Comments on: Five overlooked global risks

By: Casper

Casper — Thu, 17 Sep 2009 13:32:40 +0000

I have lost the plot – we jump between “context; ignorance; risk; returns; assumptions; predicting the future with past data sets, but preferably not the near future; probabilities; uncertainty principles; forecasting, scenarios, distributions, bell curves, variance, standard deviations; straight lines; logs; presumably all contained in Monte Carlo simulations; bees and plutonium; trader algorithms, millisecond high frequency trading, churning”, that gets parked for, say 14 hours, while Wall Street sleeps until the beast is unleashed the following morning.

Sounds like Philosophy 101 to me.

It is simple – Market efficiency, A (-) symmetry of information, Diversification, (Un-)expected returns, the security market line and the capital asset pricing model. As back-up we have market to book ratios, PE ratios, free cash flow ratios, dividend growth models, and the ultimate net asset value test. That is for shares. For bonds you enter ‘i, n, pmt, pv and press the button to get fv’. Apparently the options markets are hopelessly inflated and out of control, so I won’t comment on that. And we have terra-flop computers and a range of highly paid actuaries and accountants.

What risk is there to overlooked and by whom ? Maybe we over-relied on celebrities like Buffet and Greenspan and other chameleons. Maybe I am out of context.

By: Casper Lab

Casper Lab — Thu, 17 Sep 2009 08:33:43 +0000

I like this article. for more see: http://www.businessday.co.za/articles/Co ntent.aspx?id=81722

September 16th, 2009 3:38 am GMT – Posted by Sara: and don’t forget about the butterflies and the frogs.

Nuclear is BAD, see Column elsewhere below.

By: Kathy

Kathy — Thu, 17 Sep 2009 07:16:33 +0000

Nuclear power is all very well, but how much Uranium is left? Less than 60 years so I read. We’d better get puffing in those wind turbines!

But that one-of-many problems aside, one big problem hasn’t been addressed anywhere: Companies want customers, they don’t want workers. How can capitalism work?

By: Clive

Clive — Wed, 16 Sep 2009 22:52:34 +0000

Ian Kemmish – If your father had really worried about the plausibility of earthquakes in England, he wouldn’t have been able to be involved in building nuclear power stations here. There was a sizeable earthquake at Mersea Island, which is very close to Bradwell nuclear power station, a little over a hundred years ago. There was also a tsunami or a storm surge in the Severn Estuary, where Hinkley Point nuclear power station is now located, in the 17th century. This may have been caused by an earthquake, or an underwater landslide, off the coast of Ireland in the 17th century. Even if that was not the cause of the 17th century wave, future tsunamis or storm surges are certainly not all that unlikely around our coast.

Mammachou – going “balls out for nuclear energy” will also cause an increase in leukemia. I believe that, if they did the right experiments (which I could provide the details of, although I cannot do these experiments myself, because I do not have a lab or a grant for it), they would probably find that plutonium can, and does, pass through the human gut wall, even though our government says that it cannot, and therefore, they say, this is the reason why it, allegedly, cannot cause leukemia. But they still cannot explain the leukemia clusters, other than by saying that they don’t happen, because they shouldn’t happen, because plutonium is “safe” (according to them).

Nuclear power is a ‘grey swan’. It is probably, a major accident waiting to happen and it is a technology that produces harmful pollution, the effects of which have been covered up. It is not a ‘black swan’, which a term used by Popper and Taleb to describe an unpredictable event.

By: Ian Kemmish

Ian Kemmish — Wed, 16 Sep 2009 12:19:51 +0000

Unfortunately the column also displays some of the faults that the author is criticising. Confidently ascribing honeybee colony collapse syndrome to one of a small number of “knowns” that just happen to have occurred recently ignores the possibility that it may actually be due to an ‘unknown” that we haven’t noticed yet. In other words – keeping the requisite open mind is harder than it looks!

It’s said that a good software designer is someone who looks both ways before crossing a one-way street. My father, who designed nuclear reactors in the 1960′s, had to worry about the plausibility of major earthquakes in England. Maybe the financial industry should just recruit more people from industries where these kinds of issues are commonplace.

By: mammachou

mammachou — Wed, 16 Sep 2009 11:13:58 +0000

Where are the Greens? – I would like to know…the recession provided an excellent opportunity to put forward the case that reduced manufacturing and consumption is good for the planet.
No-where…which is what we knew all along.
When it comes down to it exponential increased consumption is man’s destiny eventually to destroy the planet.
Don’t tell me about wind turbines either, thats a Green no-where solution that they have been fobbing us off with all along.
Stabilising jobs and the housing market, what? that means putting back all the problems that got us here in the first place…
My answer
Increase interest rates to attract money into the system, let house prices fall to where they should be
then go balls out for nuclear energy.

or….continue offering society the prospect of your own house and a fashionable car with nothing behind it except building houses and (mostly foreign) cars.
We used to call that fur coat and no knickers

By: aSteve

aSteve — Wed, 16 Sep 2009 09:38:07 +0000

As I see things, there’s a massive unresolved problem that remains a significant global risk… i.e. the nature of money.

While only a lunatic would harp back to the days of the gold standard restricting economic activity with its arbitrary use of a physical commodity to measure value, in a modern age we are left with a huge conundrum. Where banks are trusted, and everyone presumes their activities are both honest and sustainable, it makes sense to use experience to guide decisions. It makes sense to invest in tangible assets (for example) in order to be protected (or profit) from inflation. It makes sense to borrow more than you can reasonably expect to repay by linear extrapolation of today’s income. It makes sense to engage in leveraged speculation.

However, the question we must now face is this: will the future economic environment resemble the past 30-60 years, or will it be different? Might leveraged speculators lose their shirts? One thing is for certain: either inequity continues to grow, or our economies must de-leverage. Obviously, there will be fierce political battles – but these, to my mind, are a sideshow. What matters is what ordinary people believe, and how that influences their behaviour – as it is this belief that will shape ultimate reality. The tragedy is that rational honest people are faced with an impossible dilemma – as a casino economy demands they gamble with their futures. I expect that this will reward the reckless and dishonest over the diligent and hard working – that it will promote speculation above investment and ultimately cripple the productive economy.

What is needed is not a ‘quick fix’ – for none exists. What is needed is a stable, trustworthy anchor for the metric we use for secular value. Without this, all productive activity is futile – an exploitation of the gullible by the reckless… hardly a recipe for success.

By: Sara

Sara — Wed, 16 Sep 2009 08:38:47 +0000

“Certain forms of bioengineering such as some GMO crops and toxic cocktails of insecticides and herbicides have created conditions in the countryside (such as the collapse of honeybee colonies)” Is this cause and effect established? Can we have a reference?

By: Peter H

Peter H — Tue, 15 Sep 2009 20:05:07 +0000

Definitely food for thought from Rafael Ramírez, but just how can the world in its current high-speed, and demanding to go faster mode, find the time to even just stop to think about such weighty ideas.
Personally I would have liked to have seen the current economic catastrophe used as an opportunity to address more of the causes of the events than (I’m under the impression) is happening, and the five risks here high-light quite well the kind of things that could have been tackled. Even if it means back tracking, for instance on some of the repealed banking laws deregulating the market at it seems, it’s own request.
Instead it seems there is a rush to get banking and housing back on track, and after that’s been accomplished our leaders will pat themselves on the back and say “job done”, and no-doubt be out of office by the time the rubber-band snaps back… with more load on it next time.

By: S.V.Ramanan

S.V.Ramanan — Tue, 15 Sep 2009 15:16:23 +0000

Right.
When uncertain, better categorize it as risk as your data as is incomplete and avoid it.
Short term returns are always dicey.
Apply common sense in lending-simple formula is whether the borrower can repay with out you going into auditor’s mumbojumbo like NPA( non performing assets-meaning not recoverable).
Do not over sell a financial product.
Do not force the borrower to borrow, as in credit card companies.
Allow people to foreclose loans, with out penalty.
Screen your agents who bring in business for you.