It was earlier this week when CNBC (or was it Bloomberg?), several economics and finance commentators were highlighting the supposedly inconsistency of S&P’s downgrade of US debts. They showed that several other European countries had higher probabilities of defaulting their obligations than the US, yet these European ratings were higher than that of the US. One of the countries was France.
Yesterday, the French finance minister had to come out to defend the state of the French economy and government finance.[1] Rumors about Société Générale are flying around.[2] And the global markets tumbled just as some thought we were out of hole that was Friday and Monday. As the Asian markets open today, there seems to be a kind of pessimism as everybody braces for a bad day yet again. Yesterday, before the French fright set in, was a swallow, and it did not make a summer.
It is unclear what is driving the fear in the market at the moment. Sure, some pointed out specific events but at the end of the day, it is all a guess. There are no real definite concrete events that one can say, those are the actual causes of the fear. Nobody really knows. Right now, there are so many uncertainties that the markets do not know what to fear and being prudent, they fear everything.
Even its own shadows.
This perhaps highlights the Austrian belief that not a single person is able to process all available information in a timely manner, which is a strong defense for the free market.
Nevertheless, it seems that the markets are fighting rumors more than anything else right now. Money is moved based on the petty rumors, without its truth reasonably checked. Better safe than sorry, maybe. Although speculation itself is useful in testing the truth value of certain statements that might be true in the end, it can also be a kind of self-fulfilling prophecy, turning statement with its initial state as false to true.
[1] — PARIS (Dow Jones)–The French Finance Ministry Wednesday said speculation that the country is about to lose its triple-a rating is “totally unfounded. The three [ratings] agencies have confirmed there is no risk of downgrade of the French rating, and these rumors are completely unfounded,” an advisor for French Finance Minister Francois Baroin told Dow Jones Newswires. [William Horobin. French Finance Ministry:Rumors On France AAA Totally Unfounded. Wall Street Journal. August 10 2011]
[2] — PARIS (Dow Jones)–Societe Generale SA (GLE.FR, SCGLY) said Wednesday it has asked France’s financial markets watchdog Autorite des Marches Financiers to investigate the origin of rumors that caused the bank’s share price to plunge more than 20% at one point in hectic trading Wednesday. Societe Generale asked the AMF to “open an inquiry into the origin of these rumors, which are extremely harmful to the interests of its shareholders,” the bank said in a statement. [David Pearson. Societe Generale Seeks AMF Probe Of Market Rumors . Wall Street Journal. August 10 2011]
One reply on “[2409] Yet another day to panic”
BOA should be next then