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NYU Stern Volatility Institute Director Robert Engle on the three biggest hidden risks to the market and how they could potentially impact investorsâ€...
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Anyone of those the fiscal cliff talked it is everywhere it's always seem to be hearing about lately but is there really something else.
That could be bubbling under the surface that could send the markets into a tailspin.
The we should be talking about now joining me now in a Fox Business exclusive Robert -- 2003 Nobel laureates in economics.
And NYU stern volatility institute director he's so big key as a whole institute for volatility because it what for volatility and and -- is -- risk so we thought let's bring UN.
And talk about the fiscal cliff but three hidden risks that people should be talking about but aren't.
And how -- first before we get to them did you identify them.
Well there are a lot of things that that people worry about the question is which are the really big ones and what kind of a timeframe are we talking are we talking about.
Next week are we talking about next decade and I think when we talk about the big risks we've got to look further in the future.
Meaning closer -- -- he doesn't like the next year or so I think maybe more than that twenty years fifteen years perhaps OK so get ready everybody let's announce the first we'll start 321 number three.
You say is all the unfunded pension liability risk not just here in the US but globally how is that had hidden risk.
Well there are pension funds.
Like Social Security which are not well funded in the future and that's the topic one of the big topics of the fiscal cliff but they're also.
Pension funds of state and local governments -- -- pension funds of European governments that are pension funds.
All over the world what -- collapses.
If they collapse then the government will be governments will be so obliged either to.
-- them or to.
Break the bad news to the electorate that they're not going to the liabilities that they exaggerated by extremely low rates worldwide.
It certainly is it's a big problem a lot of pension funds are relying on on fixed income investments.
And those don't pay anything anymore.
Number two OK so we see the unfunded pensions and and by the way government's bailing out governments don't have enough money to bail out on that's part of your -- or matrix of thinking.
OK so the next one is.
This stunned me.
Climate change climate change.
I think that this was bubbling under the surface.
We worry about it.
When we are.
Are not dealing with more short run issues but I think it has to come to the top of the agenda.
Because.
-- are changing -- environment.
Well you think about hurricane sandy which -- this bizarre storm surge nobody's ever seen before.
No snow in -- wouldn't -- now which should have happened to Lester we have a snowstorm here in October and then nothing all winter.
So how does that affect my portfolio.
I think the third.
If you look carefully you can see.
Firms that you think might do well.
In.
The world which has more climate.
To stress.
And firms that won't and if you look at some of these firms that they actually look like there -- They're overpriced they're they look expensive will be and that means that people are actually.
Investing in these kinds of industries and I think that means.
The investing population is worried about.
In the very short term and and -- you know you look at their resorts which took a hit last week because.
There's no snow there and you look at ski companies that's the obvious one and it could be very short term we we can't put all of this on on something that.
We just don't know but nonetheless it is as you say concerned up let's get to number one.
It's something we were talking a lot about and then stop because of the fiscal cliff insanity.
And that is.
That's Europe.
Europe has the potential to unravel.
In and this is really not -- decade long agenda this is actually.
Within a year maybe I don't know if possible.
That'll take longer than that but it has the possibility.
Of breaking apart having a severe recession and that's going to impact the US economy and we -- eliminate all this momentum that's where hopefully starting to see in the US economy.
-- the question then becomes are we overstating wasting too much time on fiscal cliff discussion and its its potential effect on our money and should we not then be focusing on these other issues.
And somehow bullet proofing our investments up.
You know -- as it pertains to each one of these concerns you talk about bubbling up.
I think I think that we should be paying more attention to Europe I think that the the the tension and we're paying to the fiscal cliff -- not actually productive in fact.
It's leading to.
Polarization.
Of positions that have to be negotiated and in private and and the less I hear from Washington the better I like.
-- fiscal cliff that the talks were secret today talks were and it's a way to get a right it's a good thing and and actually might.
Notice that the financial markets are not actually very.
-- Volatile as a response to this discussion fiscal cliff.
I think we should let it go I think I think something's gonna be resolved even if it's only a postponement which.
I suppose seems like the most likely out.
Professor angle talking about the three hidden risks that are bubbling up will put them on the FaceBook page FaceBook dot com slash -- -- Peter like you better put it on -- but it.
Thank you it's an honor to have you here Robert -- NYU stern vol given FaceBook page how.
-- look at.
The volatility is to be a slow summer -- kids your students -- gamble -- -- gold group they did a good to see professor thank you closing bell ring.
