A major Wall Street bank has released a piece of research which [inter alia] warns that the advent of a Corbyn-led Labour government in the UK would potentially have a more calamitous impact on London share prices that would 'Hard Brexit'. The markets have balanced out the 'risk' arising to future profits from firms if the government totally cocks-up the Brexit negotiations with the actual fall in the pound among world currencies and the day-to-day performance of the listed companies. The level of the stock market index would fall in the event of failure; but the possibility is factored in to buyers' calculations. On the other hand, the imponderable impact on the market of Corbyn actually becoming prime minister is inestimable. How far he would cling to his lifelong Marxist dogma [and how far his party would follow him there] cannot be predicated on any known basis of probability. Thus, the bank argues, there might be no 'floor' below which British stock prices would fall. Consequently, the Wall Street Crash of 1929 might be replicated, or even exceeded, once panic sets in among dealers who have no precedent for such a change in government to be assessed against.
The very worst case is a catastrophic Brexit followed by a collapse of the present government and the anointing of Mr Corbyn to preside over the chaos, while John McDonnell would try to enact some of his socialist plans. This is no longer an impossibility, with Dr Fox, Mr Davis and Boris Johnson working so hard to achieve the disaster that they cannot understand.
Meanwhile, the vicious charade of bitcoin continues. The 'price' of this nonentity is continuing to rise, giving strength to some of the unknown number of hundreds of other cryptocurrencies that are now on offer. An ever-wider range of investors, fearful of the very high level to which the world's leading stock indeces have climbed, have 'diversified' some of their holdings into these fanciful 'assets'. Some expect that [whatever they may say now] the central banks might have to buy cryptocurrencies to prop up the market: as they have propped up derivatives and other bets that existed before the crash in 2008. If the central banks do shore up the whole rotten fantasy, the real-world economy will be hammered even harder than it has been since 2008.
The prospect for Britain, host to the London market, is especially hazardous. Warren Buffer called derivatives 'weapons of mass destruction' but they have have been protected and the market in them has continued to grow. The traders in, and owners of, those assets remain complacent: that is what gives confidence to the cryptocurrency speculators. Real people have good cause to be worried; and Corbyn's communist-inspired views give no reassurance at all.
Showing posts with label investors. Show all posts
Showing posts with label investors. Show all posts
Tuesday, 28 November 2017
Wednesday, 26 October 2011
Back to the Mighty Markets
The Morning Posting
Though the media are still saying that the European Union and the Eurozone are under all sorts of threats from 'the Markets', the immediacy and seriousness of the threat is being downgraded. Back in prehistory Harold Wilson said that "a week's is a long time in politics": and time seems to be moving more quickly in this century. Commentators have not stopped mentioning the fact that 'markets' are a major source of pressure on the politicians and their advisers as they forgather again in Brussels; but they have been forced to respond to the demand of their readers and listeners for the nature of the threat to be specified. The press and broadcast commentators have begun to admit that the risk is not from 'markets' as such, but from individual users of and traders in financial instruments who tend to pursue a form of herd behaviour.
Throughout economic history there has been a series of 'bubbles' when far more investors have offered far more money than has seemed sensible after the event, for 'assets' that suddenly seem so attractive that almost every investor wants a slice of them. Nineteenth and Twentieth-century History regarded as absurd the boom in shares of ownership of black tulip genetics in seventeenth-century Holland: but it seems slightly less absurd today when it can be viewed as a 'false dawn' of the modern capabilities of genetic engineering. No doubt, there will be future bubbles in shares in businesses that make breakthroughs in the application of genetic science. Early in the eighteenth century, even though Scotland had already experienced a boom and a horrible bust of shares in a company for colonisation in Central America, the whole of the now-United Kingdom experienced a huge bubble in the value of shares in the South Sea Company. People who bought the shares early and then sold while the market was still rising made fortunes. Then far more people found their family nest-egg of gold or silver coins, or sold assets to get cash, which they became desperate to spend on shares: so there appeared people willing to create companies in which they sold shares - even including a company 'whose purposes will duly be disclosed'. Suddenly someone recognised that most of these companies had no real assets: some had paid dividends out of the money shareholders had given them, but there was no evidence that they would yield dividends even for a couple of years. The most percipient few investors were able to sell the shares for at least as much as they paid for them, but then more and more people tumbled to the truth and sought to sell: a sales panic ensued and most of the new companies vanished. The South Sea Company survived, in a much diminished state; then over the decades the lesson was shelved. The nineteenth century saw a succession of 'railway booms' as that technology spread around the world; Brazil had a 'rubber boom' [ended when Brits stole rubber genetics and installed plantations in Malaysia and Ceylon]; and the twentieth century had alarming stock-market booms and crashes. The dawn of a new millennium brought the dot-com bubble, and then followed uncontrolled expansion of a huge range of financial instruments which inevitably led to the greatest crash of all.
In every case the markets in which assets have been sold were simply media: the booms and busts were caused by the human psyche. Economists and journalists have written extensively about 'sentiment' and 'animal spirits', which was wholly appropriate: they also wrote about 'market sentiment' which was absurd.A major complicating factor is the fact that investors' optimism or pessimism is influenced strongly by cheerleaders: media commentators, 'analysts', rating agencies, Central Banks' statements and actions, government policy, opposition warnings and the lucubrations of Warren Buffet and other 'sages' or 'gurus'.
Market participants' behaviour could become so irrational that they sold Euros or Italian Government Bonds regardless of how much of the purchase-price they had lost, ignoring the fact that Europe is more than rich enough broadly to maintain the exchange rate of the Euro against the US Dollar and the Yen; and Italy is rich enough to unwind any perceived excess of government debt over a period of years. Any such asset-sellers would hurt the funds for which they are responsible, perhaps irreparably. Thus it is in their interests to preserve the medium-term 'value' of their holdings. As long as the Eurozone governments can show that they have the capability of maintaining medium-term assets-in-being [having dumped Greece, which is an unsustainable basket-case] they do not need to assemble trillions of dollars-worth of cash-on-the-table today. So they won't pile the cash up pointlessly: they don't need to. Markets have nothing to do with it. Market participants need strong nerves and common sense, and if fund managers should begin to behave destructively their employers should get rid of them - without any bonus or severance packages beyond the statutory minimum.
Evening Posting
After this afternoon's European Union 'summit' meeting no mighty new bail-out fund has been created, no immediate step has been taken towards 'fiscal union' of the Eurozone, and Italy has been forced into a humiliating promise to retrench further than had been intended by the busted Berlusconi government. The crunch on Greece is still being prepared; and there may yet be weeks of chatter before the banks are softened-up sufficiently to take the write-down of Greek state debt that will be necessary whether or not some means are found to keep Greece in the Euro The German Parliament has accepted a minimalist proposal from the Chancellor, who is far more concerned about German public opinion than she is about relations with France [though her speech this morning bizarrely referred to a threat that there could be a return to the era of wars in Europe if the EU should collapse].
After this evening's non-news had broken the immediate reaction of participants in 'the markets' was to raise stock prices a little. The politicians have made it clear that they are concerned to preserve the Eurozone: but are nowhere near panicking: they would not be stampeded into the sort of measures that US politicians [in particular] have been demanding from them. The eurorats' favoured technique of proceeding at snails'-pace towards consolidation of all power and wealth in their own hands has worked again.
Though the media are still saying that the European Union and the Eurozone are under all sorts of threats from 'the Markets', the immediacy and seriousness of the threat is being downgraded. Back in prehistory Harold Wilson said that "a week's is a long time in politics": and time seems to be moving more quickly in this century. Commentators have not stopped mentioning the fact that 'markets' are a major source of pressure on the politicians and their advisers as they forgather again in Brussels; but they have been forced to respond to the demand of their readers and listeners for the nature of the threat to be specified. The press and broadcast commentators have begun to admit that the risk is not from 'markets' as such, but from individual users of and traders in financial instruments who tend to pursue a form of herd behaviour.
Throughout economic history there has been a series of 'bubbles' when far more investors have offered far more money than has seemed sensible after the event, for 'assets' that suddenly seem so attractive that almost every investor wants a slice of them. Nineteenth and Twentieth-century History regarded as absurd the boom in shares of ownership of black tulip genetics in seventeenth-century Holland: but it seems slightly less absurd today when it can be viewed as a 'false dawn' of the modern capabilities of genetic engineering. No doubt, there will be future bubbles in shares in businesses that make breakthroughs in the application of genetic science. Early in the eighteenth century, even though Scotland had already experienced a boom and a horrible bust of shares in a company for colonisation in Central America, the whole of the now-United Kingdom experienced a huge bubble in the value of shares in the South Sea Company. People who bought the shares early and then sold while the market was still rising made fortunes. Then far more people found their family nest-egg of gold or silver coins, or sold assets to get cash, which they became desperate to spend on shares: so there appeared people willing to create companies in which they sold shares - even including a company 'whose purposes will duly be disclosed'. Suddenly someone recognised that most of these companies had no real assets: some had paid dividends out of the money shareholders had given them, but there was no evidence that they would yield dividends even for a couple of years. The most percipient few investors were able to sell the shares for at least as much as they paid for them, but then more and more people tumbled to the truth and sought to sell: a sales panic ensued and most of the new companies vanished. The South Sea Company survived, in a much diminished state; then over the decades the lesson was shelved. The nineteenth century saw a succession of 'railway booms' as that technology spread around the world; Brazil had a 'rubber boom' [ended when Brits stole rubber genetics and installed plantations in Malaysia and Ceylon]; and the twentieth century had alarming stock-market booms and crashes. The dawn of a new millennium brought the dot-com bubble, and then followed uncontrolled expansion of a huge range of financial instruments which inevitably led to the greatest crash of all.
In every case the markets in which assets have been sold were simply media: the booms and busts were caused by the human psyche. Economists and journalists have written extensively about 'sentiment' and 'animal spirits', which was wholly appropriate: they also wrote about 'market sentiment' which was absurd.A major complicating factor is the fact that investors' optimism or pessimism is influenced strongly by cheerleaders: media commentators, 'analysts', rating agencies, Central Banks' statements and actions, government policy, opposition warnings and the lucubrations of Warren Buffet and other 'sages' or 'gurus'.
Market participants' behaviour could become so irrational that they sold Euros or Italian Government Bonds regardless of how much of the purchase-price they had lost, ignoring the fact that Europe is more than rich enough broadly to maintain the exchange rate of the Euro against the US Dollar and the Yen; and Italy is rich enough to unwind any perceived excess of government debt over a period of years. Any such asset-sellers would hurt the funds for which they are responsible, perhaps irreparably. Thus it is in their interests to preserve the medium-term 'value' of their holdings. As long as the Eurozone governments can show that they have the capability of maintaining medium-term assets-in-being [having dumped Greece, which is an unsustainable basket-case] they do not need to assemble trillions of dollars-worth of cash-on-the-table today. So they won't pile the cash up pointlessly: they don't need to. Markets have nothing to do with it. Market participants need strong nerves and common sense, and if fund managers should begin to behave destructively their employers should get rid of them - without any bonus or severance packages beyond the statutory minimum.
Evening Posting
After this afternoon's European Union 'summit' meeting no mighty new bail-out fund has been created, no immediate step has been taken towards 'fiscal union' of the Eurozone, and Italy has been forced into a humiliating promise to retrench further than had been intended by the busted Berlusconi government. The crunch on Greece is still being prepared; and there may yet be weeks of chatter before the banks are softened-up sufficiently to take the write-down of Greek state debt that will be necessary whether or not some means are found to keep Greece in the Euro The German Parliament has accepted a minimalist proposal from the Chancellor, who is far more concerned about German public opinion than she is about relations with France [though her speech this morning bizarrely referred to a threat that there could be a return to the era of wars in Europe if the EU should collapse].
After this evening's non-news had broken the immediate reaction of participants in 'the markets' was to raise stock prices a little. The politicians have made it clear that they are concerned to preserve the Eurozone: but are nowhere near panicking: they would not be stampeded into the sort of measures that US politicians [in particular] have been demanding from them. The eurorats' favoured technique of proceeding at snails'-pace towards consolidation of all power and wealth in their own hands has worked again.
Subscribe to:
Posts (Atom)