Black swans and the economy

1. Comparing Old and New Realities: Are We Going Forward to the Past?

3. 1. Economic volatility

4. 2. Ethnic disintegration

5. 3. Empires in decline

6. 4. Eastern resurgence

8. 1. No shortage of vol. in ME Source: World Bank

9. 2. Iraq: Insurgency to civil war Source: Brookings

10. 3. America’s overstretched ‘empire’

11. 4. The descent of the West Source: Goldman Sachs NB US/China per capita income ratio forecast to fall from 23 to 6

12. So where’s the financial fear? Source: MSCI NB Of BRICs + N-11 (15), 9 are in the bottom third of the world as ranked by the Global Peace Index, and 3 are in the bottom 10.

13. Where’s the political risk premium?

14. Are we being fooled by liquidity?

15. … and the joy of “Chimerica”?

17. Have we been here before?

18. Long-term rates were low …

19. Credit spreads narrowed … “ The Sterling Carry Trade”

20. Stock markets trended upwards

21. … and volatility declined

22. —despite rising energy prices

23. British savings c/w Asian today

24. But then … The Times , July 22, 1914, p. 19 (Note: Assassination of Franz Ferdinand June 28)

25. August 1, 1914 The Times , August 1, 1914, p. 13 (Note: Britain declares war on Germany, August 4)

26. What might have happened? London reopens: January 4, 1915

27. What did happen

28. Emergency markets

29. The price of imperial decline? Source: Global Financial Data

30. Looks familiar?

32. That’s no bell curve

33. That’s no bell curve

36. Conclusion: They do exist © Niall Ferguson 2007