Davos: Fear ascendant

Davos is the spiritual home of homo economicus, where human behavior can generally be explained in terms of the perpetual war between greed and fear. That’s one reason why the World Economic Forum is such a hot ticket. If you’re a student of the men (and they’re overwhelmingly men) who control the world’s money and power, being in Davos can help you gauge just how nervous or covetous they seem.

This year, my highly-unscientific first impression is that fear is very much on the ascendant. A lot of people seem to feel the need to explain to me, on an entirely unsolicited basis, just how powerful and important they are – much more so than in previous years. What that says to me is that they’re not on the lookout for new opportunities, in the way that they have been in previous years, so much as they’re trying to consolidate whatever gains they have made since the end of the financial crisis.

Signs of fear are particularly noticeable in Switzerland, which recently felt forced to let its currency, the Swiss franc, appreciate by 20% — essentially, the central bank gave in to overwhelming pressure from the wall of international money which was looking to this small Alpine nation as a safe haven in a world of great uncertainty.

To give you an idea of just how scared people are: if you place your money in the safety of five-year German bonds, or even ten-year Swiss bonds, then the yield you’re going to get on your money is negative. In other words, you can tie up your money for 10 years in Swiss francs, and be guaranteed to get back less than you first invested. Why would anybody do that? Because they’re worried that other places for their money are going to do even worse.

None of this is true in the US, where growth has returned, unemployment is falling, and there’s more feeling than ever that the economy is actually recovering from the crisis. But in Europe, the worst of the crisis hit later than it did in America, and the continent is taking much longer to recover. The rise of populist politicians on both the left and the right (politicians who are now making strange bedfellows indeed) is another symptom of the broad European economic malaise.

The world’s rich have certainly become a lot richer over the past few years: their assets – be they stocks, or bonds, or houses – are all much more valuable than they were. But those high prices have now become just another source of unease: the overwhelming consensus is that asset prices are much more likely to go down substantially from here than they are to go up substantially. We’re seven years into the boom; and all booms end in a bust.

So while the organizers of the World Economic Forum might want the delegates here to be “committed to improving the state of the world”, the reality is that most of them are more interested in simply holding on to the gains they’ve already made.

I suspect, then, that 2015 is going to be the year that fear becomes self-fulfilling. When hoarding is more attractive than growing, when defensiveness wins out over optimism, the first casualties are global growth and prosperity. For the next year or two, the leaders of the global economy aren’t really going to try to make things better. They’re going to have their hands full just trying to stop things from getting worse.