In the days ahead of China's Communist Party Congress last month, which culminated with the crowning of Xi Jinping as the modern equivalent of a quasi-emperor, China’s securities watchdog made it clear to local companies that bad news would not be tolerated, and "advised" loss-making companies to avoid publishing quarterly results as authorities were desperate to maintain stock-market stability. As a result, as we reported at the time, at least 17 Shenzhen-listed companies announced delays to their earnings reports from Oct. 20 to Oct. 24, up from three during the same period last year.
Moral of the story: if you are about to report bad news, especially news which can destabilize the stock market, it is "prudent" to delay... or simply not report at all, or alternatively just make it up. And since we are talking about China, whose government has itself admitted it has repeatedly fabricated both trade and GDP data in the past, fabricating data has become a way of life.
There is just one problem: as ECB board member Benoit Coeure explained yesterday, “fake data” is as much of a threat to economic and financial stability as “fake news” is to politics. Speaking in Paris, the central banker said there "was a growing prevalence of poor quality data which risks fuelling economic manias and panics."
It was unclear if by poor quality, and/or "fake" data, the ECB was merely referencing any data that suggested the "recovery" was off track - in the same way that any news that criticizes the US and global political establishment has become synonymous with "Russian propaganda", and "fake news" - or if the ECB was genuinely worried about fabricated data, of the type that has made a mockery of China's GDP which has printed between 6.5% and 7.5% for the past 3 years with such determination, the number has become a joke (as Michael Pettis warned last week).
Quoted by Reuters, Coeure said that since skewed public perceptions can even alter the course of monetary policy, the ECB is increasingly relying on large scale analysis of news to gauge whether its message is correctly received.
But that carries what he described as a “monkey in the mirror” risk - a reference to a behavioral experiment in which it is unclear whether an animal recognizes itself in the mirror or thinks it is a different animal.
"Just as there are concerns about ‘fake news’ dominating social media, there is a risk of ‘fake’, or at least poor quality, statistics driving out better quality ones in public discourse,” Coeure said adding ominously that “actions by economic agents could become less anchored to actual activity and more prone to manias and panics, with obvious implications for economic and financial stability.”
Reading between the lines, Coeure is clearly preparing to blame "fake economic data" when the ECB next disappoints markets, and bond yields - propped up by the ECB's CSPP program - finally crash.
In other words, the next crash will be blamed not on central banks blowing the biggest bubble in history but... drumroll... "fake data"!
Of course, the crash when it comes, will hardly be a surprise: recovering from the biggest recession in decades, the ECB has relied on a plethora of unconventional and still not fully understood tools to kick start growth, boost employment and raise inflation. Much of it has been based on a signalling and propaganda, including the constant refrain that things are getting much better.
Well, if they are so much better, why not stop QE and hike rates?
As Reuters adds, central banks also talk more since they rely on tools poorly understood by the public, so they also increasingly employ sophisticated computer technology to study whether their message reaches the right destination. But such feedback could also be misleading.
But the scariest thing is what he said next:
“We may one day be tempted to draft our monetary policy statements and speeches in the light of how they will be comprehended and interpreted by artificial intelligence algorithms,” Coeure said, adding that the consequences of such a mechanism has yet to be understood.
In other words, with human traders swept away from the market, in the ongoing passive revolution which has increasingly left algos and robots to make most capital allocation decisions. central banks are admitting that soon their statements will be written if not in binary code, then certainly designed to fool as many algos as possible into BTFD, since unfortunately the "keep the markets propped up" mandate has emerged over the past decade as the only one central banks truly care about. In light of this admission, the only "fake news" to be concerned about, is that created by central banks including "there is a global, coordinated recovery." Well, yes, when you inject a record $2+ trillion annualized in liquidity in 2017 and when you monetize a third of global GDP since the Global Financial Crisis, you better have at least a short-term recovery to show for it...