In the United States the actions of heights

The new year will commit to a paradox: ever since at least a generation, it was kind of discrepancy between the judgment of opinion in General on global risks and financial markets. If commentators are more worried about the State of the world than international markets years, the gap widened in 2006, market becoming even more serene while concerns are exacerbated around elsewhere.

Newspapers and columnists speak essentially about getting bogged down in the United States in Afghanistan and Iraq, of the growing instability of the Middle East and dangerous energy dependence on these countries, nuclear proliferation which started in North Korea and who wins the Iran of the potential weakness of us political leaders or other large democracies, record trade imbalances and increasing implementation of protectionist measuresincreased levels of public and private debt related to a level of savings exceptionally low in the United States, the collapse of housing prices and economic malaise of the middle classes.

At the same time, financial markets anticipate a calm climate to the more distant horizon of their forecasts. In the United States, the actions of heights. Risk premiums to be paid in developing countries or companies to borrow money and used to cover the event of a default approach their lowest historical level. Finally, estimates concerning the volatility of the stock market, bond and currency based on the price of the options are also around their point down history. Why such a difference between the press and markets Which journalists or investors, will finally have reason on the State of the world Or is this difference will continue

First, despite a difficult environment, the economy has generally made more progress during the past five years than during any other period of five years since the second world war. The United States are aware of the exceptional situation of low inflation combined with an unemployment rate of 4.5 and have not experienced recession marked 25 years. Given the natural tendency of markets to extrapolate from the past, can expect a boost of optimism, largely justified in reality. The risk is, however, that optimism may become illusory if it leads to excess of credit, a creation of irrational capacity and spending levels that can be maintained over time.

Second, the difference of opinion between the journalists and markets including reflects the narrowness of views of markets. September 11, 2001 was certainly a milestone, but it has not had major impact on risk-taking generated by most companies or lasting impact on the stock market valuations. Those who have liquidated their positions during the decline immediately following the attacks certainly now regret. However, it is less clear whether markets have reason to stick to a narrow vision. They are probably right to recognize that even events of historic significance may not change the value of certain securities. However, it is also possible that they are evidence of blindness in failing to recognize that important geopolitical events may exert a lasting influence on the global economy. A return to protectionism for example would change probably nothing to capacity with businesses and States to pay their debt next year, but we know experience that over time such measures weigh heavily on the benefits companies and repayments of the debt of the States.

Third, the structural changes in financial markets have strengthened their capacity to manage the risks normally. The percentage of loan that a given institution must hold reviewed downwards with increasing securitization and syndication. It is therefore natural that the associated risk premia have also decreased. Groupings extended speculative capital can also reduce the volatility in responding as soon as the price of an asset deviates significantly from the fixed line. Innovations regarding derivatives have greatly facilitated the coverage of risks. Institutions becoming more and more pointed in their approach to risk, they more easily took positions that would have to hesitate a few years ago.

We do not yet have enough experience to know what is happening in exceptional periods. As we have observed in 1987 and 1998, some of the innovations that contribute to a better distribution of the risks in the normal course can be a source of instability following a shock if a winding-up in mass occur. The manner in which large speculative capital increases and the use of derivatives and other hedging instruments will affect the response of the system to the next shock is particularly important, but also unpredictable.

We know better if the point of view of markets and the general opinion can move closer to a year. In the meantime, market observers can rightly noted that commentators can easily predict disaster. If they do occur, they were announced. If they do not occur, can be estimated that it was a warning. All those who sold massively shares ten years ago, when the former President of the Federal Reserve, Alan Greenspan was concerned about "irrational exuberance" have learned to their costs that unfounded pessimism can be costly when put his beliefs before his money.

It should be also reminded those who benefit from good health markets that it has rarely known predict the most serious crises and that historically moments more great euphoria were also the times more risk. These last twenty years, the world has faced the Asian collapse of the stock exchange in 1987, the banking crisis in the early 1990, at the beginning of 1995 Mexico incompetent to the financial crisis in 1997, the management of the long-term capital in 1998, then to the decline of the Nasdaq and the attacks of September 11 in the last decade. Although each of these events is unique, it can be seen that a crisis occurs roughly every three years. With regard to the markets, what is perhaps the most fear, it is precisely their total lack of fear.