Madmen in charge of two of the world's major oil producers. A military coup in Thailand. Rioting in Budapest. A reforming Russian banker gunned down. There was a time when just one of those stories would have sent a spasm through emerging markets. Oil prices would have jumped. The Thai baht would have collapsed. Hungarian bond yields would have soared. The Russian stock market would have tanked.A professor of history writing as a subject matter expert on economics? Well, yes, actually.
Not a bit of it. The price of crude oil for November delivery fell 5 per cent last week, even as Messrs Ahmadinejad and Chávez were holding their rant-fest. On news of the coup in Bangkok, the Thai currency declined by little more than 1 per cent against the dollar – nothing compared with its spectacular gyrations during the Asian crisis of 1997. Investors in the Hungarian stock market are not having a great year, it's true, but recent political events have barely registered. If you invested in Budapest two years ago, you have still nearly doubled your money.There are two ways of explaining this mystifying disconnect. One is that everything is going according to the dastardly plan of the infinitely cunning capitalist imperialist running dogs. In perfect unison, wacko demagogues from the developing world have been wrecking the credibility of the United Nations and making George W Bush look like a model of sweet reason. What more could Republican Party strategists have asked for in the run-up to November's midterms? As for military coups, bring them on. Let's have one in Hungary too. It is probably the only way to get that budget deficit of theirs down.
Well, maybe. The other possibility is that investors are continuing to mistake liquidity for security. Despite the much-trumpeted tightening of interest rates by the world's principal central banks, the reality is that monetary expansion has barely slowed. In Britain, for example, the broad money measure M4 grew at an annual rate of 13 per cent in July, a remarkable figure. Money may be dearer, but it is still amazingly plentiful. That seems to be encouraging a rather cavalier approach to risk assessment.
Check out the show he did on Open Source Radio; it's worth a listen. And he's written a book that appears to be worth reading as well - it's my next purchase.
