How Long Can Markets Ignore Risks Like Climate Change and Authoritarianism?
About the author: Larry Hatheway is the co-founder of Jackson Hole Economics and the former chief economist of UBS.
The investment landscape appears tranquil. Global equity markets are trading near all-time highs. Bond yields have stopped falling. Currency markets are calm. The market’s “fear signal,” implied equity volatility, is trending lower, a sign that investors don’t anticipate ructions.
Yet the fault lines in markets typically run miles below the surface, hidden from view. Occasional tremors remind us of their presence.
In the 1960s and 1970s, excessive government spending and lax monetary policies erupted into high inflation. From the mid 1980s until 2008, unfettered borrowing and questionable financial practices precipitated the market crises of 1987, 1992, 1995, 2001, and “the big one” of 2007-08. Last year, a pandemic exposed fragilities of inadequate public health provisions.
Small quakes often contain…
