Five stages of grief

October 08, 2011

I have looked on the stock market gyrations of the past weeks with increasing astonishment. It’s not that I dispute that global economic circumstances are dire. As some of you may by now know, I have consistently been in the “Dr Doom” camp over the past six years or more. It’s just that I find it hard to accept that it has taken until now for so many who should know better to recognise the seismic upheavals that occurred in 2008 – the consequences of which have been clear to see for the past three years.

The paradoxical result of all this is that for the first time in several years, I find myself more optimistic than the market, and convinced that stocks are now stupidly oversold – in the Asian region at least. Yes, the US economy is teetering on the brink of an aggressive and painful recession in spite of trillions of dollars of QE stimulus. Yes, Europe’s economies are staring into an abyss, with Greece now almost certain to default on its debts within weeks, possibly having to be manoevered out of the Eurozone, and several more significant European nations facing significant and painful structural adjustments – job losses, welfare service cuts, and so on. But what’s new?? This has been glaringly clear for a year or more. How can it be that stock market investors and analysts have only now stumbled on the discovery, and dived in panic for the exits?

I suspect it all comes down to Kubler Ross’s “Five stages of Grief” – devised for understanding how individuals cope with bereavement after the loss of someone dearly loved. Stage 1 is Numbness and Denial – an incapacity to acknowledge the dreadful event that has just occurred. Stage 2 is Yearning and Anger – a desire to lash out at any nearby target to somehow vent uncontrollable emotions triggered by the loss. Stage 3 – where it seems we may just have arrived, more than three years after the Lehman Brothers crash – involves Despair, Sadness and Withdrawal. That is why so many in the markets seem to be talking this week about “the end of the world” as they watch share prices spiral relentlessly downwards, plunging the Hang Seng index haplessly to levels more than 30% below recent peaks, and to their lowest level since last November.

For psychologists helping the bereaved to deal with the loss of a loved one, it is only possible to move on to Stage 4 – Reorganisation – after working painfully through the first three phases. And only after this is recovery possible. Stage 5 is Letting go and Moving on.

So in the hope of moving us along as speedily as possible towards the “reorganisation” stage, let’s do a little reprise. In reality, the “end of the world” occurred more than three years ago. Those affected by the crash, and involved with the task of rebuilding, seem to have taken an excruciatingly long three years to reach the despair stage. No wonder smart analysts like Rogoff and Reinhart, Roubini or the Financial Times’ Martin Wolf have predicted that true recovery is likely to take the greater part of the coming decade.

What we discovered when the markets crashed in 2008, with so many trillions of dollars wiped off the global GDP, was that much of the growth that our statisticians had ploddingly tracked over the previous two decades had not been growth at all. It was all a chimera, concocted mischievously – and many would say criminally – by financial market wizards using leverage and collateralisation to build the Ponzi scheme of all Ponzi schemes. The wealth we thought we had created; the security we thought we had built for our children, or our retirement disappeared in puffs of smoke.

From that moment of discovery – as traumatising a discovery as any true bereavement – our primary challenge has been to come to terms with the brutal reality that we were never as rich as we thought we were; that we had built lifestyles on foundations of quicksand and needed to rebuild on foundations that would be more modest, but at least a little more enduring; and that the sooner we came to terms with this the better.

From this point of view, all the talk from Government officials since 2008 of restoring growth has been almost criminally mischievous. It had been the mindless pursuit of illusory wealth that had got us into this mess in the first place – as Laurel (or was it Hardy?) so often said. More important was to take a good hard look at what real growth was all about, and quickly to home in on protection of our communities’ true needs, separating out the self-indulgent wants that we had been able to indulge with the chimerical Ponzi scheme “wealth” cooked up since the late 1980s. It is an indictment of so many of our political systems, and political leaders – many of them still in senior office in Europe and the US – that even now they have done so little to nudge our communities towards discovery and acceptance of the awful and irreversible loss that occurred in 2008.

For many European and US companies listed on western markets, this move into Stage 3 of bereavement – Sadness, Despair and Withdrawal – should indeed lead to a sharp reassessment of company values. But in Asia, where the damage is mostly collateral (and no less painful for that) and where the lessons of the Asian Financial crash of 1998 steered us well clear of the illusory inflation of values that occurred in the US and Europe, the stock market corrections are surely by now greatly overdone.

It is true that for those heavily reliant on exporting to western markets – including the many Wenzhou entrepreneurs now causing so much angst in China’s equity markets – the coming couple of years are going to be grim. But for many focused on markets nearer to home, prospects are nowhere near so torrid. Without ever having been a stockbroker myself, I cannot help believe that there are some potentially stellar bargains out there. Yes, we have had a bereavement, but this is the loss of a rich and distant relative, not a loss close to our core. People like Rogoff are probably right that we face a tough slow slog toward recovery over the decade ahead, but I think we are in a position to start to talk sensibly about recovery. For Europeans that is not so: it is going to be a scary place in coming months as Sadness, Despair and Withdrawal do their harm. Americans also probably face more Sadness, Despair and Withdrawal than has yet been factored. It seems in a week when many are talking about the end of the world, this makes me an optimist – for once.

* The translated Chinese version was published in Ming Pao on October 8, 2011.

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