Mid-Year Update: Top Gray Rhinos of 2019

What happened to all of those top-risks lists analysts made at the beginning of the year? Are the same things still keeping investors, businesses, policy makers, and citizens up at night?

This Spring, I compiled and analyzed top risks and predictions for 2019 in the fourth annual “Top Gray Rhinos” meta-list. As in past years, it’s worth checking in to see if those obvious and talked about “gray rhino” risks have been handled or ignored.

This year’s top risks are US-China Tensions; Economic and Financial Fragilities; Geopolitical Uncertainty; Cyber Security and Data Integrity; and Climate Change, Extreme Weather, and National Disasters.

A read of the headlines suggests that if you weren’t worried about those risks at the beginning of the year, you should be now. Let’s take a look.

1) US-China Tensions. While the trade war was still smoldering as the year opened, with many observers expecting a resolution, it erupted in late Spring when trade talks broke off May 10 and Donald Trump re-escalated. On August 1st, he added a new set of tariffs, prompting China to cut back on buying U.S. agricultural goods and to let its currency slide past the psychologically important 7 to the dollar level. Though he called for a new meeting this morning, many observers believe that he will no longer follow his past pattern of chest-thumping followed by an agreement that he, well, trumps up as more substantive than it is.

2) Economic and Financial Fragilities. U.S.-China tensions have spilled into financial markets as an excuse for investors to sell stocks, bringing markets down from dizzying highs. A 25 basis point interest rate cut in late July, the first in over a decade, disappointed some traders because it was not bigger and because US Federal Reserve Chairman Jerome Powell characterized it as a mere mid-cycle adjustment when markets wanted more. There are increasing signs of a coming US economic slowdown, including disappointing corporate earnings, signs of potential distress in consumer and corporate debt, and the inversion of the US yield curve August 13 when the benchmark 10-year Treasury note yields fell to 1.623%, 11 basis points below the 2-year. While Wall Street is expecting more rate cuts, it’s not going to do the economy much good if investors keep piling money into the markets instead of into businesses that create jobs and feed the economy. The volatile US political climate isn’t doing much to create the sense of security that CEOs need to invest in their businesses, or that consumers need to open their wallets.

European and emerging market economies have been showing signs of weakness as well, with the result that central banks around the world have been cutting rates as well because they are concerned about economic growth and the looming end of the current business cycle. But with rates still relatively low –and $15 trillion estimated to already carry negative interest rates– there’s not a lot of room left to cut.

3. Geopolitical Uncertainty

Political challenges in the US and China are making the economic situation more dangerous, raising the temptation for each country to deflect tensions onto a foreign adversary. Protests in Hong Kong have raised the possibility of a Chinese intervention against what many Chinese and other observers see as an uprising backed –at least tacitly— by the United States. A preliminary impeachment investigation, rising acrimony related to racially motivated mass shootings, and the arrest and suicide in jail of a Trump associate have made the U.S. political climate even more heated. And that’s not even taking into account economic issues.

Then there’s the ongoing chaos over Brexit, with a new UK government led by Boris Johnson, the European version of Trump, with the very slimmest of majorities. Despite Johnson’s stated goal of exiting the European Union this October, it’s not clear that the UK or Europe is prepared for the possibility of a messy no-deal Brexit, which remains more likely than many would like to admit.

India’s move to end Kashmir’s autonomy has troubling regional and global implications. And Argentina’s stock market collapsed by nearly 50 percent in a single day after a primary election that Argentine President Mauricio Macri’s moderate regime might lose the next general election, ushering a return of the disastrous Kirchner regime (this time with former First Lady then president Cristina Fernandez de Kirchner as vice president with her former chief of staff, Alberto Fernandez, in the top slot).

4) Cyber Security/Data Integrity. The recent data security breach at Capital One, affecting 106 million customers, not even counting thirty other companies, was just the latest example of high-profile data breaches. Meanwhile, Equifax created a $31 million fund to compensate the 145 million people (including yours truly) affected by its 2017 data breach and announced that it would pay “up to” $125 to those who applied. Presidential candidate Elizabeth Warren and others slammed the company when it turned out that the fund would only cover about 1 percent of what it was promising.

Meanwhile, public anger at social media companies has been rising after news of the dating site OKCupid and other companies selling images into a facial recognition database without permission, followed by a new revelation that Facebook had been transcribing audio files in Messenger.

Cyber security and data privacy and integrity issues are not going away -and public disgust over irresponsible and unscrupulous use of user data is going to come back and bite these companies.

5) Climate Change, Extreme Weather, and Natural Disasters. This year marked the Earth’s hottest July on record. Wildfires have raged in the Arctic and Greenland’s ice is melting faster and faster. European countries reported new record highs as the temperature in Paris very nearly reached 109 degrees Fahrenheit: 4 degrees above the previous record.

This is not just theoretical: investors, central banks, and insurers around the world have been warning of the costs to the economy –even a potential financial crisis- if climate change continues at this pace.

All in all, it’s not a pretty sight. The top risks identified at the beginning of 2019 are getting harder and harder to ignore. And these gray rhinos are stamping their feet, snorting, and getting ready to charge.

#toprisks #risk #forecast #outlook #predictions

This article is part of my new LinkedIn series, “Around My Mind” – a regular walk through the ideas, events, people, and places that kick my synapses into action, sparking sometimes surprising or counter-intuitive connections. 

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