Just after the US financial crisis in the latter part of 2008, I was having dinner with a friend who had lost major parts of his retirement savings. He was not your expert investor. Rather he was a smart professional who trusted the advice of his financial advisor. It was obvious that his advisor did not see the coming storm in mortgage backed securities and the deleterious effect that this storm would have on the entire financial market. My friend was trusting what supposed experts were seeing. At that dinner, I asked myself the question: "Why not enable ordinary people to see more of what is important around themselves - especially significant risks?"
Like 2008, significant risks are brewing in world financial markets. The following News Radar is a pattern discovery and tracking system based on tens of thousands of daily worldwide news and blog articles. In particular, the patterns that it seeks are patterns that portend potential threats or opportunities in world financial markets. Over the past five or more years, we have discovered that seemingly chaotic and overwhelming flows of news contain a collective intelligence from thousands of news content creators. These news makers, both professional and novice, tend to write about what is important or interesting to themselves. When we add all their ideas together, an overarching intelligence, or swarm intelligence, can appear.
This World Financial Meltdown Watch Radar was plotted on April 18, 2012, and it contains over 160,000 news and blog articles from the previous four weeks. One can see an active version of this radar at http://www.newspatterns.com/show_radar.php?name=financial2. (Note that radar changes day by day with new news signals, and your browser will need to be compatible with HTML 5 to see this animation.)
The simple explanation of this radar is that the most relevant ecosystem topics are drawn to the center of the radar space. In this case, the radar center is occupied by Spain and Government Debt (center left) and Recession-Recovery (center right.) Today, this radar is reflecting the market anxiety about the recent Spanish government debt offering as well as the uncertainty whether the world is heading toward recovery or recession.
There are many other interesting patterns to dissect, yet I would like to get back to my "Unhealthy Calm" threat pattern. It is my hypothesis that world financial markets cannot get back to viability until governments start to significantly curtail pension and entitlement benefits for their citizens. Governments cannot continue to live beyond their means. Higher taxes are not the solution. Super robust economic growth is also unrealistic.
If governments do start down the path of entitlement and pension reductions (also known as austerity) then I expect that there will be significant unrest in effected populations. Think of Greece, Spain and Madison, Wisconsin. The above News Radar will reflect this pattern with a coupling of the Austerity topic with Unrest, which will further display as a movement of both topics toward the center of the radar.
The fact that there is so little implementation of austerity by world governments, tells me that world leaders are "kicking the can down the road", and not really addressing the heart of what ails world financial markets. Ironically, massive societal unrest will be a healthy indicator that world governments are addressing their debt problems.
This calm of needed solutions is a significant threat that more need to see and track. The longer that Austerity and Unrest remain as peripheral topics in the financial radar, the more world financial risks will grow.
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