10 Huge Risks That Have Nothing To Do With Europe

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Investors are freaking out about Europe’s volatile debt crisis. One day, everyone is convinced Greece will default. The next day, everyone is convinced Greece will get a new bailout.Sure, a default in the Eurozone could trigger chaos in the financial markets.

However, Europe isn’t the only risk investors have to worry about.

So far, this year has been manic.  Oil spills, earthquakes, and flash crashes have all wiped out billions in human and property capital.

Global economies continue to face numerous issues. Investors are not quite out of the woods.

#10: Asset Writedowns

Though banks have already written off billions in bad debt on residential mortgage backed securities, asset prices continue to circle the drain. Real estate data provider CoreLogic estimates that 10.9 million home mortgages are underwater, meaning the mortgages are worth more than the current value of the homes.

What's worse, this past month S&P rated RMBS pools including subprime mortgages as AAA. Sounds like a 2008 repeat.

#9: U.S. Politics

The battle waged in Congress over the debt ceiling scarred financial markets and the U.S. credit rating. S&P was the only firm to downgrade the country's debt, but worries abound that a supercommittee tasked with reducing the deficit will be unable to compromise.

Last heard, Senate Minority Whip Jon Kyl threatened to quit after increased pressure to cut defence spending. Adversity continues in Washington.

#8: Brazilian Structural Risk

Inflation has steadily been increasing in Brazil, peaking at 7.23% this week. Efforts to temper that figure have proved lackluster - the country's overnight lending rate now stands at 12%, one of the highest in the world.

President Dilma Rousseff has been blamed for letting rates climb so high, which has led to speculative foreign investment and massive currency appreciation. Brazilian manufacturers now have difficulty competing in their home market with imports from neighbouring countries Peru, Columbia and Venezuela.

#7: Chinese Central Banking Crisis and Inflation

Massive credit availability and surging property prices have left China with enviable growth over the past decade. But poor due diligence coupled with a Chinese slowdown could knock the country into a banking crisis in 2013.

Bloomberg reports that banks could be left with $400 billion in bad loans on their books. To hedge bets, China has required banks raise their capital adequacy ratios.

#6: Prolonged Japanese Recession

Japan's recession has proved worse than originally estimated. Today, government officials revised the second quarter contraction down further, to -2.1%. The country, still reeling from the Mar. 11 earthquake and tsunami that left 22,000 dead or missing, is having difficulty creating organic growth.

And the country's 200% debt to gross domestic product makes it nearly impossible for the central bank and government sector to spur spending. Japan has the third largest economy by GDP, making a slowdown all the more impactful. Analysts have noted that reconstruction may help buoy the economy through 2011, but that spending will begin to taper off into 2012.

#6: U.S. Banking Crisis

With fresh lawsuits from the Federal Housing Finance Agency against 17 banks, financial service providers took a major hit in the market as they face concerns of further write-offs and write-downs.

Analysts at Keefe, Bruyette & Woods put the possible damage at $60 billion. The FHFA will likely settle out of court with Goldman Sachs, Bank of America, J.P. Morgan, and others for much less, but the charges may bring new calls for increased capital reserves.

#4: Stagnant Housing Market

Housing starts have started to rebound from an abysmal 2010, but figures still do not look good. The average sales price fell to $222,000 this July, while annualized sales dropped to 298,000, from 300,000 in June.

The National Association of Home Builders estimates that housing represents more than 17% of GDP.

#3: Unrest In Middle Eastern & North African Economies

Once thought as an opportunity to open up Middle Eastern markets, prolonged unrest in Egypt and Libya has spooked foreign investors. Since the Jan. 25 uprising in Egypt, only one sizable direct investment has taken place: Electrolux's purchase of appliance manufacturer Olympic Group for $404 million. Over that same time, Bloomberg reports, the nation's economy grew only 1.8% for the fiscal year - its worst performance in 10 years.

For investors in the west, the region represents a key supply of the world's oil reserves. Speaking of which, those crude prices might stymie growth too...

#2: Volatile Commodity Prices

Tied to #3, greater moves in commodity prices puts a dent in both consumer purchasing power and corporate earnings - all while adding volatility to the market. Softline retailers have had to act quickly to stem sharp margin declines, mainly by passing price increases to customers. Airlines have also been impacted heavily by increased pricing from suppliers. American Airlines experienced fuel price increases of $542 million in the last quarter, sending the company deep into the red.

The jump bodes well for energy and raw material producers like Alcoa, Exxon Mobil, and Schlumberger. But the larger impact on the economy can be devastating.

#1: U.S. Double-Dip Recession

The title says it all. If unemployment remains dormant and the economy grinds to a halt, the Dow will be heading below 10,000 again. With the government already spent, driving organic growth will become all the more difficult.

New York Times' columnist Paul Krugman recently noted that the U.S. economy could start taking notes from Japan, which would devastate trading partners across the globe.

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