Japanese whispers
THE City will now resume normal service, and about time, too. These election weeks have given us unreal markets, in which rumours about polls have finally given way to a Japanese rumour, which sounds to me more like a Chinese whisper. This said that the Japanese were waiting only for the election result, and, if they liked it, would buy the whole of the stock market and the rest of the country. Typesetters ran out of noughts trying to express the number of yen available for this purpose. We shall see. What we can see is that share prices, in the four weeks after the election was called, had aready risen by 10 per cent. We also saw.that the cost of a put option on the FT-SE Index — an investment which makes money if the market goes down had risen just as fast. Buying a put option to insure your shares against losses would, for practical purposes, have meant paying an insurance premium of 71/2 per cent. The corresponding call option — which makes money if the market goes up — cost about a quarter as much. Those assessments seem to me to show reality breaking in.
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