Man Without Qualities

Monday, March 17, 2003

The Traders Speak?

Equities markets rallied today around the world. Many quite respectable media are attributing the rallies to expectations of a "short war" with Iraq following the ultimatums and decisions of the Azores conference.

Markets are generally supposed to respond to new information. But nothing in the Azores developments or other news says anything new about the coming war being long or short. The Azores developments crystallize the markets' expectations that there will be war, and very soon. It is on that news that world equities markets rose.

And it is even stranger for the Financial Times to assert: Wall Street erased its early morning losses on Monday as investors hoped for a swift end to the US-led war on Iraq. Few traders or investors bid up equities prices because they "hope" for anything - and, in any event, the "hope" that a war will be short is not new and not supported by any new data.

That's not the same as saying that equities markets want war. What equities markets "want" marginally is certainty. They got it. They are more convinced.

UPDATE: TrendMacro Live has more. [But password required.]

POSTSCRIPT: Perhaps this belabors the point, but nothing in the above post denies that current market positions assume and depend on the expectation that the war will be short. The point is that markets have incorporated that assumption for quite some time - and it didn't change in the last few days. If something signals that the war may be long, that would be major new information, probably triggering a downturn in equities. All that being said, the equities markets did not rally on information or expectations that the war will be short - although current equities prices do and for a long time have reflected an expectation that any war would be short, just as they reflect certain expectations as to the future price of oil or the Fed's decisions as to interest rates or any number of other variables.

That markets will decline in the future if contrary information is received is not the same things as stock prices increasing because of information long included the market.

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