Marvin Zonis Presentation - CBOE RMC

CBOE
RISK MANAGEMENT CONFERENCE
Geo-Political Risk and
The Global Hot Spots
Implications for Trading
MARCH 18, 2014
Geo-Political Risk
2
*Roots of The Deepening Political
Instability:
The “Inverted J-Curve”
Problems in the BRICs
Oil Prices
Food Prices
Demographics
*Psychological Drivers
*’Clash of Civilizations’ within Islam
*Europe
The Next Geo-Political Shocks
3
*Russia
*Ukraine
*Syria
*China
*The U.S.
*Age of Uncertainy
Political Instability
4
Grievance + Anger + Leadership + Ideology
The “Inverted J-Curve:” Iran Oil Revenues
(US$ Billions)
GINI Coefficient – The BRICS
6
GINI Coefficient
Brazil
54
Russia
40.1
India
33.4
China
47
South Africa
63.1
U.S.
45
Germany
28.3
World Bank Report, November 2011
GDP Growth – The BRICS
(annual %)
2000
2005
2006
2007
2008
2009
2010
2011
2012
Brazil
4.3
3.2
4.0
6.1
5.2
-0.3
7.5
2.7
0.9
Russ
10.0
6.4
8.2
8.5
5.2
-7.8
4.5
4.3
3.4
India
4.0
9.3
9.3
9.8
3.9
8.5
10.5
6.3
3.2
China
8.4
11.3
12.7
14.2
9.6
9.2
10.4
9.3
7.8
RSA
4.2
5.3
5.6
5.5
3.6
-1.5
3.1
3.5
2.5
World Bank, World Development Indicators
The BRICS - Corruption
8
Corruption Rank of 176 Countries
Brazil
69 (Just below Saudi Arabia)
Russia
133 (Below Iran)
India
94 (Tied with Greece)
China
80 (Just below Sri Lanka)
South Africa
69 (Above of Italy)
Corruption Rankings from Transparency International, 2012 scores
World Bank – Ease of Doing Business Rankings
(2014 Rank of 185 Countries)
The BRICS
Rank
Others
Rank
Brazil
116
Thailand
18
Russia
92
Turkey
69
India
134
Indonesia
120
China
96
Vietnam
99
South Africa
41
Nigeria
147
http://www.doingbusiness.org/rankings
Oil Price
(Inflation Adjusted)
www.chartoftheday.com/20130828.htm?T
Emerging Markets Currencies
($ per currency, % Change Since May 2013)
Financial Times, August 28, 2013
Food Prices 2013
12
http://www.worldbank.org/en/topic/poverty/publication/Food-Price-Watch-July-2013
Spending on Food
Countries
by Income
Level
Percent of
Household
Income
Spent on
Food and
Tobacco
Low Income
Countries
48.5
Middle
Income
Countries
31.1
High
Income
Countries
20.4
http://www.ers.usda.gov/Data/InternationalFoodDemand/The Economist, February 26, 2011
Political Instability and The Price of Food
New England Complex Systems Institute, Technology Review, August 15, 2011
15
Population of Developed Countries by Age and
Sex - 2012
U.N. Population Division, World Population Prospects. PRB.org
16
Population of Developing Countries by Age
and Sex - 2012
U.N. Population Division, World Population Prospects. PRB.org
Where’s the Population Growth
United Nations Population Division, World Population Prospects: The 2010 Revision (2011), medium variant.
The Future of Emerging Markets
Population Reference Bureau, 2013 Population Data Sheet
The Future of Emerging Markets
19
http://www.prb.org/publications/datasheets/2010/2010wpds.aspx
Geo-Political Risk
20
The Islamic World
21
Pakistani Prime Minister Sharif on the
Muslim World
*57 Islamic nations total >1.5 billion people or
23% of the world’s population plus
*“Muslim” GDP = 6.6 $Trillion - only 8 % of
world GDP
*Even with oil: Islamic exports are only 14% of
global world exports
*$4900 per capita GDP in all Islamic
nations; less than half of global per
capita GDP
*Only 1% of all scientific articles come form
Muslim scientists
Speech at World Islamic Economic Forum, London, October 29, 2013
“Clash of Civilization” Within Islam
22
Salafi
‘Islam’ (Sunni)
‘Islam” (Shia)
Jhadi
Kurds
The Shiite Belt
Kurds
Syria
Aleppo
February 25, 2014
Der Spiegel
Palestinians Line Up for Food
Yarmouk, Syria, February 26, 2014
UNRWA
Nouri Al Maliki, Strongman
First Vice President
Tariq al-Hashimi
Prime Minister
Acting Minister of Defense
Acting Minister of the Interior
Minister of State for
National Security
Rafi Issawi, ex-Minister of Finance
President Rouhani
“It’s nice that Iran’s
centrifuges spin, but only on
condition that the country
moves forward. A situation in
which the centrifuges move
and the country is asleep is
unacceptable... If one
industrial plant in Natanz is in
operation but 100 other
factories are shut down or
operate at only 20 percent
capacity for various reasons,
such as the sanctions or the
lack of raw materials or spare
parts, this is unacceptable.”
http://khordadnews.ir/news/1995.
A Plunging Currency With New Hopes
Iranian Rials to $1 USD
September 24, 2012: 24,600
September 30, 2012: 29,720
October 1, 2012: 34,200
November 15, 2013: 39,000
February 25, 2014: 24,900
Reuters, October 1, 2012
Geo-Political Risk
31
Ukraine
Ukraine’s Miserable Economy
Year
GDP Growth
Year
GDP Growth
1989
3.9%
2001
9.2%
1990
-6.3
2002
5.2
1991
-8.4
2003
9.4
1992
-9.7
2004
12.1
1993
-14.2
2005
2.7
1994
-22.9
2006
7.3
1995
-12.2
2007
7.9
1996
-10.0
2008
2.3
1997
-3.0
2009
-14.8
1998
-1.9
2010
4.2
1999
-0.2
2011
5.2
2000
5.9
2012
0.2
2013
0.0%
World Bank, World Development Indicators
Ukraine
How To Split A Country
Geo-Political Risk
35
The Eurozone
Fixed Investment Decline
*Core = Eurozone ex-GIIPS.
**GIIPS = Greece, Ireland, Italy, Portugal and Spain.
Goldman Sachs Investment Strategy Group, Datastream, Eurostat
Industrial Energy Prices
(euro cents per KwH)
The Chancellor
German Hyperinflation
Date
Number of Marks to
Buy 1 Ounce of Gold
January 1919
170
January 1920
1,340
September 1921
2,175
January 1922
3,976
September 1922
30,381
January 1923
372,477
September 1923
269,439,000
October 2, 1923
6,631,749,000
October 9, 1923
24,868,950,000
October 16, 1923
84,969,072,000
October 23, 1923
1,160,552,882,000
October 30, 1923
1,347,070,000,000
November 5, 1923
8,700,000,000,000
November 30, 1923
87,000,000,000,000
http://surfingthenewnormal.wordpress.com/2011/03/09/hyperinflation-case-study-1-weimar-republic/
Geo-Political Risk
40
Russia
Vladimir and Lyudmilla Putin
41
Before and After
Alina Kabaeva
43
BRIC Countries Private Capital Inflow
GoldmanInvestment Strategy Group, CEIC, Datastream
Geo-Political Risk
45
China
First Speech By Communist Party Secretary
Xi Jinping
"Our people love life and
yearn for better
education, stable jobs,
more satisfactory
income, greater social
security, improved
medical and health care
and more comfortable
living conditions and a
more beautiful
environment."
Prime Minister Li Keqiang
(May 2013)
“If we place excessive
reliance on government
steering and policy
leverage to stimulate
growth, that will be
difficult to sustain and
could even produce new
problems and risks. . .
The market is the
creator of social wealth
and the wellspring of
self-sustaining economic
development.”
The New York Times, May 24, 2013
More From Premier Li Keqiang
48
48
“The reform is about curbing
government power. As a selfimposed revolution, it will require
real sacrifice and will be painful. .
. reducing the role of the state
“will even feel like cutting one’s
wrist. . . Nowadays, stirring up
vested interests is more difficult
than stirring up one’s soul. . . But
no matter how deep the water is,
we must wade through because
we don’t have other options -- it’s
our nation’s fate and future that
are at stake.”
Michael Pettis, “The Challenges for China’s New Leadership,” 03/21/2013
Peng Liyuan
(Mrs. Xi Jinping)
Air Defense Identification Zone
(November 23, 2013)
http://www.ibtimes.com/chinas-air-defense-identification-zone-adiz-ignites-us-japan-dismay-chinese-netizens-support-1484732
The Navy
51
Geo-Political Risk
52
The United States
A Formula for Change
The New York Times/CBS News NationalPoll, February 16-23,2014
Animosity To Obama
DemocracyCorps.com
Who Is Angry At the Government?
www.people-press.org/2013/09/30/anger-at-government-most-pronounced-among-conservative-republicans/
In Achieving Its Goals in Iraq/Afghanistan,
U.S. Has . .
Pew Research Center and USA Today
Withdrawal?
No, Should Not Take The Leading Role
Republicans
64%
Democrats
64%
The New York Times/CBS News NationalPoll, February 16-23,2014
Top Income Shares, U.S.
(1913-2011)
The World Top Income Database, http://topincomes.g-mond.parisschoolofeconomics.eu/
What’s Gone Wrong?
http://www.technologyreview.com/sites/default/files/images/destroying.jobs_.chart1x910_0.jpg
Falling Real Wages
(wages are in 2012 dollars)
The Wall Street Journal, February 6, 2014
Income Inequality
Should Be More Even
Republicans
37%
Democrats
87%
The New York Times/CBS News NationalPoll, February 16-23,2014
To Reduce the Gap Between the Rich and
Everyone Else, the Government Should Do. . .
www.PewResearch.org, January 23, 2014
Most Repubs Say the Rich Work Harder Than
Others; Dems – They Had More Advantages
Pew Research Center, January 23, 2014
Full-Time Employed Workers as % U.S.
Population (in millions)
Full Time Employed Working >35 Hours Per Week
Not Counting Full-Time Military Personnel
Date
U.S. Population
Full Time Workers
Workers as % of
Population
Oct. 1, 2013
316.80
116.80
36.86%
July 1, 2010
309.35
111.71
38.05
July 1, 2005
295.52
117.02
39.59
July 1, 2000
282.16
113.85
40.34
July 1, 1995
266.28
101.68
38.10
July 1, 1990
249.62
98.67
39.52
Oct. 2013 versus July 2005: 910,000 fewer full-time jobs.
If average of workers as % of population applied in 2013:
123.93 million jobs instead of 116.80
Bureau of Labor Statistics, U.S. Census Bureau
Bell System International Switchboard
(World War II)
New Skills Needed
The Economist, January 19, 2013
57,000 Head Start Slots Scrapped
(September 2013)
69
“Children in the highest socio-economic
group entering kindergarten have cognitive
scores 60 percent higher than children in
the lowest socio-economic group.”
“. . . What we know about improving
educational outcomes for disadvantaged
students suggest that the process begins
in early childhood, requires attention to
psychosocial development as well as
academic growth, and mitigates the
circumstances and conditions, such as
poverty, that hinder students’ learning.”
Issues in Science and Technology, Spring 2013, p. 69 and p. 78
Conclusion
70
The Age of Political Risk
The Major Political Risks?
71
*War In/Over Ukraine
*War Between Japan and China
*War On The Korean Peninsula
*Pakistan Disintegration
*Iran, Israel and Nukes
*Salafi Rule in Egypt and Syria and Turkey
*China Hard Landing
*U.S. Political Paralysis
Trading Strategies
72
*Price Risk – the potential for losses on
derivatives from changes in the prices of
underlying assets – is the risk most
susceptible to political risk.
*Theories to anticipate these changes do
exist.
*Their application will reduce the price
risk.
CBOE
RISK MANAGEMENT CONFERENCE
Geo-Political Risk and
The Global Hot Spots
Implications for Trading
MARCH 18, 2014