixes the wacky with the serious, the probable with the impossible, leaving it to you, the Reader, to spot which one is which.

In the Year of the Dragon, the heavens are collapsing in China. "Skyfall", the 2012 James Bond film, moves to Shanghai where Bond seeks to capture the villain responsible for the disappearance of a cool trillion dollars from the Chinese foreign reserves, the insurance policy that holds this fragile world together. In the most dramatic feature ever, 007's loyalty to M is severely tested. Bond must find the thief before the world wakes up and the US bond market collapses, as its biggest buyer is suddenly impoverished. In a year when more than $700bn of high yield debt comes due in the Americas, this robbery looks distinctly uncool.

The sky is also falling for the Chinese property market, which can't be propped anymore and hurls the Dragon economy into a tailspin. This is gelastic in a country that does not even have a word for mortgage. As Chinese athletes put in an abysmal showing at the 2012 Olympics, it is time for the political transition of the new Sino-leadership to become un-harmonious. Widespread public protests take place in the densely urbanized megacities of the Middle Kingdom. The country's one-child policy is relaxed as demographics are suddenly hailed as the solution to the festering imbalances of this low consumption/high export economy. Riots become routine in the developed world too. A military coup takes place in a G8 country. Every incumbent politician up for re-election in 2012 is shown the red card. Marine Le Pen, who according to Time magazine is already more influential that both Xi Jinping and Barack Obama, and Newt Gingrich discover a common passion for history. The new presidents resurrect Pat Buchanan's old idea to physically fence off their respective countries. The idea of "Open Societies" is dead. George Soros, its author, gives up on trying to sponsor it and steps down for good from investment. He is joined by Anthony Bolton, Jim Rogers and Warren Buffet, whose bitter experiences of investing in China cause them to retire.

In a world where nothing seems certain anymore, Her Majesty's Diamond Jubilee seems like hope and anchor. As the Commonwealth lights the beacons and sings "Long to reign over us", many countries reconsider the merits of the monarchy. The offspring of sovereigns of yore are in high demand. As the world gives its eye teeth for certitude, the predictability of physics captures the hearts and minds of the masses as the science tries to answer the question of where mass itself comes from. This question, first asked by Edinburgh's own Peter Higgs in the sixties, gets answered in 2012 as the world finally locates the elusive eponymous boson. A far more elegant version of the Standard Model that holds together everything we know about the universe however does not materialise. A Higgs particle there is but, alas, there's more than one. Now what? asks the world, as yet again everything we know has no validity.

The harrowing sense of confusion is amplified by the nuclear explosion that takes place whilst the Large Hadron Collider smashes atoms in Geneva. The city is evacuated in panic and with it most of the private wealth it secretly harbours. The rich of the world are amongst the most confused, as they are unsure where to hide from public resentment, inflation, taxes, political regime changes and divorces. Dubai comes back into vogue and Singapore swells further, but this is nothing compared with the fortunes of Mauritius where not only newly-minted African and secretive Indian billionaires congregate, but increasingly most of those with a buck to spare. There is always a silver lining, say the wealthy - we may not be able to ski and each chocolates, but we can sit on the beach.

Back in England, where there are no rich left, well-wishers recall the amazing genes of the centenarian Queen Mother and hope that the current monarch lasts yet another generation. You either have good genes or not; for ill fate, a few of the other long lasting rulers of the world (who happen to be dictators) kick the bucket. The Harare Stock Exchange soars 400% and reminds everyone that the world is full of opportunity if you have the patience to wait for it. Not so in Europe, where there is no time to waste after the demise of the euro. New models of capitalism are being tested. Asian capitalism - despite its limited credentials relative to democracy - is all the rage. Taxes are cut and incentives to innovate and produce are handed out left, right and centre. The German Mittelstand embraces 3D object printing and leads another industrial revolution. Euromold in Frankfurt, the best-attended commercial show in the world, demonstrates that anything can be printed, including artificial limbs.

Advances in genetic engineering - the targeting of catalase to the mitochondria - mean that not only the Queen but also her subjects can live yet another 60 years without looking haggard and "print" themselves new organs when needed. The discovery of God's particle(s) leads to a leap in a new field, though not in physics. Quantum biology explains, amongst other things, photosynthesis, the human sense of smell and bird migrations. In America, Paul Davies advances understanding on the quantum origins of cancer as he firms up our understanding of (quantum) tunnelling as one of the ways that DNA mutates (since cancer is all about cells mutating). The possibility of cancer being cured leads to the prospect of an infinite lifespan. The Chinese one-child policy suddenly does not look that clever. The saving grace is Petrochina's discovery of a massive shale gas deposit, which, like in America, boosts employment fast. As India finally gets to grips with its bureaucratic deadlock, the Subcontinent is also opened up to exploration. A gas field, the world's largest, is found at the border with Bangladesh.

Amazing India is hailed as one of the greatest repositories of recoverable mineral wealth. Spooked by rocketing supply, commodity prices around the world retreat further, led by a big fall in oil. Unsurprisingly, this leads to hotly contested Russian presidential elections where, as Putin promised, CCTV cameras imported from the UK monitor due process. With The City in a big funk, England reinvents itself. The country that conceived of the idea of "privacy" yet is so excellent at snooping on its residents, reinvents itself as a global leader in surveillance of all sorts.

This surprises many, but not as much as the final scenes of the Bond film, which reunites Bond with the villain in a Welsh castle. There is no beautiful woman in sight as Bond comes out in an novel light. MGM Studios, having emerged from bankruptcy, hopes for a mega-blockbuster and so puts this new twist in the story's tail. Luckily, Daniel Craig, the erstwhile star of "Love is the Devil", is the right character to play this somewhat less macho James Bond. On the 50th anniversary of the series, traditionalists murmur that nothing is sacred to political correctness gone mad. Ending the film in Wales is bad enough as Bond refuses to return to his Scottish roots, but the change to his virile character is too much. However, encouraged by Bond's example, presidents, prime ministers and even minor royalty breathe a collective sign of relief as they now can live life less closeted.

Despite Bond's example, the world gets less, not more liberal. Fascinated by the Mayan admonition and Nostradamus' portents, humanity fears that the end is nigh. Church attendance soars in this leap year to numbers not seen since the Middle Ages. Alcohol and tobacco sales plummet, and merchants of vice go bankrupt. The high street that is already reeling from the impact of internet shopping is boarded up despite the best efforts of Mary Portas; conversion to residential accelerates and that brings down property prices in Central London, the last bastion of wealth preservation as global deflation spreads its tentacles.

The statistically average shopper, 37 and female, is now the surprising dream demographic of the rapidly growing business of parallel reality - gaming. The 500 million downloads of Angry Birds pale in comparison with the new games played between billions. The games for the elderly are particularly successful, as living longer means being bored longer. Top game players become celebrities, online status suddenly matters a lot more than in real life. Gamers not only find solutions to the folding of protein and thus help heal Alzheimers and Dementia, but preside over a profound cultural shift of humanity that constantly seeks an escape route from reality. As the Internet becomes ubiquitous and the rapid exploitation of white space leads to another jump in connectivity, the real world fast fades into virtual reality. The average time spent online mirrors humanity's time in reality.

Shakespeare's "All the world's a stage" is particularly relevant in a world inhabited not by persons but their avatars. Perhaps that's why all 37 Shakespeare plays are enacted in languages from Lithuanian to Korean during the London Olympics. "Gamification" refers not only to the key sport event in 2012, but to a new way to run a business and human life in general. The Matrix trilogy finally makes sense and so do the Mayan prophesies. In the Year of the Dragon and the London Olympics, it is all but a game.

Plamen Monovski is CIO of Renaissance Asset Managers

COMMENT: Surprised Dragons

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