OpinionMarket's no-taper tantrum reveals its divorce from reality
Fed chairman confounded expectations, which are all that really matter to our financial wizards
We have just had a near perfect illustration of the difference between the ways the worlds of business and investment work. It's all the fault of that very, very bad man Ben Bernanke, the chairman of the US Federal Reserve, who had the gall to annoy investment specialists around the world.
They had confidently predicted that the Fed would abandon its policy of quantitative easing and accused Bernanke of misleading them in suggesting that the Fed's bond-buying programme was to be curbed. Well, conditions changed and the Fed stuck to its policy. The investment community threw a collective tantrum and global markets went into frenzy mode.
They were not responding to anything new, but to a confounding of expectations that something new was about to happen. Or to put it another way, they were dismayed and furious to learn that what they had confidently predicted was not going to happen.
Over in the real world of business, boring old reality prevails because although rumour and predictions are jolly exciting, they don't make widgets, or anything else for that matter.
In my little corner of the business world we might anticipate things happening by, for example, buying extra stocks of non-perishable goods before a price rise, but we're not speculating about a pricing adjustment, just acting on certain knowledge.
There is a bit of guesswork in customer demand for products, but it is based on a body of experience about what customers want. Making big gambles on anticipating customer demand is largely left to marketing geniuses.
Financial markets work in precisely the opposite way. Big gambles are embedded in their DNA and the markets move on expectations, not reality. Thus, for example, a company's share price will move more sharply in response to what the market expects its profits or losses to be as opposed to responding to what they actually are. We often see share prices falling if results come in at levels that have been anticipated. Then market commentators say things like "the market was disappointed that Ever Wonderful Construction failed to exceed analysts' expectations". As the old stock market adage has it: buy on rumour, sell on fact.