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Summers of discontent?

(China Daily)
Updated: 2009-07-13 09:03

LONDON: Asset managers, diplomats and politicians disappearing for long summer holidays should beware: if history is any guide, major events from wars to crashes happen often when everyone heads to the beach.

Last summer, the August "silly season" was shattered by the unexpected war between Russia and Georgia. The year before saw the first ripples of the subprime mortgage crisis and credit crunch, while July 2006 brought the Israel-Lebanon war.

The Asian financial crisis started in July 1997 - in part prompting the Russian rouble crisis in August 1998. Iraq invaded Kuwait in August 1990, while Soviet hardliners briefly ousted President Mikhail Gorbachev in August 1991. Further back, World War I broke out in August 1914 and World War II at the start of September 1939.

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So, does that mean the northern hemisphere summer has a particular propensity for "black swans" - unexpected, high impact events that can turn the world upside down overnight?

"The thesis that these things happen in the summer - wars, financial crises, etc - is interesting but hard to prove," said Sam Wilkin, senior consultant at Oxford Analytica. "The standard explanation has always been that people are away from their desks and so it is all dealt with by second-stringers."

That theory would suggest that those key decision-makers who would normally notice an emerging crisis and act to deal with it might simply not be there at the key moment, thereby taking no action and allowing events to run out of control.

It could help explain why British bank Northern Rock fell into such trouble after credit markets dried up in the summer of 2007, prompting a spiraling crisis that led to a run on the bank and its nationalization in September.

Sometimes, actors may be taking advantage of the fact the world is looking the other way. Whoever one might blame for starting the 2008 Georgia war, the fact it began as the world focused on the Olympics opening ceremony in Beijing looks more than a coincidence.

Commanders prefer mobilizing and fighting in the summer, often hoping they can complete their objectives by the time winter closes in.

In financial markets, there is also a plausible explanation for summer crises - or at least why they have such a profound impact. With many market players away, trading volumes are usually much lighter but any volatility is much greater."

"If you are an asset manager, you should take a much more defensive position over the summer, particularly if you are going to be away for some time," said Michael Ganske, head of emerging markets research at Commerzbank. "Any market moves will be much greater."

Sometimes, however, the summer can have the opposite effect. Greek political disturbances are renowned for generally quietening down as temperatures rise, while the summer break in 1968 saw a winding down of the strikes and student riots that had dominated the year.

"The summer break can have a cooling down effect," said King's College London's Vinen. "People go away on holiday and forget."

Reuters