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Tuesday, 30 May 2017

'Rational Markets'?

The New York Stock Market will open today, after the Memorial Day holiday, at a record high. London will also open at or close to a record high, following the Bank Holiday.

There is no obvious reason for these phenomena.

The US has a demonstrably erratic president. His business-friendly approach is offset by his commitment to restore basic industries to middle America; but the strong businessmen whom he has put in his cabinet, combined with the broad spectrum of views among Republicans in both houses of the Congress, will ensure that nothing wildly irrational becomes more substantial than a presidential tweet.

The general view of commentators is that the 'strength' of the stock market arises principally from the predominance of the 'technology' giants: Google, Apple, Facebook etc, whose popularity ensures that the prices of their shares rise almost continuously, The biggest companies in this area now have larger total share valuations than do the major real-world companies in fields like oil, mining, motors, transport and the construction of computer hardware. The valuation of such businesses depends on the number of people who use them: the more users they have, the more valuable it is for firms in the 'real world' to advertise food, drink, holidays etc alongside other IT experiences. As increasing numbers of older people wean themselves from addiction to the new media, and younger people are attracted to newer competitors of the big networkers, the market dominance - even of Facebook and Google - will crack. The bubble in the valuations of the big boys will be deflated: how many firms and individuals will be devastated by that collapse will depend on how rapid the deflation is.

The 'strength' of the London stock market is very largely due to the large proportion of companies whose shares are listed in that exchange, but their main activities take place in the rest of the world. For them, the fall in the value of the pound means that they are able to declare rising profits [in terms of pounds in which their shares are priced] and thus their 'value' increases. Given the political circumstances in the UK, the pound is unlikely to harden against other world currencies: so the phenomenon of a rising stock market within a weakening domestic economy will continue. The result of the coming General Election is impossible to call, but the balance of probabilities is that the Conservatives will win: but by a much narrower majority of Commons seats than seemed likely when Mrs May called the election.

Mrs May talks of 'strong and stable' leadership, in what is virtually a one-woman campaign. As was clear again in the non-debate on TV last evening, she has no idea what her policy will be in the Bexit negotiations. She had no notion what is a 'good' or a 'bad' deal for the UK. She does not even consider any option to the inherited policy of austerity which is undermining the cohesion of society, the defence of the nation, the education of the young, social care [about which the Tories' "policy" becomes vaguer and more contradictory every every day] and the health service. She is a desperately bad leader: but she still comes over as probably more acceptable than Jeremy Corbyn.

Corbyn is an idealist. He would 'campaign for a nuclear-free world' if he were prime minister. Would not everybody, if they thought it even marginally feasible? We would all like a disease-free world, a pain-free world, a poverty-free world. At the same time, he would abandon the million Ulster protestants to the vengeance of the militant republicans, washing his hands of responsibility by saying that he believes in peaceful discussion. Corbyn is Labour's problem: he is a major reason why millions who are totally unconvinced of Mrs May's fitness to lead the country will either decline to vote, or reluctantly vote Conservative.

In my book on BREXIT I conclude that disenchantment with politics, politicians and the Economists who advise them was the principal reason for the decision that people made [against Mrs May's advice] in the Referendum last year. That mood of deep despondency will be much magnified in the coming months; and neither party leader has an inkling of it.

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