… the gilt is down one point today (to 116 on the June futures, still 4 points above its level in Feb) ….  NOT because or solely because of hung parliament negotiations ‘dragging on’ but because there is a huge relief rally in equities, a return to risky assets, etc.  The FTSE is up 2-3% and the pound stronger against the dollar (weaker against the Euro, but then it is they who’ve been bailed out by all this money).

Popular and well meaning conspiracy theorists like to think the markets just wag to the dog of politics.  No, the FTSE is full of international companies.  Simple rule of thumb: things are never as simple as Marxists think they are.


17 thoughts on “Before anyone panics or misinterprets it

  1. Well done for pointing out the parochialism of panic mongering. But your last dig at Marxists seems a little unfair. From where I’ve been standing Tories have been making these types of arguments more than any anybody else.

    1. Yes, fair point: but the Tories’ argument is different from the Leftish “the ruling elite make capital behave in the following fashion”. The tories’ standard attack is more “in political circumstance X, capital is not safe and markets suffer”.

      1. You are correct although lots of leftist capital strike arguments don’t rely on a conscious ruling class. Both Tory and Marxist variants, are pretty weak. Little empirical evidence supporting either of them.

  2. Could one argue a return to risk appetite will remove (reduce) the safe-haven appeal of bonds that is allowing the combination of huge issuance and low yields, and thus increases the urgency that WE CUT OUR DEFICIT NOW?

    1. Matthew

      I think that is quite credible. The real moment of risk is NOT when the depression is gathering and everyone is panicking. Examining 1976, which was not the worst year of crisis in that decade, but a year in which things were starting to improve.

      If the economy starts growing well, gilts will fall, and the govt had better start being brave. If.

  3. Giles, hope you don’t mind on this occasion if i just copy over my comment in reply to yours at my place (I’m not sure why you call me ‘popular’, btw):

    I’m happy to acknowledge that the post itself was a bit over-the-top with dramatic whimsy, trying too hard to establish a link between what I do think may have been pretty explicitly politicised decision to trade at 1am on Friday as a way of sending a ‘signal’, and the movements of the markets today. Of course I recognise that there is no direct email link between Tory/LibDem CCHQ telling the white cat stroking market masters to sell, sell, sell in order to drive home the deal, though I would still argue there is a storng structural and ideological link which can give market movements that appearance.

    I think LO’s comment @8 is actuallly a much better rendering of what’s going on than my post was ie. that the actual market movements are less important than the narrative of crisis that is used to justify the LibCon deal, and I really should have restricted my own post to that type of analysis.

    I disagree with you on two main points, though. First, I think the LibDems may well need this additional justification of imminment/real crisis in order to be able to ‘sell’ the deal to its own constituency, many of whom do not think like you about the prospect of Tory rule. A majority of seats together is not enough.

    Second, and as you’ expect, I disagree with you that “the parties’ plans post election are probably within margin of error of each other.” Yes, they may be similar in macro-economic terms of how quickly the deficit will be reduced, but those broad statements of intent mask very different ways of doing that. I spend a lot of time on ths blog – and I think with good reason – looking at more specific Tory plans around public services and social policy, for example around the legislative plans to allow local authorities carte blanche on how much benefit claimants will get. This may be detail, but it’s important detail of the type that gives me sufficient evidence of the ‘real’ Tory agenda to want them excluded from it at almost any cost. While Hopi and I might appear to overdo the drama on this, I think we are justified.

    1. Paul

      Your comments are always welcome.

      I think far more in macroeconomic terms. Like a very oldschool Keynesian combined with an even older concern for national solvency, I think GDP growth is the overwhelming priority. Which means that other considerations, like the exact mix of social and public service policies used to achieve the various pathways, while absolutely vital politically, are probably not the urgent economic matter – certainly not so urgent that they justify retaining a government that seems to have been rejected, in the name of superior macroeconomic policymaking. Particularly when that damages the party of the government in question.

      Your first point may well be right. I am not entwined enough in the LD party to know where the dialogue is going.

  4. Popular and well meaning conspiracy theorists like to think the markets just wag the dog of politics.

    The number of times I see friends who should know better accusing ‘the markets’ of trying to ‘launch a coup’ is just desperate. They’re intelligent people, until it comes to anything political-economic. I sometimes get the impression there is a culture somewhere for which politics is a brain-free zone.

  5. I don’t think markets ‘launch a coup’, but that’s not quite the same as saying various sections of the political and media establishment like to raise such a possibility (if your inverted commas are meant to signify financial pressure to change policy, rather than tanks in No.10)

    1. Actually, my quotes were to indicate a quote! The person using the phrase did intend that ‘the markets’ were going to put political pressure on the politicians to act in a certain way. I think he was missing the idea, somewhere along the line, that it is perfectly legitimate to take into the account the natural consequences of one’s actions ahead of taking action.

  6. Tanks in No.10? Yes that would be a conspiracy theory. How would they have hidden the preparations? Perhaps in the vaults of the Bank of England.

  7. The British media often misinterpret moves because they are so UK-centric. Most of the time they are totally oblivious to events happening in the rest of the world and how those events influence British financial markets. Therefore, they attribute a domestic explanation when quite often it is international. For example, there is always a catch-up effect in London am based on what happened in NY when London was closed.

    Posted by Matthew on May 10, 2010 at 8:50 am

    ‘ Could one argue a return to risk appetite will remove (reduce) the safe-haven appeal of bonds that is allowing the combination of huge issuance and low yields, and thus increases the urgency that WE CUT OUR DEFICIT NOW? ‘

    There are various ways of looking at this. An improving economy means future profits are anticipated so money should flow into equities. In those circumstances, risk-free government bond prices should fall and yields rise. However, although yields rise the improving economy means less bonds need to be issued as tax receipts rise. Moreover, if the risk-free nominal yield rises too high in relation to the the expected nominal dividend yield from risk assets money would flow back to risk-free securities pushing down the yields. Unless of course a government default was anticipated and then there could be a huge spread with no buyers. For example, last year the average nominal dividend yield for the FTSE 100 was only around 3.5%. Not a great yield vis-a-vis gilts unless you were aiming for capital appreciation. That is why even taking into account QE effects, gilt yields remained low even when equities surged.

  8. It’s irrelevant if there’s conspiracy between captialists or not – the outcome is the same, pressure on governments to make working people pay the price for the capitalist crisis and return to a healthy rate of profit by contracting the economy, thus wiping out less-profitable firms and further eroding wages

    1. I won’t take that comment about working people to suggest you’d be happier having this born by benefit and pension recipients?

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