Eurocrash: fooling the markets
Saturday 8 September 2012
 The piece by Andreas Hoffmann, under a photograph of Mario Draghi captioned "Will fool the markets", tells us that the ECB is acting like a fireman who proudly displays a new fire extinguisher. But the small print says the device may only be used when the fire all the fire fighters have arrived and the hoses have been emptied. In other words, writes Hoffmann, ECB President Mario Draghi will bluff the markets and hopes that the instructions for his fire extinguisher will not be read. The effect, therefore, is largely psychological, serving mainly to calm markets which have become overheated. So far it is working, mainly because so many people want it to work, want to believe that "Super Mario" has a magic fire extinguisher. But there is also a huge amount of money to be made on the casino markets. Those who bought early into selected products, in anticipation of the Draghi statement – no mean feat given that it was comprehensively leaked - are now watching their values soar in an exuberant "bubble" that cannot last. The correction will come late Tuesday, or early Wednesday, before the Karlruhe judgement, based not on what the judges actually rule but on what market commentators think they might rule. Those traders who dump their recent purchases in good time will then be able to watch their values fall – a fall that they will have helped trigger – and then buy them back at the bottom at a far lower price. They can then bank the millions in profits, thank you very much, and work out how to spend their bonuses. This is, therefore, not just a question of the herd mentality, with the hacks hearing what they expect to hear, and the rest following in their wake. There was and is serious money to be made in the market casinos on the back of the Draghi statement – but only if he pledged to use his "bazooka". That is what the casinos wanted, but when "Super Mario" didn't deliver – because he couldn't – he allowed the hacks the impression that he'd given them what they came to hear. And so the bubble expands, founded on nothing at all of substance, and all because no one read the small print. But the reason they don't read it is because they don't want to read it. If the markets are being "fooled", it's because they want to be. That's where the money is. COMMENT THREAD Richard North 08/09/2012 |
Eurocrash: tulip mania revisited
Saturday 8 September 2012
 The transition from panic to EUphoria, though, has all the hallmarks of a latter-day miracle. Next thing, Draghi will be packing up his loaves and fishes and jetting off to Athens (if he can get there), to feed the indigent 5,000. Nevertheless, despite the transformation in Spanish bond prices, Welt asserts that it is "beyond question" that Rajoy will still have to pack his bags and go to Brussels where he will have to make the request for assistance from the euro rescue pot. That much he will have got from Angela Merkel, who was paying a visit to the beleaguered Spanish prime minister on Thursday. While the public statements were less than informative, no doubt hard words were exchanged in private when, it is said, it was clearly understand what they expect of him. Yet Rajoy remains true to his reputation as a procrastinator - but this time possibly with strategy. He is, we are told, betting that he, as with the banks, will get special treatment. Bizarrely, even as his country goes down the tubes, his main concern is whether the EU commission and the IMF can cobble together "country-specific conditionality" that will help him save face. For the prime minister, though, the key date is 15 September. While he plays his games, the unions have announced mass protests for this date, with the specific target of bringing the government down. We will see, for the first time in this three-year crisis, street action with an overtly political objective that goes all the way to the top. Whether it succeeds will be a great test of the labour unions in the country. Meanwhile, Greece has had the Van Rompuy treatment, and the Greek trade unions are to mount major protests today, attacking the new austerity programme. The protests are focused on the northern Greek port city of Thessaloniki and police have sent 3,500 personnel to deal with the expected riots. Some will find themselves policing their own, since police officers are planning their own demonstration. But that probably says all that is needed about the way this crisis is developing, lending a degree of unreality which makes the surreal seem relatively sane. A sort of madness is gripping the project now which defies explanation or analysis. It is getting to the stage where we are seeing warnings of stock market bubbles, where the herd rules. By contrast, even the tulip mania psychology looks sensible. The worst of it all though is that there is no knowing when this madness will end. Once it gets like this, there is no way of predicting what will happen next. COMMENT THREAD Richard North 08/09/2012 |
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