Congrats to the protest voters in Greece’s election on the weekend, with the anti-austerity Syriza party taking a majority position in their parliament. A few thoughts:
- Now what? The story of Syriza brings to mind the Tea Party in the US. It started as a small protest party with extreme views – a simple message of ‘We can’t handle this debt burden that was left to us.’ Now that the party is in control, simple messages don’t work as well for continued governance: for example, Tea Partiers became very selective in which debts were OK to keep (Social Security and Medicare, mainly). The press has already picked up on the challenge for Syriza going forward, as they figure out how to balance the simple message with realpolitik.
- Markets priced the news well. Yes, the Euro crashed for a little bit. Stocks took a little hit. But within hours (at least as I write), we’re practically back to where we were before the election. So the market did a great job of pricing this known unknown: the winning margin of Syriza in Greece, and how aggressive they’ll be in renegotiating their debt burden.
- Contrast with SNB manoeuvre. The weekend news provides a good foil for the SNB move a couple weeks ago: that unknown unknown meant the markets had no time to price expectations. On the plus side, market efficiency meant the prices moved quickly to reflect new info. On the minus side, those discontinuous moves brings much heartburn to investors/traders.
- What would you do? Suppose you’re in a big position of power, and you have big news to communicate to the markets. Do you drip in the info, like Super Mario and the ECB? Or do you shock and awe, as the SNB did? Markets clearly prefer the former, but maybe there are reasons for the latter method.
- The bigger message. I wonder if this qualifies under ‘folks with pitchforks’, when we talk about the demise of the Western middle class. Now protest parties (e.g. Podemos in Spain) are expected to get a lot more votes, which will bring similar uncertainties. Without being too ominous, the status quo seems to be unravelling.