Business, Systemic, and Exogenous Risks

The game of golf provides many parallels to daily life; here’s another.  When you hit the ball, its trajectory depends substantially on your technique.  Having the ball land in the middle of the fairway 300 yards from the tee suggests you are executing well.  A hook, slice, or anything else you do that results in a less optimal lie suggests your business plan’s application dropped a stroke.  That’s a business risk.  If the wind picks up or new sand traps get added, that could be likened to a systemic risk.  Not only will it affect your game,  it will affect all the other players too, unlike the nuances of your swing,.  That’s a systemic risk.  When a bolt from the blue crisps your buddy as he lines up a putt, that’s an exogenous risk.  The tendency is to duck for cover in case you’re next, despite the obvious random nature of the event.  Exogenous events can’t be planned for, but they can affect group behavior for quite a while after they strike.  Today, Congress and the administration, normally systemic risks who telegraph their changes to the course in advance, are becoming incredibly exogenous.  On a whim they suddenly vote to obliterate constitutional protections, adjust private sector salaries, rewrite mortgages, cancel legal debts, and on and on.  Until they can be stopped, or come to their senses, the investor both here and abroad will be reluctant to participate in any of the financial cures being put forward by either the Treasury or Federal Reserve.  Insecurity breeds caution.