The Biggest Risk That Markets Ignore
The odds of an accidental clash with China are not zero.
No matter how well markets are doing now, there is always the possibility that some rare but devastating event will make it financially or even physically impossible for investors to preserve their wealth. The most important of these giant, hidden risks, as economist Brad DeLong cited in a 2014 post on threats to the bull market, is “war, and rumors of war.”
You don’t see people in the finance world talking much about war these days. It didn’t appear on my Bloomberg Opinion colleague Mohamed El-Erian’s list of the biggest risks facing U.S. equity investors, nor on many other such lists. A few have mentioned the danger of clashes over North Korea or the South China Sea, but the danger has still mostly stayed off the financial media’s radar screens, as attention focuses on the U.S. trade wars or the Turkish economic crisis.