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Wild Cards

MERS, SARS, & Preparation

Disease outbreaks are one of the top “wild cards” in my field of forecasting. These are lower-probability but high-impact events. One is unfolding before our eyes. The best current information I’ve seen as I write this is here:

http://www.sciencemag.org/content/348/6240/1183.full (paywall)

I remember SARS well. I was pulled into a multi-day implication-focused discussion back in 2003 as a corporate team overseeing store openings in two major Chinese cities worked through the impact on their business and key decisions moving forward. I still use their situation as a case study in some leadership education sessions I conduct.

MERS CDC
Photo: CDC

MERS is a crossover disease from camels. It is an airborne and surface-contacted virus. It was discovered in 2012 in the secretive kingdom of Saudi Arabia. Until recently it was thought to have a 40% fatality rate.

Just like SARS it features media-friendly images of crowds wearing face-masks on Asian streets, soaring case identification, thousands of people in quarantine, rumors, and the beginnings of panic.
Instead of China the epicenter is South Korea. The WHO is onsite and the information coming from the government is much more forthcoming that what we struggled with back in ’03 with the Chinese.

The “index case” – the first known victim – had tremendously high amounts of virus in his lungs. The most virulent spread has been in the hospital that treated him. A term to remember – “superspreading event” – occurred. An entire floor of St. Mary’s Hospital, open only a couple of months, was contaminated with 30 identified cases stemming from the one patient. One of those who got that initial contamination went on to pass the virus to 36 new cases in another hospital. Frightening.

Now more than 2500 people in South Korea are in quarantine and the government is reporting new cases daily.

What to do?

Watch carefully. Seoul is a major airport location. Seek out information about how the illness progresses. There’s thought that it may be more virulent at different stages. But also keep a level head and take to heart that the virus is now fatal in just 10% of cases.

Begin to
prepare contingency plans if the disease either continues to multiply in South Korea but especially if it’s reported in new countries. Develop the implications on your organization, job, colleagues, community, and especially your family. Investigate which treatments are being used. Preemptively lay in a stock of face masks – which you understand will not protect the wearer but will prevent the wearer from spreading the virus if they’ve been exposed.

We’re not at the state where this outbreak threatens anything but this past year’s failure of the flu virus, the fairly regular reports of virus outbreaks from animal crosses (especially avian flu) should cause you to think that this is something that belongs in your long term thinking and organization’s s.
emergency preparedness.

Fear Most? Not the Right Question

One of the better edited digests of information I read regularly is the Wall Street Journal’s “CIO Journal.” It’s a compilation of news items that affect businesses from the perspective of the increasingly integrated information and communications technology side of enterprises.

This morning a question was posed. “…which of the following Black Swan events you fear the most: natural disaster, cyber attack or hack, a loss of top talent, or that one of your strategic vendors gets acquired.” The column will compile the results.

A laudable effort. I will be interested. But as a practical matter it’s not enough to be looking only at the obvious future events that will affect your organization. If it had been me, I would have used a widely flung and well-informed network like CIO Journal has in its readers for even more useful purposes.

Subject matter experts who’ve arrived at their conclusions independently can be the best forecasters of the events ahead that are NOT on the radar screen yet. That was one of the central tenets of the fine James Surowiecki book
The Wisdom of Crowds.

Will we see a natural disaster that will affect companies? A major cyber attack or hack? Loss of top talent? Changes in the competitive landscape? Of course. They’re givens, not forecasts. And we need to be prepared for all of them, not rank ordering which we fear most.

For the last two years I’ve moderated the largest worldwide meeting of information security professionals. When I poll that group about the probability of a major cyber attack 75% agree it’s imminent. The other 25% respond that it happened already or is now occurring regularly.

The overlooked future events are the ones we’re not thinking about right now. They’re hidden around the corner or over the horizon.

That’s why I use techniques in strategy sessions to draw them out. Lay them in front of leadership. Examine their place in the spectrum of what’s ahead. Contemplate the after-effects and consequences of their occurrence. Develop a range of approaches to deal with them. Perhaps even compile contingency plans to address them.

Should you plan for the obvious? Of course. A mark of a truly robust organization, however, is one that looks for the unseen, the hidden, the events ahead that are not obvious.

A Conversation

I was the closing keynote presenter and moderator at a worldwide information technology conference a few months ago. One of the attendees and panelists was a very knowledgeable fellow from Canada, Stephen Ibaraki. Stephen is a founder and chair of a global information processing council. He approached me at the event about doing an interview.

We had a 90 minute conversation recently. Stephen provided thought-provoking questions in advance that ranged well outside the IT field to the global economy, trends, human adoption habits, and many others. You may find it interesting.

The
podcast can be found here.

The Middle East and Us

Almost 3 months into the wave of unrest in the Middle East and we’re staring at events like a deer in headlights. It might be a good time to take stock of how events might play out.

The best case scenario for an American economic recovery, avoidance of inflation, and $6 gasoline?
Moderation. Ghadifi quietly leaves Libya. A compromise between the separatists and the former cabinet and military. Eqypt remains somewhat quiet and their military fulfills promises of Mubarak crony removals and elections.

But those two possibilities are far less than certain. I’d give them less than 40% probability right now. Libya’s important production of light sweet crude oil will come offline for some time. Today I passed my first sign for $5.00 gasoline in San Diego, CA.

The more troubling events could occur in Saudi Arabia. The mere fact that government troops are firing rubber bullets at crowds is chilling. Despite the royal family throwing billions at the less advantaged citizens the groundswell from the educated population could destabilize the largest exporter of oil in the world. Crux facts: there is a huge concentration of the Shia minority around the Saudi’s oil production and shipping locations. Just like Benghazi in Libya, it’s strategic.

So what?

Think
1979.

Oil prices spike to $200 or perhaps beyond.

Oh yeah, you might not have been born then or you are too young to remember. Lines around blocks at gas stations (and there were almost 3 times as many as we have today with a population half the size). Declaration of a national crisis. Rationing. Price controls. Gas cans in auto trunks. Third world stuff.

Then, in the years that followed, runaway inflation coupled with a recession and double-digit interest rates. I was running a business in a market with real resistance to price increases when my operating line of credit went to 22%. It’s one reason I never, ever again want to make payroll for more than 40 people.

Worse, the US government can’t absorb a huge spike in what it pays to service the debt. The dollar will be wiped away as the world’s reserve currency, capital will leave the country, and the 1930’s will repeat and potentially be even more catastrophic.

I’m not saying the scenario is likely. I think it is still less than 30% probable but that probability increases daily to the point where we want to think through implications and actions.

In a recent Twitter post I pointed out a NY Times article on a fellow who’s gone “off the grid” in Texas by living in the desert on solar and wind power and capturing rainfall for water. Funny thing is that it’s both one of the most read and most e-mailed articles on the publication at this writing.

More in the days and weeks ahead. Hope for moderation in the Middle East and some leadership in our country. This could become a perfect catalyst for us to take steps to begin resolving our financial, energy, and world dominance issues.

The Oil Forecast

For the last three years, ever since it became obvious that the world was slipping into a recession and commodity prices would come down, I’ve forecasted an inevitable return to rising oil prices.

My logic: the recession reduces demand but only temporarily. Recovery from recessions is uneven globally. Some regions recover months, perhaps even years before others. A robust economy in Asia and to a lesser extent in Latin America will create demand that will drive prices up despite a slight fall in use in the U.S. and the EU.

Speculation or unexpected geopolitical events – “triggers” – will create volatility. Speculators will enter the market on supply shortages. No regulating body can keep them away from the opportunity to make money.

My forecast from mid-2008 forward: 75 to 85% confidence that an oil price spike and permanent plateau above $100/barrel will come sometime in the 2011-2014 time frame.

It’s been of interest to clients in, well, almost every field. Because as one CEO said to me on being asked what energy prices affect, “Everything!”

As the economic recovery has forged ahead strongly almost everywhere except the North Atlantic the price of a barrel of oil has risen back through the $50, $70, then $90 levels. Now the unprecedented events in the Middle East have taken Brent futures over $111. West Texas will follow.

Will it stay there? Of course it depends on a complex array of factors. Economic effects, how high the price spikes, volatility, whether the Saudi’s can really make up most of the shortfalls, refining bottlenecks, and more. In the weeks ahead I’ll place more information here on the implications of this important trend.

In the meantime I’m getting a lot of queries from clients who quickly remember my forecasts and are running through their Plan B strategies to react to the development or are confident because they planned for the high probability of this years ago.

The Wild Card Weeks

Wild Cards are lower probability, high impact events. We’ve not seen a few weeks like the last three for some time. I’m not a believer in the adage of “threes” when it comes to these events but there are lessons and implications for the three we’ve just seen.
A volcano erupts and ash plus extreme caution by air travel regulators paralyzes a system we take for granted. Millions are stranded. Millions, by any currency measure, are lost. Alternative transportation comes into short-term vogue and overloads. Normalcy returns and we forget. But that volcano is still smoking and just because it’s not page 1 news we relax.
An oil platform explodes and lives are lost. Initial concerns about leaks are downplayed by company executives. Days pass and a slick surfaces. There’s action but no results. Now we’re staring into one of the great environmental disasters of our generation.
Initial reports of an over-reliance on a “blowout preventer” will be examined in hearings and investigations for the next 3-4 years. Recriminations from environmentalists take on stronger weight. A decision to open more offshore drilling could not have been worse timed. We realize that we’re totally unprepared for the scale of the problem, contingencies for stopping the gusher of oil on the bottom, and we’re unenlightened or purposefully ignorant about the risks of the technology.
A car bomb fails to detonate in New York’s Times Square. If it had a fireball would have killed dozens, perhaps more. Vehicles nearby would have burned and exploded. The ensuing panic would have injured hundreds. Midtown Manhattan would have emptied as reports of the notifying phone call leaked out. The caller said it was only a diversion for a larger device. Transportation would have slammed to a standstill. Offices remained empty for Monday morning. Absenteeism spiked. Broadway theaters cancelled performances. And the world’s biggest financial center would have stopped for days. The economic after-effect would have climbed into the hundreds of millions for a devices that cost only a few hundred dollars.
When the alleged bomber is arrested within 53 hours we relax. Investigations of the origin, connection to terrorist groups, evaluation of police response will come. There will be criticism of no-fly lists, airport security, even Craigslist. But when the crisis is over our thinking returns to the mundane.
Therein lies the problem. Extraordinary events like these should prompt contingency thinking and action. They should trigger better preparation, encouragement of public involvement, and planning for the next inevitable event. Too often we don’t look at the next event, only the last event.
I’m hoping the wild-cards of the past few weeks result in serious contemplation and preparation for:
  • Disruptions of air travel for substantial periods of time on the part of industry and government.
  • Development of even better alternatives to face-to-face communication to back up or reduce long distance travel.
  • Better technology and layered backup systems for the next generation of deepwater drilling like that necessary for tapping the even deeper oilfields off the coast of Brazil.
  • An acceleration of alternative energy sources and, most importantly, conservation.
  • A renewed recognition that many man-made systems have Faustian consequences that should be contemplated before adoption, not after.
  • Higher levels of vigilance among all peoples in all places for those that would indiscriminately destroy life.
  • Smooth transitions to pre-thought Plans B, C, D, and Z when the worst happens.