Simon English: What now for the eurozone? Don't ask the experts

Click to follow
The Independent Online

Shares were up yesterday, theoretically on the 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. When economic news gets interesting enough to bother the front pages, all sorts of unlikely people suddenly claim to care about the machinations of the 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 been 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 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 career-limiting stance. Instead, they react to news flow, rather than relying on the considered analysis on which their jobs are supposedly based.

Matthew Lynn of Strategy Economics argued the following in a paper yesterday: "Conventional economics is 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 eurozone to the brink of collapse. Asset prices plunge," he writes.

"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."

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 on 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.

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 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 for ever, 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.