The beginning of this week was a surreal experience. Having spent the last couple of weeks being battered in every direction it was very strange to see markets barely moving on Monday morning. This was because of the British bank holiday. Despite the volume of trade that now takes place on the Matif and Eurex, a British holiday still brings things to a near standstill. Like being in the eye of a hurricane, you know that there is really chaos all around but for a brief moment everything is quiet.
So people went home on Monday evening, relieved that for once the day had been quite boring. Until later on Monday night when we heard about the Dow's heart-stopping falls. What can you say about a market that's scared of its own shadow at the moment?
A lack of good news on just about every front is making it very difficult for people to show any enthusiasm for markets at all. Things get bleaker by the day in Russia and it's hard to keep up with every nuance of the Duma's deliberations. It looks like Yeltsin might have to have three attempts at nominating Chernomyrdin as prime minister (shades of Kiriyenko!) as the Duma wants to know why Boris now favours his erstwhile minister, having booted him out only five months ago.
The Communist Party is the one most opposed to Yeltsin's choice and you have to presume that its motives are purely political, as not confirming him will lead to continued chaos in that already beleaguered country. There's lots of talk about the oligarchy of "businessmen" who have grown rich over the last few years, building up large empires and with little interest in paying the taxes which the government badly needs to collect. It's difficult to see how any of this is very different from the old system and difficult to see how the average Russian can care very much who runs the country.
In the meantime, the banking system is in a complete mess. The country's biggest private bank, SBS-AGRO is now under the control of the central bank and has been closed for two weeks. The rouble hasn't traded officially for days, although unofficially it continues to fall. Chernomyrdin did his best to calm the fears of depositors in the banking system when he told them that they would receive their money and that the rouble would be convertible. But most of them just want to know when the government will start printing money to pay wages.
Estimates for inflation in Russia are now running from 20 per cent to 100 per cent per annum depending on how gloomy predictions are for a resolution of the political, if not the economic, difficulties. Bill Clinton's visit may help, but how much and for how long?
Given the white-water ride the markets are going through, it was only to be expected that someone would question the viability of the euro launch date of January 1999. Most of the dire predictions are coming from our pals in Britain who are quietly sounding the death knell for the euro. "Doomed innit" was one of last week's gleeful comments as sterling strengthened against the deutschmark and European bond markets got themselves knotted up.
The Sunday papers trotted out the usual array of suspects to tell the public at large not to panic at the losses in equity markets. It's a bit difficult to tell the general population not to panic when market professionals are doing just that. And although the public may panic about pensions and investments, traders are panicking about their jobs!
Maybe the best thing to do under the circumstances is to follow the example of the English man, Geoff (why is that pronounced Jeff?) Smith who has decided to be buried alive for the next six months. I didn't get the impression that it had anything to do with the value of his long-term portfolio, but some lunatic notion of breaking the world record for being buried alive which had once been held by his mother. Very, very strange behaviour but not as strange as buying Russian debt at a mere 940 basis points over US Treasuries a few weeks ago, I suppose. At least he'll have more things to worry about than the daily contortions of the FTSE and the Dow.
The papers also enjoyed telling us how much money Ireland's top business people had lost in the current markdown (more since Monday). Obviously we're talking paper losses here, just as we were talking about paper profits last month. But I can't help feeling that the media prefers the stories of losses, paper or otherwise.
One of the driving forces of economies over the past few years is meant to have been the "feelgood factor" of wealth which has, in the main, been obtained through the effervescent equity markets. The concern now is that, if peoples' net worths have been reduced, will they be less inclined to spend money they never really had in the first place? And what effect will that have on the tiger economy? Do we end up back in the bad old days of a non-cosmopolitan, uncool Dublin and falling house prices?
We had a personal back-to-the-future experience at the weekend when our neighbours invited us to their housewarming party. The theme was the 1970s and I thought about just bringing a photograph of me in flares . . . but I didn't want to scare everyone. Anyway, I might not have been a leading light of the social scene back in the disco-fever era, but I seem to remember a lot more dull browns and greens around the nightspots of Dublin rather than the fluorescent glam-rock gear that was strutting its stuff on Saturday night. The most important thing about these sort of events is not to sing along with the music - being word-perfect to Dancing Queen and Tiger Feet (not to mention knowing the dance steps to the latter) has a chillingly dating effect. I obviously missed the best part of the 1970s - I never had a Bacofoil jacket or shoes with a sole higher than two inches. But a friend once fell into the pond in St Stephens Green when she tripped over her thigh-high, green-leather platform boots as she raced back to the office from a shopping spree in Pamela Scotts.
Back in August 1979, the Dow was at 885. Almost 20 years later it was at a high of 9337 before Monday's whitefaced close of 7539 - which goes to prove that being there for the long haul is all important. All the same, I can see concerns for people in industries (particularly some of the newer industries) that reward their staff by paying bonuses in stock options. A great benefit when markets are trading well, but not so hot when we're in the throes of significant falls. And maybe it's those people who will feel the pinch of the wealth effect first.
It's always a bit of a concern when financial markets are front page news rather than the boring bit in the middle of the newspaper. . . .
Sheila O'Flanagan is a fixed-income specialist at NCB Stockbrokers
