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from MacroScope:
The real sequester threat: rising political risk in the United States
Despite the Obama administration's cataclysmic warnings about the effects of $85 billion in looming spending cuts known as the "sequester," chances are the lights will not go out when they kick in this weekend. Still, the economic impact could be significant. The cutbacks might shave a half percentage point or more from an economy that is forecast to grow around 2 percent this year -- but which only mustered a 0.1 percent increase in annualized fourth quarter GDP. This, at a time when a similar austerity-driven approach has left much of Europe mired in recession.
Both the public and the markets seem to be taking Washington's latest war of words in stride. After all, people are becoming inured to the regularly scheduled fiscal crises that have become a part of the capital's landscape. But the sequester's most frightening potential consequence is much broader than its near-term economic ripples. The real danger is that, with every new episode of political theater over the budget, America's credibility as a serious, trustworthy nation is eroded. The concept of political risk, once reserved for banana republics in the developing world, is now very much alive in the United States. And that is one liberty a debtor nation cannot afford to take.
from Global Investing:
Mali risks in focus
The international focus is on gold-producing country Mali after days of French air strikes on al-Qaeda-linked Islamist rebel strongholds in the north of the West African country. France expects Gulf Arab states will help an African campaign against the rebels, and a meeting of donors for the Mali operation is due at the end of the month. West African defence chiefs are meeting today to approve plans to speed up the deployment of 3,300 regional troops.
Mali isn't normally on the radar screens of international portfolio investors, with little external debt and no developed capital markets.
from Ian Bremmer:
2013′s top 10 political risks
It was a close call at times, but we made it through 2012. Now we’re set to encounter a new set of risks ‑ but not in the world’s advanced industrialized democracies, which are much more resilient than feared. This year, with the global recession on the wane, attention shifts back to emerging markets, the economies that are usually the ones that pose the most political risk. You can read the whole report from my political risk firm, Eurasia Group, here, but an executive summary of this year’s top 10 risks, in video and text, is below:
10.) South Africa: Africa overall looks like it will continue its recent growth. But South Africa, one of the continent’s most complex and important economies, is floundering. Its dominant political party, the African National Congress, is resorting to populism to maintain its base among the urban and rural poor. That means more state intervention, more labor unrest and more assertive unions. We’re not predicting a fundamental political crisis, but the country is moving along a path that offers little reason for optimism.
from Ian Bremmer:
China is the elephant in the situation room
Earlier this month the National Intelligence Council released its Global Trends 2030: Alternative Worlds report — a document that comes out once per presidential administration — mapping out likely geopolitical trends over the next two decades or so. As usual, it’s a must-read, offering comprehensive analysis of the disparate factors that will drive global politics through 2030.
Further, the NIC took bold steps to correct some previous weaknesses in past reports. In the past the report nailed the “what” more often than the “when.” That is particularly the case with its treatment of the United States, for which “past works assumed U.S. centrality.” This time around the NIC sets an increasingly “multi-polar world” — which I call the G-Zero — as the backdrop of its report, acknowledging that the lack of global leadership has accelerated in the wake of the global financial crisis of 2008-09. America’s status as a “hegemonic power” is eroding, and no country is likely to take its place.
from Global Investing:
Corruption and business potential sometimes go together
By Alice Baghdjian
Uzbekistan, Bangladesh and Vietnam found themselves cheered and chided this week.
The Corruption Perceptions Index, compiled by Berlin-based watchdog Transparency International, measured the perceived levels of public sector corruption in 176 countries and all three found their way into the bottom half of the study.
from Global Investing:
Iran currency plunge an omen for change?
In recent days Iranians all over the country have been rushing to dealers to change their rials into hard currency. The result has been a spectacular plunge in the rial which has lost a third of its value against the dollar in the past week. Traders in Teheran estimate in fact that it has lost two-thirds of its value since June 2011 as U.S and European economic sanctions bite hard into the country's oil exports. The government blames the rout on speculators.
According to Charles Robertson at Renaissance Capital, the rial's tumble to record lows and inflation running around 25 percent may be an indicator that Iran is moving towards regime change. Robertson reminds us of his report from back in March where he pointed out that autocratic countries with a falling per capita income are more likely to move towards democracy. (Click here for what we wrote on this topic at the time)
from Global Investing:
Shadow over Shekel
Israel's financial markets had a torrid time on Monday as swirling rumours of an imminent air strike on Iran caused investors to flee. The shekel lost 1.4 percent, the Tel Aviv stock exchange fell 1.5 percent and credit default swaps, reflecting the cost of insuring exposure to a credit, surged almost 10 percent.
There has been a modest recovery today as the rumour mills wind down. But analysts reckon more weakness lies ahead for the shekel which is not far off three-year lows. Political risks aside, the central bank has been cutting interest rates and is widely expected to take interest rates, currently at 2.25 percent, down to 1.75 percent by year-end. Societe Generale analysts are among the many recommending short shekel positions against the dollar. They say:
from Expert Zone:
Decoding political risk no mean feat
(The views expressed in this column are the author's own and do not represent those of Reuters)
Politics is playing a dominant role in financial markets today -- and generally speaking, investors do not like it. Political risk is an additional layer of uncertainty that has to be factored in while making investment decisions. Because political risk is intimately linked with the uncertainties of human behaviour, the impact of political risk can at times seem to be almost random. After over two decades as a professional economist, I can assert that forecasting economies is tough. Trying to forecast what politicians are going to do is even worse.
from The Great Debate UK:
Why stasis on Capitol Hill should worry investors
By Kathleen Brooks. The opinions expressed are her own.
The markets have had to – grudgingly - get used to pricing in political risk in recent months. Instead of being moved by economic data and fundamental or technical factors, a large amount of recent price action has been driven by politicians, and that always spells bad news.
Firstly, we have had to listen to the machinations of Europe’s various branches of power as they try to muddle through to a solution to the euro zone debt crisis. This has done very little apart from cause excess amounts of volatility in the markets as politicians talk at odds to each other. The results are pathetic: more than 18 months since the Greek crisis first flared up not only is Athens still deep in its own sovereign crisis but contagion has spread to Italy and Spain and even threatens to engulf some of the core member states like France.
from Financial Regulatory Forum:
Protests in Middle East, North Africa spur look at corporate risk disclosures globally -Westlaw Business
Feb. 18 (Westlaw Business) The winds of change blowing across the Northern Sahara all but demand a look at foreign operations disclosures, particularly as many companies are deeply entrenched in preparing this year’s annual reports. Political risk has many guises—war, expropriation, currency devaluation—but for companies doing business abroad, these risks don’t begin to give a complete picture of potential threats to earnings. Just six weeks into 2011, a number of well-known companies have already provided a glimpse of what’s keeping their board members awake at night.
ENERGY SERVICES
Due to timing of the spreading unrest in the Middle East, early 10-K filers, for the most part, haven’t specifically referenced the risks posed by the actual and potential events in the region. One company, however, Noble Energy, included some very pointed disclosures about just what the turmoil could mean for its business:
