“Global financial market conditions remain very favorable, characterized by unusually low risk premiums and volatility. Global short-term interest rates have continued to rise, led by the United States. With tightening cycles in the Euro area and Japan less advanced or yet to begin….”
This was a statement from the World Economic Outlook report from the International Monetary Fund in April of 2006. You read that correctly—April of 2006.
In the same report, tucked away in the final paragraph of the foreword, Raghuram Rajan—Economic Counselor and Director of Research—warned, “These are the best of times but they are also the most dangerous of times.” In May of 2006, the very next month, there was a market correction and a global sell-off that took many by surprise. This, of course, was a precursor to the 17-month bear market to follow and the crippling financial crisis of 2007–2009 where the S&P 500 lost almost 50% of its value.
There is a lesson here about over confidence and complacency that has economists, money managers, and risk analysts issuing forewarnings and admonitions not heard in quite some time. In EurAsia Group’s Top Risks: 2018 report, President Ian Bremmer and Chairman Cliff Kupchan warn in the “Overview”: “If we had to pick one year for a big unexpected crisis—the geopolitical equivalent of the 2008 financial meltdown—it feels like 2018. Sorry.”
Likewise, the World Economic Forum’s Global Risk Report 2018 (13th Edition) provides the following cautionary assessment in the “Economic Storm Clouds” section: “The reassuring headline indicators mean that economic and financial risks are becoming a blind spot: business leaders and policy-makers are less prepared than they might be for serious economic or financial turmoil. The risks can be divided into two categories: (1) familiar vulnerabilities that have grown, mutated or relocated over time; and (2) newer fragilities that have emerged in recent years.”
Back in the fall of last year, BlackRock Chief Executive Larry Fink told Reuters that for the first time since the financial crisis, economic growth in the U.S., Europe, and Asia is happening at the same time—which has given investors a false sense of global security. “The biggest risk I see in the world,” he stated, “is this benign confidence that volatility is not creeping up.”
Bloomberg reported just yesterday that Tim Adams, President of the D.C.-based Institute of International Finance, stated that, “The bull market seems to be steamrollering over everyone who has a bearish view. There’s a lot of complacency, but there are termites in the foundation and a number of those are gnawing away at night.”
Adams is in Davos, Switzerland, for the World Economic Forum’s annual meeting, and from that peaceful and pristine alpine setting comes the very same message. The world economy is doing better than expected, but while financial markets are booming, global growth is advancing, and optimism is surging to levels not seen in over a decade—a global recession could be more imminent than anyone realizes.
The truth is, the world is steeped in risk. From geopolitical tensions, cyber-attacks, mass migration, nuclear threats, terrorism, trade standoffs, asset bubbles, and the potential unraveling of the global world order with brewing territory disputes, the threat to international stability is real, and the conditions for an unexpected crisis are ideal.
The message from the world’s foremost economic research institutions, financiers, and monetarists is: Don’t get complacent. And the word from Davos 2018 is: Be prepared for a downturn. So if you’re not worried about your savings and retirement accounts, we’re worried for you. May we suggest a healthy dose of cynicism and something more tried-and-true—a certified monetary safe haven.
We have just the thing in mind—call us.
