Richard North, 25/08/2012  

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If it was the intention to let Greece drop out of the euro, the very last thing Merkel would do is signal that intention publicly. To prevent runs on the bank, and pre-emptive market reaction, she would – to the very minute before the deed – be seen to be holding the line.

Thus, anyone assessing Merkel's statements has to bear this in mind. She is a politician and what she says holds true only at the moment she says it. Tomorrow, as they say, is another day. By next week, the situation could have changed beyond recognition.

To then assess the state of play by measuring  market reaction is not the brightest of ploys. Traders are not political analysts and are prey to the herd mentality, acting more often like sheep than sentient beings. And, as we have observed before, there is a tendency to over-interpret short-term market movements in the belief that they represent market sentiment.

One factor which also militates against this is trading volume, as we have also noted before. And, it appears, this is a very significant factor. Currently, international markets are trading at extremely low levels and there is copious reporting which suggests that this is distorting market signals.

In reality, traders are biding their time. They have no better knowledge than the rest of us and, until the politicians make their move, they are taking their money elsewhere. The politics are driving the economics, not the other way round. The traders will not predict events – they will, over time, simply keep the score.

Despite this, we get the Failygraph typifying so much of the media in placing undue emphasis on the market, as if its "signals" meant anything, at the same time trapped in a haze of ignorance brought on by their lack of understanding of the political issues.

Thus, we get "Chief Business Correspondent", Louise Armitstead, (how they do love their Ruritanian titles) today writing of a "sense of vacuum", which has been compounded by "revelations" that the ECB "is planning to delay the progress of its bond buying programme" until after the Karlsruhe ruling on the ESM on 12 September.

Yet, when the consummate politician Mario Draghi announced his famous "plan", it was obvious that it lacked substance and that the president of the ECB was indulging in theatricals. In fact, the intention was almost certainly an attempt to kick that famous can down the road, to avoid a major crisis during the holiday period.

Despite this - and even though we recorded Die Welt dismissing the plan as "not much more than rhetoric", and Reuters was talking of an "action gap" - the English press has been prattling on about this chimera, without the slightest perception that it lacked substance.

Now we get the amazed Lord High Chief Business Correspondent telling us that "investors and economists had hoped ECB Draghi would use a press conference on 6 September to announce a radical intervention plan". But, Armitstead writes, "the timetable is now sliding towards the next deadline for a Greek default".

Was it really going to be any different?, one muses as Armitstead then cites Robert Halver, at Baader Bank in Frankfurt, who grandly declares: "We need clear decisions. There is a possibility that Greece will leave the euro zone in October. Preparations for a Greece exit, and a subsequent domino effect are running. Markets need to know what the face of the new eurozone and policy will be".

Well, Mr Halver is going to have to wait like everybody else. The politicians will make their decisions when they are good and ready, and in the meantime will play the market commentators for the gullible fools that they are. It is, after all, so easy to do – did anyone say Facebook?

All they need is another "plan" from a prestigious persona, and the scribes will be as happy as larry, until yet another deadline passes and the grand aspirations drain into the sand. It really is that easy.

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