Dear 

We've updated our January newsletter here with two new interviews on current developments--my interview with CNBC on the political dramas of last weekend on Capitol Hill and in Brazil and my podcast recording for Reuters Breakingviews with Francesco Guerrero on how market participants can be better-prepared for 2023.  

Your comments and feedback are welcome and appreciated as ever. 

Tina 

"One of the two or three most important implications of the battle is what it means for raising the U.S. debt ceiling." -CNBCWEX

How Geopolitical Shocks Will Spread in 2023:

'Traders and chief executives were caught out by shock events in 2022.  In this Exchange podcast, Tina Fordham, founder of Fordham Global Foresight, discusses the new risks emerging from China, Iran and Russia this year.' -Reuters 

Won't Get Fooled Again:  How Understanding Geopolitics Will Make You a Better Leader and a Happier Person in 2023…Seriously

The new year always brings surprises--ideally mainly pleasant ones.  How investors and business leaders can minimise negative surprises, at least when it comes to geopolitics, is what I want to talk about today.  Consider this my small contribution to your overall well-being for 2023...

Geopolitical Jolts:  2023 Market Challenges 

-Ukraine war heads towards its second year

-U.S. China relations, China Reopenings

-The move away from hyper-globalisation

-The move toward greener economies 

Did the events of 2022 bring you down? Give yourself a break if so. Most of us are lucky enough to have grown up in an era of unprecedented peace and prosperity, shaped by expectations of a continuously improving future. (Pinker) With that as your reference point, adverse shocks don't activate a "muscle memory". This is one reason why investors from outside of the rich, industrialised democracies are much more relaxed about the current disruption; they have personal experience of inflation and unpredictability, political or otherwise, and appreciate that life goes on. Given the prospect of a decade of geopolitical turmoil and a generally higher-friction world ahead, we would all do well to toughen up in this respect.

Time Has Come Today (Thanks,  Ramones)

Assessing geopolitical risks used to be relegated to a due diligence exercise. Now, anticipating geopolitical and socio-economic shifts is not only crucial for limiting downside risk, but potentially generating alpha--an edge over peers and competitors. Succeeding requires more than an ability to "read tea leaves", it takes the imagination to anticipate a range of plausible outcomes.

Being Prepared Makes You Happier

Between the pandemic and Russia’s invasion of Ukraine, investor expectations for a linear outlook for stability and economic growth have been brutally challenged. Crucially--in contrast to the Global Financial Crisis--this time central banks don't have the power to fix what ails us. If that sounds ominous, it should. We are out of practice at pricing risks that can't be mopped up by liquidity.

Unfortunately, the change in the economic and monetary policy backdrop is happening at the same time as the negative consequences of decades of under-investment in infrastructure, public services, diplomacy and alliances are mounting, moving from gradually weakening to suddenly falling apart.

The double shock of the pandemic and the Russian invasion of Ukraine has exposed multiple weaknesses in the global system and prompted ripples of economic, geopolitical and social aftershocks, rendering the old rule book for business leaders irrelevant.  

The old heuristics--mental shortcuts--no longer offer much explanatory value. The sooner we face the world as it is, rather than as we would like it to be, the fewer surprises we encounter during the period of adjustment.

Cognitive science tells us that narrowing the disconnect between reality and expectations is more important for feeling prepared to deal with uncertainty than access to more or better information, insights from former leaders, or any number of lists of "Top Risks" or AI-driven crystal ball gazing. I might have a perfect call record, (I don't, though it's pretty good) but that won't help if you as a consumer of this information are not ready to consider views diverging from your own. This phenomenon is better-known as confirmation bias and/or normality bias—the expectation that things will continue more or less as they always have.

Preparing For A New, More Volatile Zeitgeist

Okay, so what do we do now, I hear you asking? It’s time to prepare for a new, more volatile zeitgeist (spirit of the times) than we have operated in during the extraordinary period of hyper-globalisation and financial/trade integration that has prevailed since the fall of the Berlin Wall in 1989.

It's too late for what I call magical thinking—also known as optimism bias (e.g. maybe the war will end and things will go back to normal). That ship has sailed—if and when there is an end to the war in Ukraine, it will be followed by disputes over reparations, human rights violations and war crimes tribunals, with sanctions not reversed for the foreseeable future. There is also a high likelihood that Russia risk increases, whether via expanding its military alliance with Iran, launching an unconventional weapons attack, or deteriorating into a failed state. We just don’t know how this ends, but it is unlikely to be tranquil.

Leaders need to learn the lessons of Russia’s actions in Ukraine and disregard for international norms and critically apply these to engagement with other regimes, such as China. One of our top ten themes for 2023 is that we need to get ready for a period where security and defense considerations take priority over the commercial imperative that had been the priority during the Pax Americana that prevailed during hyper-globalisation. (David Rothkopf), (Tina Fordham/Jan Techau) 

For more information about Fordham Global Foresight and what we do please visit our website