Stock up on guns, says risk list

Written by The Financial Times | Updated: Oct 26 2011, 05:39am hrs
By Steve Johnson

The demise of capitalism is no longer one of the 15 most dangerous extreme risks investors face, despite the emergence of Occupy Wall Street and its splinter protest groups, according to Towers Watson.

However, investors should consider whether they need to stock up on tinned food, bottled water, guns and ammunition, according to the consultancy, if they want to hedge against the newly emerged risk of infrastructure failure.

Towers Watson has updated its initial 2009 list of 15 extreme risks - based on the likelihood of them occurring in the coming decade and the severity of the repercussions if they do - and excessive leverage and the end of capitalism are no longer on the list.

However, it believes investors should be newly cognisant of the dangers of infrastructure failure, rooted in modern economies' reliance on computer networks and power grids, and of resource scarcity, ie potential shortages of energy, metals, water and arable land caused by population growth and rising living standards, particularly in China and India.

"The wide use of computing technology means that all critical infrastructure networks, whether power plants or financial clearing systems, are vulnerable to security breaches and cyber attacks," said Tim Hodgson, head of Towers Watson's thinking ahead group.

"The malfunction of a major infrastructure network for a relatively long period could severely disrupt human activity, threaten lives in critical facilities and raise the possibility of social unrest and law-breaking behaviours for survival," Mr Hodgson added.

On resource scarcity, Mr Hodgson said: "the fear of running out of resources could lead to price spikes in major economic inputs and increased volatility, neither of which are good news for the economy or markets."

The danger of economic depression remains Towers Watson's greatest worry, which it recommends hedging by holding globally diversified long-dated nominal sovereign bonds. However, the risk of default by a currently triple-A rated nation has risen from sixth to second spot.

The Financial Times Limited 2011