Let us begin with two rhetorical questions, statements which do not really require an answer because it is implicit in the question. Is there anyone out there with access to any rudimentary form of news – mainstream or otherwise – who did not expect Mr Sarkozy to be beaten by Mr Hollande in the second round of the French elections on May 6? Is there anyone out there who did not expect the Greek elections to result in political chaos with no party or viable coalition of parties able to form a government?
There is no-one, of course. And yet the actual results of these elections, telegraphed and exhaustively analysed beforehand, dropped like a bomb on financial centres and asset markets all over the world. Everybody deleted the “risk on” programs from their computers and locked down the “risk off” buttons in unison. Another day – another apocalypse.
It has been said that markets discount the future into present prices. In the days when markets were at least relatively free to reflect the independent decisions of those who participated in them, they did just that. To quote one explanation of the ability of markets to discount the future: “This means that over any period of time, all factors – those that have happened, are expected to happen and could happen – are priced into the market. As things change, such as market risks, the market adjusts along with the prices, reflecting that new information.”
That was when markets were markets. Today, so-called “markets”are the last holding ground for those desperate to hold on to the “system”. Prices are systematically falsified and most of the “seasoned” players know it. That is why today’s markets are so vulnerable. They are no longer based on the prospect of future wealth production. They are based on an increasingly fragile “confidence” in politics – and bailouts – as usual. Almost everything today is explicitly or implicitly underwritten by government. And in such circumstances, what most terrifies all the market players is not so much a change in the makeup of government. It is that a latent threat to change the fundamental policies of government may actually take place. That threat is popping up all over the world.
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