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2016’s Unhappy New Year of Risk

By Dante Disparte and Daniel Wagner

Risk managers and decision makers may already have been inclined to think that 2016 will be a challenging year, but based on the degree of market turmoil, saber rattling and sensational headlines in its first week, it could prove to be calamitous. Commodity prices are maintaining their free fall, foreign exchange rates continue to plummet around the world, and new and more perilous political risks are appearing on a daily basis. Retreating is not an option for most international businesses, for remaining on the sidelines could pose an existential threat. Yet in the era of man-made risk, many decision makers are wondering where they will find divine guidance to get them through this year.

To demonstrate the plethora of man-made risk that is permeating the landscape, Saudi Arabia is adapting to the era of cheap oil by ramping up the Sunni-Shi’ite schism with Iran, Kim Jong-un is fulfilling his obligation to act as a particularly dangerous petulant child, and Chinese stock investors are fulfilling expectations by dumping inflated shares with predictable panic. Moreover, the Syrian refugee crisis is manifesting itself in completely unanticipated ways, Brazil is imploding, and global weather events are setting new records with great abandon. Man-made risk has captured the world’s attention like never before.

Coming off of the heels of the second warmest year ever recorded, accelerating climate change will surely remain a policy priority in 2016. Hundred-year flooding along the Mississippi river, record warmth in the eastern U.S. and the North Pole, and a pestilent methane leak of epic proportions in Los Angeles are reminders of the collision between the industrial age, natural and man-made risks. Such examples are sure to proliferate with time, as the rise in average global temperatures is unfortunately likely to surpass conservative expectations more quickly than many anticipate.

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