The World Economic Forum produced their 18th Global Risk Report at the start of the Davos conference. There is little optimism in this report. Of course, one should expect pessimism in a global risk report, but the current dangers may be heightened given that so few are economic in nature. Non-economic risks are harder to price and do not have easy solutions. If we cannot price the risks, then the potential market impact will be all the greater if we have a severe shock with the top ten risk list. This applies for both the short and long-term horizons risks.
These top ten risks are also interconnected which means that they cannot be separated or looked in isolation. Environmental damage, climate change natural disaster, migration, and cost of living are holistic. One cannot address one risk without also dealing with another.
Extreme risk events lead to fat tails and fat tailed events or market divergences will lead to significant trends unassociated with market forces. These risk events are not likely to be easily solved, so the dislocations may last for extended times.
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