Conquering Headline Risk: Step 1

The first step to solving a problem is to identify that it exists. Headline risk is no exception. Investors and risk managers who think strategically will be exploring proactive mechanisms to minimize or eliminate their exposure to headline risk during 2021. We can help. Step 1 is to make a clear distinction between Policy Risk and Political Risk.

The 2021 Landscape -- Overview

2021 has started strong, delivering yet more unprecedented and model-crushing developments during the first working week of the year. Markets have taken the developments in stride for a range of reasons. Some of the developments constitute more of the same (e.g., pandemic infection rates, Brexit). Other developments stagger the imagination (e.g., the insurrection at the U.S. Capitol) but did not change electoral outcomes. The United States political system did its job and certified election results.

These (and other) developments set the stage for a momentous year.

  • Many expect or hope that dramatic change will accompany the Inauguration of a new President.

  • Many expect that pre-existing policy initiatives regarding economic support and industrial policy to offset pandemic-related economic stresses will remain in place even as economic growth trajectories start to diverge globally.

  • Geopolitical stress points among China, the European Union, and the United States will continue to grow with digital economy issues such as 5G, Big Tech regulation, data privacy, and AI regulation in the cross-hairs.

  • Ongoing policy initiatives from the LIBOR transition to non-performing loan regulation to digital currency to multilateral and bilateral trade policy initiatives will continue to generate shifts that impact investor expectations and risk profiles.

Headline risk will only grow during 2021. Markets may have taken the first week of 2021 in stride, but history suggests strongly that volatility will reappear.

The time to prepare proactively for alpha generation as well as hedging opportunities is now. Data-driven scenario analysis and a keen understanding of prevailing policy trends provide a solid baseline for analysis. At BCMstrategy, Inc., we believe it is possible to minimize or eliminate exposure to headline risk with a disciplined and data-driven approach to scenario analysis. Our patented process for providing objective and transparent data is designed to automate the delivery of concrete facts to support smarter decision-making.

Policy Risk versus Political Risk

One foundation for our approach rests on making a clear distinction between Policy Risk and Political Risk..

Earlier today, Interactive Brokers published our primer on the difference between these two related but different risks. You can read the full post here: Nowcasting for Public Policy Risks in 2021 - Traders' Insight

Regular readers of our Disruption and Data blog and our 2019 "How To Trade The News" series for Interactive Brokers know that a clear focus on policy risk paired with concrete data powers a game-changing approach that adapts nowcasting to public policy risks.

Using concrete facts and objective, transparent data makes it possible to identify policy trajectories as they emerge. More accurate scenario analysis empowers investors to identify alpha generation opportunities faster. It also empowers risk managers to spot embedded, under-appreciated risks faster.

January is nowcasting month at BCMstrategy, Inc. We will spend the days leading up to the U.S. Presidential Inauguration by providing our friends and customers with the tools they need to set up strategically to conquer headline risks no matter what 2021 dishes up.

To get started, join us for our January 14 webinar.

Webinar -- January 14

On Thursday, January 14, BCMstrategy, Inc. will host its first webinar of 2021. We will explore what 2020 data tells us about 2021 policy trajectories across a range of important issues. Using PolicyScope Platform charts and data, we will show how our patented data supports a nowcasting approach to risk management and alpha generation.

Register for the webinar today on Zoom.


PolicyScope data is available through the Bloomberg Enterprise Access Point.

Customized widgets and dashboards are available via API HERE.

Analytical scenario analysis (The Scenarios -- twice monthly) and daily global macro analysis of platform data (The PolicyScope Risk Monitor) are also available.