New world order may be so hard to imagine that investors just ignore it

In financial theory, investors are supposed to assign probabilities even to extreme outcomes. Trump says his escalating tariffs are meant to pressure Denmark into selling Greenland, but they also risk provoking European trade retaliation and weakening NATO. Over the long run, this could allow Russia and China to exploit a fractured West—or, alternatively, spur Europe’s rearmament and emergence as a third global power. Either scenario could be deeply negative for investors. A new world order is hard to imagine, and it’s plausible that investors find it so difficult to price such a possibility that they simply ignore it. Something similar occurred after the assassination of Austrian Archduke Franz Ferdinand in 1914. Markets largely shrugged it off for nearly a month; when war finally seemed inevitable, panic set in, triggering a financial meltdown in London, then the center of global finance. Likewise, Russian bond prices rose rather than fell for months after the Communist government repudiated Russia’s debt in 1918, effectively wiping it out. (Investors’ heirs eventually received only minimal compensation.) When World War II began in September 1939, British stocks initially dropped, but by March 1940 they had reached a one-year high, according to data from fund manager Winton Group. Investors failed to anticipate that Nazi forces would overrun continental Europe, devastate British industry through air raids, and ultimately cost the U.K. its empire. Stock prices collapsed only after France fell. [https://www.wsj.com/finance/investing/trump-wants-greenland-markets-dont-know-what-to-make-of-that-a9fc6b9e](https://www.wsj.com/finance/investing/trump-wants-greenland-markets-dont-know-what-to-make-of-that-a9fc6b9e)