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Geopolitical Update : 7 troubled spots overlap, form risk cluster. Why investors should avoid high confidence bets now

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By Christian Takushi, Macro Economist, Switzerland – 22 Dec 2022 (truncated adapted public release)
Dear reader

I hope you are doing well as we approach the end of this challenging year. 

Over the last couple of weeks Western governments have been discussing even larger interventions in the economy just as different entities were announcing their forecasts for 2023. There are a number of reasons, why we should take forecasts with caution going forward.

I have been monitoring developments at multiple geopolitical-economic fronts around the world that are becoming increasingly interconnected. In fact one could have written about them individually, but that would have shifted the attention away from what really matters .. the overlaps between them are gathering pace and feeding new risks. Having seen this before .. I waited to observe the overlaps. 

Since the year 2’000 these risk overlaps are not only becoming a more common phenomenon, they have helped trigger the biggest crises. 

Identifying a major cluster of risk overlaps may not necessarily mean a big crisis is at hand, it also means that our attention should not be fixated on any individual hotspot.

Risk overlaps normally take experts, investors and governments by surprise, because more than 90% of research worldwide is in-depth and highly focused on a particular field. The researcher digs ever deeper and very few are encouraged to look over the edge of their chosen field to monitor interaction with other disciplines. While traditional research is vital and important, the silo-perspective keeps researchers from monitoring the overlaps between different fields in a globalised economy and the risks they produce at aggregate levels.

Sadly, not enough independent interdisciplinary research is done on how monetary policy, the political process, geopolitical forces and shifts in defence are interacting with one another. Much of this marginal research is financed by competing states or their aligned think tanks (security institutes etc.).

Watch aggregate levels in 2023 – the big picture 

I sense that as we move into 2023 what matters most is not one particular hotspot, but how the current hotspots are connecting with one another and reinforcing strategic trends that will impact policy, markets and national security. A global crisis may manifest itself in one particular hotspot, but only as a result of a massive build-up of pressure over multiple risk clusters involving several areas of friction.

Geopolitical fronts begin to overlap ahead of Christmas 2022

From all the geopolitical-economic fronts we are currently monitoring seven of them stand out and are getting our attention. This is an unusually high number. In the crises of the past decade 3-5 forces overlapped and created havoc that took the world by surprise. It is thus possible that their number may come down in the coming weeks. Otherwise we will be dealing with a Super Crisis or a major shift or far-reaching reform. While the number of overlapping hotspots is high, the intensity of the overall risk cluster (probability of blow up in a crisis) is not very high yet. 

Many experts and investors were taken by surprise by powerful events in recent years, because they focused on hotspots, mainstream media and highly polarised opinion. As you may have noticed, we don’t report about something that media goes “crazy” about. Our attention is often already somewhere else. To us that is a distraction.

A super cluster of risk overlaps

In this report I mention the seven geopolitical-economic fronts behind the overlaps we are closely watching and that we need to keep an eye on as we transition into 2023. While normally only two-three are interconnected with one another in a cluster, at aggregate levels several clusters are overlapping – producing currently a rare super cluster of geopolitical competition and friction.

On the current path this super cluster could unleash a new major economic, geopolitical or military crisis. But such an environment can also be conducive for a sweeping change or reset that people wouldn’t otherwise accept. Allow me to give you an example. Many economists are expecting the default of G7 economies and the massive devaluation of our already “debased” paper currencies. I’ a bit more cautious with that: Yes, the G7 are on track for default, but if you are on that track how about taking on more debt and creating inflation to usher in a crisis that would make a “reset with a new currency” more acceptable than a straightforward default and currency devaluation. The former is change by crises, the latter risks a total loss of trust in government and its deposition. That is no necessarily evil intent, but rather risk mitigation. 

As we go into 2023 we are dealing with a tricky and complex cluster, because almost half of those bitter competitions and frictions are taking place amongst so-called allies. With nations in a pre-state of war and allies in bitter competitions .. behind the warm imagery of friendship they are distrusting one another and using all policy means at their disposal to protect their national interests. With their domestic economies in crisis and fiscal finances nearing bankruptcy-default territory, official statistics are understandably compromised and official media narratives not something we can rely upon. This is specially the case for the G7 and to some extent for G20 economies as well.

Seven Geopolitical Fronts (Hot spots) forming risk clusters

Here the list of geopolitical fronts and areas of friction contributing to the current super risk cluster:

 

This report has been truncated here. If you want to read the full report, you can write to info@geopoliticalresearch.com or subscribe to our newsletter on our website

 

Upcoming reports

In the days ahead I will be releasing analysis about some of the geopolitical-economic areas that I am closely monitoring these days. These are the fronts & hotspots over which the risk clusters have formed.

Before year end I will also be releasing a special geopolitical research report titled “The world in 2023 – everyone for himself”. That is how nation states are entering the new year. Oriental nations have a major advantage in the time that lies ahead, they are used to base alliances on common interests, not on friendship. The nations that are likely to suffer the most are those that have been relying on special friendships and asymmetric alliances. Some of you will have already guessed that nations like Britain and Germany are at the highest risk of system-shattering devastations as their recent inward-focus have led them to overlook the traps they have gone into.  

Why investors may want to be careful with high confidence bets as we enter 2023 

 

By Christian Takushi MA UZH, Independent Macro Economist and Geopolitical Strategist. Switzerland 22 Dec 2022 – (truncated adapted public release)

Geopolitical and economic conditions need close monitoring, because they can change suddenly. 

No part of this analysis should be taken or construed as an investment recommendation. 

info@geopoliticalresearch.com

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