2011’s Top 10 Fat Tail Risks

What are 2011’s top 10 fat tail risks?

1) European peripherals – apocalypse scenario is realized resulting in a depression, including the breakup of the Euro

2) Protectionism – pressure put on Asian countries to appreciate their currencies and correct imbalances fails, pushing the US and/or Europe to enter trade wars or adopt protective measures

3) A US double-dip – still cannot be ruled out following recent weakness in house prices and the build-up in inventory which may cause default rates to rise

4) US municipal debt, home foreclosures, current investigation on insider trading – any one of these issues can impair US bank profitability and liquidity

5) Capital controls – more draconian measures adopted by Asian policymakers resulting in a sharp withdrawal of capital

6) Geopolitical risks flare up in the region – starting with a divided political regime in Thailand compounded by concerns of the King's health; North Korea ups the ante with the South in its military maneuvers; violence in Pakistan escalates and spills over into neighbouring India

7) Sharp rise in inflation – driven by higher food & commodity prices results in unrest in the developing Asian economies

8) China property prices – the decline in house prices is much greater than the consensus estimate of 10-15%

9) US and UK’s AAA ratings are downgraded

10) US$’s status as a reserve currency is challenged

Source: Nomura


hrbgrwr said...

I'm going to sit in my bomb shelter until it's all over.

Anonymous said...

hopefully, market has already priced in some of these risks.

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