We have a perfect environment to ask if you and your
colleagues did a sufficient job constructing alternative scenarios and then
stress tests and if you were really good installing mitigating mechanisms.
We have been pitching stress testing for a long time. Look at the batting order:
Wildly
volatile commodity prices, within historical boundaries, but over more than
five months
Currency
fluctuations, again within norms but compounding commodity prices
Global
energy restructuring, anticipated but arriving very fast
All market
volatility compounded by publicized trading scandals from the ‘fix’ to black
pools
Huge regulatory
fines for legacy major movers that do not seem to stop
Changing
government policies, compounded by changing multinational policies (accounting)
Multiple
forces moving sentiment, starting with geopolitics
Most companies and institutions anticipated perturbations
across these domains, but was the test sufficient? Did the order of magnitude of the tests
include the combined effects? Can you do your own performance evaluation, as
well as build lessons learned?
I am not concerned about the professional planners (and
economists from time to time) since this is not new. I am surprised by the companies (some very
large) who were either 100% ignorant, or ignored the obvious. Leading the pack are the forex trading firms
that continue with 50 to 1 margin requirements, and the governments who kept
their budgets based upon $100 oil.
It means we still
have evangelical work to do.
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