Martin Vander Weyer
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No, markets are never the place to look for measured judgment or foresight, and they are only ‘in control’ of political events in the most anarchic, incoherent sense. Let me offer two more metaphors from the natural world, both borrowed from Niall Ferguson’s The Cash Nexus. The author himself compares markets to shoals of plankton: ‘But to say that financial markets rule the world is to say that the plankton rule the sea. The movement of plankton is not predictable; nor is it the product of a single conscious will.’ Then he quotes the American journalist Thomas Friedman, who described international investors as an ‘electronic herd’: ‘The trouble,’ Ferguson adds, ‘is that a herd — especially one without a herdsman — is prone to stampede.’
In Europe, the markets seem initially to have endorsed a E750 billion rescue package designed to prevent them from punishing individual eurozone members for fiscal indiscipline. Maybe it was sheer size that swung traders’ sentiment: the deal had echoes of Hank Paulson’s $700 billion bank bail-out, of which a US Treasury spokeswoman said, ‘It’s not based on any particular data point, we just wanted to choose a really large number.’ But this is a ‘rescue’ that underwrites the continent’s most profligate and incompetent governments. It has left German voters so furious at the prospect of contributing E123 billion to the package that they have already given Chancellor Angela Merkel a severe kicking in regional elections; and there are even mutterings in some quarters that Germany, rather than delinquent Greece, should become the first member to secede from the single currency. The rescue depends on an ever-increasing concentration of fiscal powers in Brussels; on the backing of the International Monetary Fund; and on the capacity (which must inevitably be limited) of the European Central Bank to stand in the market buying up the government bonds of over-borrowed eurozone countries that come under attack. In short, it is not a deal that markets can be relied upon to support beyond the first whiff of fracture. The shoal, the herd, the puppy litter, whichever image you prefer, will keep changing mood and direction until the euro can take the tension no more.
Out with a whimper
Meanwhile, how are markets responding to our exciting new Cameron-Clegg coalition? The electoral outcome that would have made the puppies happiest was a government intent on immediate, vigorous spending cuts, but that was rendered impossible by the Tories’ failure to win a majority — and might not have transpired even then. The outcome actually concocted can only provoke febrile flickers of market response for the time being: the pound lost a cent against the dollar within moments of Gordon Brown’s first resignation announcement, then gained two cents when he finally set off to see the Queen. The FTSE 100 opened uncertainly on Wednesday — and I wouldn’t expect strong negative signals unless or until the Vince Cable wing of the new administration starts backpedalling on tackling the deficit. If that happens, and the coalition starts to wobble, who knows where markets will take us next: at worst, towards an IMF-led rescue with a really large number attached. But let us look on the bright side, as this column generally does, and remember Black Wednesday, 16 September 1992, when markets (with, for once, a herdsman in the shape of the billionaire speculator George Soros) stampeded Britain out of the European Exchange Rate Mechanism and on to a long path of economic recovery. For all their maddening, amoral irrationality, markets sometimes make the right things happen. We and our European neighbours may have to rely on them to get us out of the mess we’ve been led into by politicians.
The pirate captain
I’ve always thought of Harrods as a deluxe retail cruise-ship at anchor on Brompton Road. When I worked there in my gap year, the great emporium seemed utterly becalmed. The general manager Mr Midgley (who looked a bit like the prime minister of the day, Edward Heath) would strut the decks with his entourage. But the owner — the gambling addict Sir Hugh Fraser, whose fate was to be courted and then coldly destroyed by Tiny Rowland of Lonrho — seemed to be confined to his cabin. Deference, both to the archetypal dowager customer and to an elaborate management hierarchy, was the order of the day. It was only after Rowland was in turn outwitted by Mohamed Fayed in 1985 that Harrods turned into a Carry On comedy, with the new owner (as chronicled in Tom Bower’s 1998 biography) telling pretty salesgirls to ‘Call me papa’, ordering ill-dressed customers to be evicted, and instructing that staff in the Food Hall should be tested for Aids. But Fayed kept command for 25 years and has now sold out for £1.5 billion to the Qatari royal family, thus aligning the store’s ownership with its archetypal customer of today. The pirate Fayed may not be much missed, but the good ship Harrods will surely be duller without him.
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