Cascading Black Swans – 2018

December 30, 2017 By Richard L. Wottrich, Senior Consultant, International Services  There are shadows in 2018 that are contradictory. Central banks are turning off the stimulus spigots at an excruciatingly slow pace. Yet the entire U.S. yield curve is flattening and a steep credit market correction is in the cards. A Danish energy company just issued a 1,000-year bond with a maturity date of 3017, and some corporations are selling negative interest rate bonds. Global stock markets are at record highs, yet extraordinarily low volatility across most asset classes belies investor worries. Total global debt has topped 325 percent of total GDP as government sovereign debt jumps past $63 trillion [Pew Research Center analysis of International Monetary Fund data]. China’s shadow banking assets grew more than 20 percent in 2016 to 64 trillion yuan ($9.8 trillion), equivalent to 86.5 percent of GDP. The U.S. unemployment rate has fallen to a 50-year low, yet wages have hardly budged.  And Congress just passed a corporate tax bill that blows a hole in the U.S. budget. Yet no one seems to be concerned. As Alfred E. Neuman said, “What me worry?” What are the “Black Swan” risks and events that could cause this ‘Alice in Wonderland’ world to collapse. Or is that just foolish worry. Has exploding technology taken the risk out of humanity’s endeavors? This is our take on plausible Black Swan risks on the horizon. Electromagnetic Pulse (EMP) Event  Governments are concerned about North Korea’s burgeoning nuclear weapons program. We however are far more concerned about their ability to create an EMP event, which would detonate a nuclear device in...

Six Mega Trends – 2018

“If you think in terms of a year, plant a seed; if in terms of ten years, plant trees; if in terms of 100 years, teach the people.” – Confucius Charting global mega-trends is perhaps a fool’s errand, but there is order in the fractal universe – if you know where to look. Certain historical currents run strongly and are perhaps not immediately apparent, but nevertheless their impact will be felt in 2018 and beyond. 1. Insurance and Climate Change Zillow recently reported that $400 billion in Florida real estate values could be at risk from climate change by 2100. Property insurers will not be willing to insure real estate unless rates are substantially raised. Homeowners will naturally lower coverages to fit their budgets. Many will move away. Behaviors will change. Meanwhile many homeowners whose homes were flooded by Hurricane Harvey have no flood insurance – they cannot afford it. But a wealthy owner of a $2 million home on Bird Key in Florida gladly pays $25,000 a year for that same flood insurance. That owner knows their claim will likely be in the hundreds of thousands, so the federal flood ‘insurance’ subsidy is a bargain. Right now insurance rates are set on arbitrary vectors, such as zip codes. But risk analysis and big data will fine tune these methodologies and homeowners at the greatest risk from climate change will face enormous insurance rates – many will move. These mismatches in insurance coverage and uneven federal flood insurance subsidies will ultimately be reflected at the ballot box, changing political behavior in favor of working to control and plan for climate...

Giants

Alfred Stieglitz posing in front of a painting by Georgia O’Keeffe, as taken by Ansel Adams, New York City, 1939, as photographed at the Booth Western Art Museum in Cartersville, Georgia,...

Spooky Action at a Distance

By Richard L. Wottrich, CEO and Senior Consultant, International Services, July 29, 2017, Atlanta USA  Code Talkers When the U.S. entered World War I, encryption of Allied communications was a major problem, as their codes were generally based on either European languages or mathematical progressions. The Germans routinely broke their codes. Sending out runners proved ineffective, since about one in four runners were captured or killed. Other methods, such as carrier pigeons, or signal rockets, were slow and unreliable. During the war, over ten thousand Native Americans enlisted in the U.S. armed forces to fight the Central Powers, even though America had not yet granted them citizenship. Near the end of the war, on October 26, 1918, members of the Choctaw tribe were put to use for the first time using their native language as a code. They played a major role in an attack on a strongly fortified German position, Forest Ferme. “The enemy’s complete surprise is evidence that he could not decipher the messages,” Colonel A.W. Bloor later wrote in an official report. These so-called “code talkers” were utilized to even greater effect in World War II, when the U.S. government specifically recruited Chippewa-Oneida, Comanche, Hopi, Meskwaki, and Navajo tribal members. The Navajo code talkers developed the most complex code, with over 600 adapted Navajo terms, for use in the Pacific Theater. The Germans did not decipher a single code talker message in either world war. The encryption key (their language) was known to all tribal code talkers, but completely unknowable to the Germans. Today with Big Data, super computers and complex algorithms, codes can be broken through...

DEFCON 5: Opioid Abuse Disorder

DSI White Paper – By Richard Wottrich, CEO & Senior Consultant June 30, 2017, Atlanta USA Summary Over 80% of illicit drug demand in the Americas comes from the United States. Today’s surge in illicit drug traffic at America’s southern border is driven by drug cartel violence in Central America. GlaxoSmithKline and Johnson & Johnson legally grow opium poppies in Tasmania. The United States accounts for three-quarters of global legal opiate painkiller sales by weight and five-sixths by value – thus 4.3% of the global population accounts for 83.3% of painkillers sales. Global Traffic in Illicit Drugs Attempting to estimate the global GDP of illicit drugs is akin to getting an accurate vote count in an American presidential election – it brings to mind the uncertainty principal. The United Nations has estimated it as follows, “the global drug trade generated an estimated US $321.6 billion in 2003.” In 2016 perhaps one percent of global GDP is in illicit drugs – roughly $790 billion a year and growing – fast. Drugs in the Americas Drug cartels are integrated into Mexico’s economy and government. The major drug cartels operate throughout Mexico and employ over 500,000 people and indirectly support an additional 3.5 million people. Estimated profits for the combined cartels are $25-$35 billion a year. These profits fuel corruption and graft on an international scale. Over 80% of illicit drug demand in the Americas emanates from the United States. The history of drugs and violence in Central American dates to the 1980s, when civil wars in El Salvador and Nicaragua sent thousands of people north in search of safety. This illegal...