It's not the suits who are at fault

So the endgame in the tragicomedy goes like this: Italy-France-Spain-Germany-bang. Then Britain and the US.

Poef! Bye-bye.

You may wonder why Greece has fallen off the radar. Same reason Iceland did, with Portugal and Ireland disappearing from view soon after. Greece is relatively too little in terms of its, er, contingent liabilities to really matter. And each of those benighted countries has installed hard-nosed technocrats to yank politics in line with economic reality. The real heavy mortars are only now being fired.

France is next. The excellent Tyler Durden, blogging at zerohedge.com, has repeatedly said the European Central Bank is barred from intervening in the French sovereign debt market. Don't ask: it just is.

So unlike the case of Italy this week, which miraculously saw its 10-year debt-repayment obligations come down from above 7.5% to a more serviceable level, France doesn't have a fairy godmother who will soak up limitless quantities of vrot IOUs.

Sovereign debt is the sun around which everything spins. Borrowing rates mean the world. You just had to watch the stock market this week to see how heavily sentiment about credit counts in the banal game of buying and selling companies. Forget valuations, there are bigger forces at play. Like faith and hope. And charity.

Why, you may ask, sobbing into your flute of Babycham, did the whole of Europe spring upward on Friday (Italian stocks by nearly 4%) if not because everybody has gone quite mad? The world's collective sense of risk management seems to have finally popped a fuse.

There is no way the problems of Greece and Italy are sorted. New governments will soon busily be passing austerity measures which will nicely douse any wistful thoughts of growing out of the mess.

And still the yahoos of the world pile into the stock market. Tell us, please, Mr Asset Manager, which eurozone company will earn mega profits from a freeze in state spending and social-benefits payments?

Actually, that is unkind. It is not the asset managers making markets move like marionettes. It's speculators.

Asset managers, for the most part, have long-only mandates that have to parse with the puff they put out to reassure nervous old bullets with rickety retirement-savings portfolios.

The suits aren't the ones we should be cursing. No, it's the flash blokes in bermuda shorts and slip-slops.

John Hussman, who somehow manages to sound dispassionate, is a pillar of rectitude in the asset management playpen. He is especially good at defining the relationship between monetary policy and stock markets. What he says about US responses to the panic goes a long way to explaining Europe's reactions.

This week on hussmanfunds.com came the note: "Ben Bernanke has done his job well, given that he believes his job is to drive investors into higher-risk assets by starving them of yield on safer investments. The end result is that investors face a perfect storm - risky assets priced to achieve dismal long-term returns (except in comparison to equally dismal alternatives), coupled with the risk of an oncoming global recession."

Bingo!

Another good egg is Pimco's Mohammad El Erian. (Pimco is the world's largest fixed-income investment house.) He said: "You cannot be a good house in a bad neighbourhood, that's just a fact. The equity market is the house, and the global economy is the neighbourhood. So if the global economy takes a leg down, the equity market is going to take a leg down too."

Coincidentally, and perhaps cynically, given the above wake-up calls, Standard Bank this week issued 12 new warrants. Of these options on underlying instruments (mostly resources stocks and a few banks) only two - two! - were puts (bets that prices will be lower by a set date).

The standout bearish option was a put on the JSE Top 40 index. If, by July 5 next year, Joburg blue chips have fallen below 28000, you'll be in the money. The index closed at 28889 on Friday. [Reaching for wallet]