A world of trouble

Date: 15-01-2013
Source: The Economist: Schumpeter

Which risks loom largest for businesses in 2013?

IN “THE MAGIC MOUNTAIN” by Thomas Mann, a young businessman visits his ailing cousin in a sanatorium in Davos, in the Swiss Alps. The businessman starts to feel unwell himself. The sanatorium’s chief doctor, who also owns the place, advises him to rest. He ends up staying for seven interminable years.

Reading reports on risk can have much the same effect. The more you read, the more risks you see; eventually, you succumb to nervous exhaustion. This week saw the publication of two particularly angst-inducing accounts: “Global Risks 2013”, by the World Economic Forum (which meets in Davos this month), and “Top Risks 2013”, by the Eurasia Group, a consultancy.

It is nevertheless worth pouring yourself a stiff whisky and ploughing through all those pages about “chronic labour-market imbalances” and “the unforeseen consequences of climate-change mitigation”. These reports not only provide warnings about dangers that can be avoided by better planning or clearer thinking. They also suggest opportunities—for it is a basic law of business that one man’s cliff is another’s ladder.

The WEF explores some familiar problems, such as rising inequality and the fragility of the global economic system (which is being tested anew by the unfamiliar combination of bold monetary policies and austere fiscal ones). But it focuses on two more unfamiliar threats that lie just beneath the surface of everyday life, in your inbox and your medicine cabinet.

The WEF speculates that “digital wildfires” could wreak global havoc. The internet spreads disinformation in the blink of an eye. Traders, human and robotic, act on it faster than you can say “flash crash”. In July 2012 oil prices rose by more than $1 a barrel when a Twitter user, impersonating the Russian interior minister, tweeted that Syria’s president, Bashar Assad, had been “killed or injured”. In October NASDAQ halted trading in Google shares when a leaked earnings report led to a $22 billion plunge in the company’s market capitalisation. And in November the BBC was rocked when an irresponsible news programme prompted Twitter users to accuse an innocent politician of paedophilia.

Risk On: Was 2008 Just a Bad Dream?

Date: 27-02-2012

Source: BusinessWeek

With volatility back to low, pre-crisis levels, safety is being shunned for excitement

The ghosts of 2008 linger. They haunt an economy that’s slowly and unevenly recovering from its worst shock since the heyday of bread lines and Hoovervilles. The financial crisis taught us that long-held assumptions and complacencies can and will fall apart in a subprime minute. Markets tanked. Credit dried up and marginally financed companies went under. Banks failed. Even today, whole subdivisions of newish homes remain abandoned, their copper pipes ripped out and their pools sporting a phosphorescent, almost otherworldly, shade of green.

Point is, the concept of risk is not to be underestimated. In mere months, American household wealth took a brutal, $14 trillion hit.

That’s more than $120,000 per household. And lest you thought a snapback in 2009 and 2010 made things perfect once again, Europe’s fiddling last year while Rome (and Athens and Lisbon) burned sent volatility soaring and markets tanking all over again. Some economists swear we are only in the middle innings of a potentially decade-long financial crisis.

Resilient to what?: a fascinating new look at risk

Published Jul 8 2011 by Transition Culture, Archived Jul 8 2011

by Rob Hopkins

I was reading through the Executive Summary of the World Economic Forum’s Global Risks 2011 this afternoon (as you do) and the chart on page 3 (see above) caught my eye (click on it to enlarge it). In it, the authors set out all the risks they see in the world on a matrix which positions the various risks by their perceived impact on the global economy and by the perceived likelihood of their happening. What you might expect to be at the top, given recent media reports, would be the threat of terrorism or perhaps some hideous computer virus that knocks out nuclear power station. But no. There at the top, leading the pack, are climate change, ‘extreme energy price volatility’ and fiscal crises.

As the Euro Surges, Another Risk for Greece

Date: 29-04-2011
 Source: The Wall Street Journal
Greece has plenty to worry about: hard-hitting austerity measures designed to get the nation’s finances back on track, a shrinking economy, and the real risk that it can’t pay its debts.

Whether it needs to add a strong euro to that list is less clear.

The currency, used by 17 countries including Greece, is flying high, reaching a 16-month high of $1.4882 on Thursday, as investors flee the greenback in the expectation that U.S. interest rates will remain super-low for a long time, while others, including those of the euro area, push higher. Most impressively, the euro has risen nearly 14% against the dollar this year, despite the financial problems of Greece, Ireland and Portugal, all of which have had to accept international bailouts.

The shift in the euro is bad news for the euro zone’s exporters because it makes their goods abruptly more expensive abroad. If the current rumble in the dollar becomes an unnervingly rapid rout—a possibility that troubles many analysts and investors—this could slam all of the euro’s members. It would be a particular threat to the bloc’s most financially stressed members because they would find it even harder to use exports to expand their economies and crawl out from under their mountains of debt.

Connecting the Dots Between Global Risks

iMFdirect

Apr 21, 2011 5:20PM

Finance ministers and central bank governors from around the world, gathering at the Spring Meetings of the IMF and World Bank in Washington last week, identified a slew of continued and emerging risks to the global economy, including higher food and fuel prices, the disaster in Japan, unrest in the Middle East, lingering unemployment in parts of the world, and the risk of overheating in some dynamic emerging markets.

With the recovery solidifying but still fragile, ministers put the spotlight on how to strengthen the IMF’s surveillance—its economic assessment and analysis—to help countries take the action needed to address risks and avoid future crises.

Jeder für sich allein

 Zeit Online, 29-3

Ob bei der Atomenergie oder in der Libyenfrage: Die Menschheit ist sich nicht einig, wie sie mit großen Risiken umgehen soll. Die turbulenten Weltereignisse beleben das nationale Denken wieder.

• Von: Harold James
• Datum: 29.3.2011 – 06:34 Uhr

© Keith Bedford/dpa

Eine Frau inmitten der Zerstörung: nach dem Tsunami in Kesennuma, Japan

Die Ereignisse in Japan haben eine Reihe fester Glaubenssätze über den technischen Fortschritt und die Globalisierung erschüttert. Sie bestärken eine Entwicklung, die schon in der Weltfinanzkrise ausgelöst wurde: Wir zweifeln heute daran, dass die Gesellschaft und die Wirtschaft sich vorhersehbar entwickeln – dass sich alle Risiken und Unsicherheiten messen lassen und dass auf dieser Basis für die Zukunft geplant werden kann.

Three-and-a-half questions for the Davos gurus

Date: 17-01-2011
 Source: Reuters

For the last several years, the World Economic Forum (WEF) has published an annual report on global risk, as part of the run-up to the storied annual meeting in Davos. The 50-page report makes for gloomy reading: it is a dense collection of some of the major threats to the world’s security — from asset price collapse to weapons of mass destruction — and the interconnections between them. And they’re all carefully mapped in terms of their perceived likelihood and perceived economic impact.

You’ve got hand it to WEF: their report is thorough and sobering, and makes a great reference tool for later in the year. Last year’s report said that “there is a rising risk of sovereign defaults,” and that proved more accurate and expensive than anyone wished.

Yet for all its insistence on a big-picture, global perspective, the WEF risk report can seem internally contradictory or just hollow, as if pieces of cloth were produced in separate quarters with no one sewing them into a coherent quilt.
And so, for those who want the big picture to be even bigger, here are three-and-a-half major questions raised, but not answered by the WEF risk report.

Euro Zone Bets the House

   Date: 11-05-2010
 Source: The Wall Street Journal

Euro-zone leaders, the International Monetary Fund and the European Central Bank have pressed the big red button marked “do not press” with a nearly $1 trillion package of loans, guarantees, swaps and outright bond purchases. Will it work?

The “shock and awe” strategy triggered a huge immediate relief rally, but key questions remain unanswered and ultimate success isn’t assured. In any case, it represents a huge political gamble to restore confidence to markets, and it will have profound consequences.

Twenty Percent of Spanish Mortgages Now Considered to be High Risk

Edward Hugh | Aug 18, 2009

According to an article which appeared in the Spanish newspaper Expansion this morning, one in five Spanish mortgages is now considered as being high risk and liable to become “non performing”.