Dissecting risk as a career brings with it certain professional pitfalls. One of them is to think that the world is constantly on the verge of calamitous change. This temptation must be held strongly in check. There are only so many times you can say the sky is falling. Most of the time, it’s not.
That does not mean, however, that absent sweeping transformation, there is nothing. After all, change is mostly made of millions of inflection points strung together over time. Every once in a while, we catch a few of these instances, and they cause us to look at our surroundings in a slightly different way.
The weeks immediately past, and those in the immediate future, hold a few such moments.
Russia faces a moment of inflection as it hosts the 2014 Winter Olympics, which begin on the 7th. Characteristic of this event is that for the host, the potential downside is infinitely bigger than the upside. Forget Sochi 2014’s bloated cost. President Vladimir Putin’s biggest investments in the Olympics are his, and Russia’s, reputations. A successful Games will bring him and the Motherland a temporary high. Russia will inch closer to the community of big-hitter nations it so desperately wants to join. But a failed Games – marred by terrorism, logistical disasters or even bad weather – carry a much darker stain. For Putin and for Russia, anything short of a safe, victorious Olympiad leaves Russia trapped in a repetitive narrative of state-in-trouble, a former empire struggling to reassert itself.
Russia is not alone amongst states in trouble. Other emerging markets, too, face inflection points. More precisely, their leaders face particularly pointy challenges. Look, for example, at Turkey and Argentina. The Turkish lira and the Argentine peso, to name just two problematic currencies, are withering in the wake of the US Federal Reserve’s taper. As quantitative easing ends, central banks around the world are battling to defend their currencies. These moments require strong leadership based on sound economics.
Not everyone meets the challenge. In Turkey, Recep Tayyip Erdogan is busy reshuffling the police and the judiciary to stymie a high-level corruption investigation. Argentina’s Cristina Fernandez hit the conference circuit for Havana. As she lunched with Fidel Castro, her compatriots accused her of desertion. Leadership is easy as long as inbound investment keeps your stock market afloat and pays for a mall in every suburb. But what do you do when the cranes go quiet and the bourse heads south?
You could listen to Jim O’Neill. According to the godfather of economic acronyms, forget about laying BRICs. It’s time to pop a MINT. O’Neill’s first acronym launched an investment frenzy across Brazil, Russia, India and China. Now he has Mexico, Indonesia, Nigeria and Turkey on the brain.
The jury is still out on whether these are wise choices (see above), no matter how alluring the acronym. Not to be outdone, Morgan Stanley now warns about the Fragile Five. Morgan’s five to worry about include – coincidence? – Turkey and Indonesia, plus Brazil, South Africa and India.
Investment advisors will always churn out catchy phrases. Ignore them. Some MINTs are sweet, others sour. This is a chance for all of us to identify and take advantage of inflection points as we see them, not as someone else calls them.
The United States is starting to master the art of the nerve-wracking inflection point. As if last year’s government shutdown was not enough, we have a new precipice in the form of President Barack Obama’s overtures to Iran. Obama threw a challenge to Congress during his recent State of the Union address: send me sanctions against Iran and I’ll veto them. Watch Congress seek to derail negotiations with Iran as legislators start posturing for November’s mid-term elections. Iran is a major Obama foreign policy initiative and the chance for a breakthrough in Middle East relations. This makes it a prime target for Republican torpedoes.
Finally, it’s not all superpower war games. Recent media pieces have highlighted China’s efforts to coin a global pop star, and France’s efforts to bolster French language education in New York City schools. In China’s case, the economic and military power is not to be questioned, but when was the last time you downloaded a sugary Chinese hit from iTunes? China appears to be looking for a well-rounded global image to cast its hard power in a more flattering light. France, fearing economic and political decline, is looking to reassert itself culturally, and build a new generation of Francophiles.
Hard power, with its statistics on military spending and weapons stores is OK, if you like that sort of thing. Now we have a soft-power strategy you can dance to.