What will happen in the eurozone? Don't ask the experts, they don't have a clue

Simon English: The Independent

Thursday, 7 June 2012
Outlook Shares were up yesterday, theoretically on hope that the eurozone "crisis" will be
resolved. If they are down again today (that's the way to bet) does that mean we are
suddenly back in the mire?

Not really. One thing that happens when economic news gets interesting enough to bother
the front pages is that all sorts of unlikely people, TV presenters for example, suddenly claim
to care about the machinations of this curiosity called markets.

If they've fallen there must be a good reason why – we shall tell people what that reason is.
Sometimes markets are moved by genuine shifts in sentiment or genuine moves in perception
of what the future holds, but it is hard to see that's the case lately. They are moving on
noise and, moreover, on extremely low trading volumes.

The eurozone situation is so hard to call that traders, fund managers, bankers, economists
and the whole rest of the chasing pack of folk pretending they know what's going on from
one day to the next are left floundering even more than usual.
They might like to say "search me, I've no clue", but that could prove to be a seriously
career limiting stance.

Instead, they react to newsflow, rather than relying on the considered analysis on which
their jobs are supposedly based.

That daily tension between greed and fear has always been present and trading on what one
thinks will be in the news is far from a fresh approach, but the trend is lately exacerbated
since the possibilities are so far apart (either we're all doomed to the Third World War, or
we're heading to the end of the banking crisis and a fresh boom in prosperity).

So much so that Matthew Lynn of Strategy Economics argued the following in a paper
yesterday: "Conventional economics is now largely useless in trying to analyse the twists and
turns of the unfolding euro crisis: it has long since left behind any rational calculation of what
is good and bad for the Continent."

If he is right, most economists should pretty much just resign.

By Mr Lynn's telling, the present situation is best understood as a branch of game theory. "The markets take the euro-zone to the brink of collapse. Asset prices plunge. "As they peer over the edge of the abyss, the leaders... take fright and come up with whatever is necessary to keep the system from collapsing," he writes.

This has happened several times already and will keep happening, goes the theory.

He thinks this game of chicken is a trading opportunity, and suggests buying blue-chip
European stocks, French bonds, German property, gold and the Russian stock market. They'll
all go up after the Greek elections and the next big rescue deal, he says, at least for a while.
Even if you aren't in the mood to take such risks, his analysis might be a source of comfort.
His wider point seems to be that, since it is in no one's interests for an entire continent to go
bust, they shall keep figuring out a deal to prevent such a calamity.

Mr Lynn thinks that none of the bailouts can work in the long-term, but he might concede
that until tomorrow comes (it never has yet) we can all live forever, one day at a time.
In the short-term, there are money-making opportunities for those who ignore the gloomy
chat.

So don't look too closely at the stock market. Its daily gyrations really aren't telling you
anything that helpful.

s.english@independent.co.uk