Mar 16th 2011, 20:03 by Buttonwood
STEP forward, Gunther Oettinger, the EU's energy commissioner, who has been sounding off about Japan's nuclear crisis. Earlier today, he said the situation was "out of control", adding that "in the coming hours, there could be further catastrophic events". According to Bloomberg, the value of world markets fell by $430 billion in the 15 minutes after his remarks went over the wires.
Is it the most expensive sentence ever uttered? Worse even than saying "the drinks are on me" at a Charlie Sheen party? Mr Oettinger's spokesperson later admitted he was drawing his information "partly from the media, partly from the government". According to Reuters, she added that:
"He just wanted to share his concern and that he was really touched by all the images of people and the victims...and in this sense, he said that according to we have seen in the media it seems that in the nuclear power plants at the moment we do not have technical control. He referred to media reports that say that we could imagine there is a partial meltdown."
Perhaps Gunter should reflect on Proverbs 17, verses 27 and 28:
He that hath knowledge spareth his words: a man of understanding is of an excellent spirit.
Even a fool, when he holdeth his peace, is counted wise: he that shutteth his lips is esteemed a man of understanding.
Or he might reflect on this statement, taken from the BBC website that
Japan's foreign ministry has asked foreign diplomats and government officials to remain calm and "accurately convey information provided by Japanese authorities concerning the plant", according to NHK television.
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So the world markets just lost $430B in a matter of minutes due to remarks that were inspired partly by talking heads with Mass Communications degrees and partly by talking heads with Political Science degrees?
Excuse me while I go find a very tall building to fling myself from in despair.
Wow, Buttonwood misses the point completely. I hope he missed his foot as well. This only shows that the world markets aren't driven by well-informed decisions; they're driven by gamblers and gamblers are superstitious.
Somebody now needs to write about the economics of the politics of the economics of natural disaster.
If he had made the opposite point of speculating that all will be well, and world markets had risen by $430 billion, would he have earned the same level of opprobrium? People shouldn't be lied to just because the news is bad, and the idea that markets should always and only go up is a dangerous one.
Incidentally enough, it looks like he may be right. The US Nuclear Regulatory Commission is now predicting a meltdown, and advising US citizens within 50 miles to evacuate, over the objections of the Japanese government.
Who's dumber? A) The fool who speaks? Or B) the fools who listen to him?
Answer: C the fools who let B control the world's money.
Well, this article has the assertion very wrong: if Oettinger was wrong, then the market would have ignored his comment. However, currently markets price Oettinger spot on the money, so there was a big drop.
Essentially, this is a backwards thinking by the people who spend too much time on the market: in an economic theory, the market is supposed to react to events - but these events should happen with little knowledge about how markets will react to them. Same things go for interest rates: they should rise and fall only by looking at the inflation and economy, not the stock markets. As soon as the thinking "but how will the markets behave" goes into consideration, we will end up with Greenspan put, and I don't think it played out quite as well as advertised.
If the information was wrong, as I believe it is given what I've learned from nuclear engineers in the past few days, then the value is only temporarily lost. Markets trade on information and sometimes they're just goofy.
Remember the story about Nathan Rothschild's agents conveying valuable information about Waterloo by chartered boat and then hastened to London so he could trade on the news?
BTW, the link is broken. If I remember correctly, here by "the media" he meant press releases by Kyodo, and by "the government" he was referring to internal emails. Trust me, these guys constantly read a lot of releases that are not fully covered by media.
exscientist wrote: Mar 16th 2011 8:40 GMT "Wow, Buttonwood misses the point completely. I hope he missed his foot as well. This only shows that the world markets aren't driven by well-informed decisions; they're driven by gamblers and gamblers are superstitious."
No, YOU are missing the point, and this incident only verifies that the efficient market hypothesis (at least in its weak form) is true. Markets incorporate ALL publicly available information, both accurate AND inaccurate, in its pricing evaluations. As information gets more accurate, the pricing corrects to reflect the better information.
As jomiku pointed out, the price swing is only temporary, and will correct itself as more accurate information comes to light, but that is little solace to someone that fell victim to an automated trading program that sells at predetermined drops. I guess this is why "buy and hold" is still a superior strategy over day trading -- less exposure to swings due to erroneous information.
doug374 wrote: Mar 16th 2011 8:57 GMT "If he had made the opposite point of speculating that all will be well, and world markets had risen by $430 billion, would he have earned the same level of opprobrium? People shouldn't be lied to just because the news is bad, and the idea that markets should always and only go up is a dangerous one.
Incidentally enough, it looks like he may be right. The US Nuclear Regulatory Commission is now predicting a meltdown, and advising US citizens within 50 miles to evacuate, over the objections of the Japanese government."
Speaking of erroneous information -- the actual quote from the article is "The chief of the U.S. Nuclear Regulatory Commission said Wednesday that all the water is gone from one of the spent fuel pools at Japan's most troubled nuclear plant, but Japanese officials denied it. If NRC Chairman Gregory Jaczko is correct, this would mean there's nothing to stop the fuel rods from getting hotter and ultimately melting down. . . Jaczko did not say Wednesday how the information was obtained"
This is not exactly "predicting a meltdown". I think without verification, you can file this in the same category as Secretary Clinton's comment about the airforce delivering "coolant".
LexHumana,
"Markets incorporate ALL publicly available information, both accurate AND inaccurate, in its pricing evaluations."
1) I really would like to see an emperical proof of the statement that markets incorporate all publicly available information. Does anyone know what all publicly available information is?
2) I wrote that markets aren't driven by 'well-informed' decisions. You write about 'information, both accurate and inaccurate'. I think we agree here.
3) If somebody tells me that I'm going to get sacked if I take the 07.58 train in stead of the 08.03 train, than that's a piece of information. If I act upon it, I'm superstitious. It's perfectly possible to take all the available information into account and to be superstitious at the same time.
So, the Chinese might be the ones painting themselves with iodine, but I think we should be calling the TV personalities "Purple Dicks".
What we are missing is what the consequences of meltdown are. Radioactive material with long biological half-lives leaked into the ground and water, or fuel rods the are unusable and hard to move.
Mr Oettinger now has the disctinction of being the person behind...
"The Shout Heard 'Round the World". (groan)
Years ago when a few of us at work gambled in the market we would trade explanations as to why the markets went up or down.
The day's winner was the one with the most outrageous explanation.
This one is as good as I've seen in a long time.
Regards
aaron_
I gave you a recommend because maybe the down day was due to iodine buying, and people painting themselves purple.
Ahh, the days of Ghoulardi and the purple knifs. The good old days of local television.
http://hubpages.com/hub/Stay-Sick--You-Purple-Knif
Regards
Did he short sell? Is this the ultimate outsider trade?
I've never actually traded, but set up an account this year. I'm thinking a few things, but am going to take my time before I do anything. 1) Buy GLD puts. 2) Go long home builders. 3) Buy oil puts after next price increase. 4) Go long nuke builders and uranium producers. 5) Go long oil producers after exercising oil puts.
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