Beware of the Last Straw

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

February 2007

That breaks the back of the camel! In case one is not facile with the meaning of this heading, it refers to a situation where a camel already has a huge and heavy load on its back (or hump), an addition straw, which otherwise is a very light item, can very well be that extra little weight that exceeds the maximum bearable load, thus crushing the camel in the process. A similar idiom uses a feather and a tree (you get the idea, don’t you?).  

The above can be applied to life’s many situations, including economic, business, and investment ones. By implication, the “last straw” is minute, unnoticeable, and / or seemingly unimportant, and even if noticed, it is easily ignored or discarded as being insignificant to whatever situation is at hand. It is only and usually recognized after the fact with hindsight, and thus is likely to surprise people (the market) with its understated presence and effect. Apart from its stealth, what makes a last straw so undetectable? Your humble author does not have any concrete answers and it could come in many forms and substances depending on circumstances. Nonetheless, the following traits might help explain things a bit: 

A)     They are usually intangible = using real estate as an example, the “bricks and mortar” are the most tangible portions of real estate. One can see, touch, feel, or even live in the space created by them. Less tangible will be for instance market transactions and prices. Nonetheless, they can be reported, compiled, analyzed, and so on. You do not need much imagination to comprehend them. Intangibility begins to set in when one deals with market sentiment, emotion, behavior, psychology, and the like. For instance, everyone has heard of markets being driven by fear and greed. While one can watch some of these emotions being acted out say inside stock exchanges or new real estate project sale offices, one would still require some imagination at times. Yet fear and greed are the less hidden emotions, as there are ones buried deep, if Freud or some genetics experts are to be believed, in our heads (brains). For instance, vanity. Most people have it yet few admit it. People buying an expensive car may quote its better safety mechanism, durability, comfortable interiors etc as reasons but seldom their desire to flaunt. When one reads the published media and market reports, one gets many rational reasons- explanations on why a certain market has such price levels, transaction volumes, expectations of increase (or decrease), and so on. Yet usually these various publications (including your humble author’s) cannot fully tell why e.g. the price level begins to drop after having risen by 69% and not earlier at 68%, or for that matter, after 70%. Or why it does so in February and not in March etc. Randomness? Maybe, yet this smacks of “gee, I really don’t know” put in a more professional tone. By no means does this imply the various macro and micro analyses are not useful, and when properly done, they do point to prospective market changes, trends, inclinations, and the like to help either capture opportunities or avoid losses. YET to date, no methods, orthodox or unorthodox, can analyze with pinpoint accuracy like a Tomahawk missile. And your humble author suspects in many such instances, the key lies with the intangible factors, such as ingrained but not fully understood human emotional and psychological, even genetic, defaults, which by and large lead to the market reflexive points (as touted by George Soros). In our example above, that’s the 69% point. However to date, there are no proven methods yet to quantitatively and methodologically identify, monitor, assemble, compile, or analyze such intangible aspects with any acceptable degree of applicability. The important point here is sometimes, the market does NOT need highly noticeable or vital factor (be these fundamental or cyclical) changes to induce a significant market change. A tiny seemingly insignificant sentiment detour can lead to a wholesale market detour, and it seems the market collapses on its own weight without any bad news, just as it might have taken itself to new heights prior without any particular good news.

B)     They appear indirect or even unrelated to the situation at hand =  for example, most of the developed worlds ranging from (West) Europe, via Japan, to North America, will have varying degrees of a graying society (with North America expected to fair a bit better with its more open immigration system). This is not news. What is new to the world is the numbers involved, which are not only expected to be higher than the retirees of earlier generations, but they are also expected to live much longer. On the other hand, China with its one-child policy has also created a graying population, which is not common among developing economies, though its grayness is expected to come a bit later. Yet this is not the news part. What is new is that this 1-kid generation does not only have a different growing up experience than earlier generations (e.g. with many siblings and possibly sibling rivalries), they collectively will become a generation who will mature and age without [many] relatives (cousins, nephews, nieces, uncles, aunts etc). This is unknown territory and famines and wars aside, the typical Chinese family has a core of relatives. By no means is your humble author saying this is a good or bad thing, just that it is uncharted territory. Two seemingly separate developments, 1^st world graying population + China 1-kid generation growing up and maturing and aging, put together = ? This calls for complicated analyses and is outside the scope of this article. Food for thought nonetheless.    

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.                                

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