S recently at a lunch with Garry Kasparov, the man who became the youngest world chess champion in history in 1985 at the age of 22. He held the title as the world’s top player for 20 years before retiring to pursue other chess and non-chess related interests.
Kasparov argued that we no longer take risks the way we used to. A new ground-breaking invention or discovery used to be made every decade, and it could either directly – or via its side effects – fundamentally change the way we live. For the US to have spent the time, research, and money to put a man on the moon may, in 1969, have seemed pointless. But as Kasparov pointed out, the way you use your smartphone today is a direct side-effect of the space research that was done in the Kennedy, Johnson, and Nixon eras. Without the decision to take risk – both financial and human – there would be no satellite technology. Kasparov argued that now innovation is measured, and that we have become an increasingly risk-averse society.
I asked Yra Harris, partner at Praxis Trading whether he thought we were taking too much or too little risk. He said he would prefer to turn the question around to ask whether we are getting adequate returns for the risk we are taking. Harris said that, when he looks at where the best risk-reward scenario is, he still views equities as the preferred place to park money.
Looking at the markets, although we have seen tremendous recovery in various asset classes, the retail investor is still sitting on the sidelines, and money managers are questioning whether gains are sustainable and based on anything other than central bank stimulus. Either way, the vast majority of fund managers I speak to still think equities will continue to head higher.
With a number of Fed officials now calling for a tapering off of quantitative easing, focus will be on Fed chairman Ben Bernanke, as he is set to speak twice on the state of the US economy this week. On Thursday, European Central Bank (ECB) president Mario Draghi speaks in London, where he will be asked to clarify his stance on further ECB cuts and potential negative deposit rates. On Friday, it’s the turn of Bank of England governor Sir Mervyn King, who will speak on Lessons from the Financial Crisis, following the publication of May’s Monetary Policy Committe minutes on Wednesday.
In the UK, watch for the second estimate of first quarter GDP on Thursday, along with April’s inflation data on Tuesday, and retail sales and public finance figures on Wednesday.
Louisa Bojesen is the anchor of CNBC’s European Closing Bell. Follow Louisa on Twitter @louisabojesen