- As many conversations start with talk of the weather before moving on to deeper subjects, we thought we would follow suit. The new reality of our time is seemingly more extreme weather. The US has been hit by a spate of tornados and storms, Europe is oscillating more between the extremes of drought and flooding which more and more are impacting business as usual. The EEA (European Environment Agency) forecasts that the frequency and intensity of natural disasters will increase in Europe. We leave as unresolved what the cause is for this weather change, only acknowledging that it is something we will have to deal with and that dealing with it will cost money.
- A new twist is that the weather is effecting the developed world, while it used to be more a developing world issue. We do not believe this will materially affect the economy in the short term but it could have a positive short term effect on spending (to repair damage). Longer term it could force major changes in where we live and the infrastructure we will need going forward, such as a move towards alternative energy sources which do not produce CO2 gases. As we will see later, politicians will be expected to deal with these new risks sensibly.
- Closer to home the Eurozone stubbornly refuses to collapse against the better judgement of many an economist. The political will to make it work in the end is still large and giving up the Euro is not a magic solution that will solve all the problems. The biggest test for the Euro would be a meltdown in one of the larger countries such as Spain or Italy or France. We clearly classify France with the problem countries, the capital markets do not seem to be reflecting the risk of France when compared to Italy or Spain, where risk is clearly priced in. …
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