Key Takeaways

  • A new set of buzzwords have become prominent enough to be recognized as current market jargon.
  • These buzzwords – some old, some new -- reflect an aspect of the “new normal” with which we may have to live indefinitely.
  • Nervous investors are beginning to prepare for potential ramifications.

Ever hear of glocalization? How about QAnon? And what exactly is “moral hazard?”

These terms are some of the buzzwords taking on new significance in today’s marketplace. Below, an introduction to these words, phrases and ideas impacting the markets:

  1. GLOCALIZATION1the firm of the future operates differently, both globally and locally.

  • “Glocalization” merges the words “global” and “localization”.

  • Successful glocalization requires a firm or individual to balance its global product, service or brand with the adjustments or adaptions necessary to accommodate the local user or consumer.

  • For example: KFC makes spicier chicken for the Indian palette…Starbucks in China, where there is a regional dislike of coffee, offers a red-bean Frappuccino. 

  • Market impact: Companies successful in glocalizaton are more competitive and tend to have higher equity valuations.

  1. MORAL HAZARD2whose fault is it and are they or we responsible?

  • Moral hazard occurs when one party engages in risky behavior or fails to act in good faith because it knows that another party will bear the economic costs or consequences.

  • For example: US equity investors buy overvalued securities because they believe the Fed will step in (cut interest rates or engage in QE) if markets become too volatile, unstable or in danger of collapsing.

  • Market impact: Over the last twenty years and continuing today, equity and bond investors have been rewarded for correctly assuming that the big central banks will step in when markets get too unstable.

  1. FORCE MAJEURE3 there was nothing we could do…so we shouldn’t be forced to make it right

  • Force majeure translates from the French as “superior force.” It is a contractual clause exempting liability due to an extraordinary event or circumstance.

  • For example: During a pandemic, force majeure might be invoked to protect health systems, landlords or shipping firms. Contracts including force majeure provisions often identify qualifying events such as natural disasters, wars, and government actions.

  • Market Impact: It is likely that there will be a wave of force majeure claims in contract litigation for years to come. How claims are settled will impact valuations and survival rates of key US firms, sectors and industries.

As President Truman said, “It’s a recession when your neighbor loses his job; a depression is when you lose yours.”

  1. ECONOMIC DEPRESSION – or is it a recession?

  • A RECESSION is the contraction phase of the business cycle. A common rule of thumb is that a recession occurs after two consecutive quarters of negative GDP growth. Q1 2020 contracted by 4.8% QoQ4; if Q2 contracts by 30% as is expected, the economy will officially be in a recession.

  • A DEPRESSION is a recession but much more severe. There is no quantifying definition, but an economy in depression is characterized by declines in output exceeding 10 percent, unemployment reaching 20 percent, and access to credit drying up, over a period of years5. As President Truman said, “It’s a recession when your neighbor loses his job; a depression is when you lose yours.”

  • Market impact: Typically, a country in economic depression will have weak equity markets and declining bond yields, both of which will be increasingly unattractive to investors, and help fuel a depreciating currency and /or deflation.

  1. QAnon6 –  questioning everything.

  • QAnon is an unknown individual who originally posted on underground chat rooms suggesting “deep state” conspiracy theories. QAnon has now become a public movement, with proud followers displaying “Q” posters and wearing “QAnon” clothing.

  • QAnon in the time of Covid-19: Theories about Covid-19 have become part of the QAnon phenomena: might Covid-19 not be real? Is the severity of the pandemic overstated? Is this all a Chinese military plot?

  • Market impact: QAnon has so far had little impact on the markets. However, the closer we get to the November elections, the more we may read about “deep state” plots against the President. Since many investors equate Trump with a bull market in equities, future plots that negatively impact the odds of Trump’s re-election will be headwind for equities.

Please feel free to reach out to your SVB Foreign Exchange Advisor for a deeper discussion about these buzzwords, what impact they may have on your firm, and ways to mitigate risk.

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Written by
Scott Petruska, CFA
FX Market Insights

Insights into foreign exchange markets, strategies, and the global events that impact your cross-border transactions.
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1 Investopedia, March 26, 2020

2 Wikipedia, 2020

3 FastCompany, What is ‘force majeure’? The legal term you’ll be hearing a lot during the coronavirus crisis, March 30, 2020

4 Bloomberg, 2020

5, May 18, 2020

6 The Atlantic, May 13, 2020

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