OECD – “she’ll be right but…”

May 23, 2012

FOREX, Global Macro

The OECD released its latest global update over night and it is interesting insofar as that it takes the usual saccharine sanguine approach yet the risks are so obviously there of an undershoot of expectations that it is almost a worthless document already. Certainly the OECD highlights the problems relating to Europe and I’m probably being a bit harsh – but the inability of the global politico/policy hierarchy to speak plainly and honestly is one of the reasons why markets are so volatile and why consumers remain cautious all over the world.

Too many false dawns, false starts and broken promises and expectations of recovery simply reinforce the fact that no-one seems to know what’s going on.

Put simply when those policy makers, politicians and global bodies that the average man and woman look to for guidance can’t get it right and constantly get it wrong confidence suffers. When this occurs in an environment where these same policy makers,politicians and global bodies deliver platitudes to the masses all the while dolling out cash to Banks and Wall Street while Main Street burns then behaviourally what would you expect other than consumers to bunker down.

Thus the GFC endures.

Above is the video from the OECD website – it’s only 2:28 but you’ll see it’s hardly and exciting or even positive outlook on balance I’d argue.

Here is the link to the press pack which delves further into the overall outlook. you will note that it tries to be a hopeful document but is full of risks everywhere.

But the OECD does get it in the end. Pier Carlo Padoan who is the Deputy Secretary-General and Chief Economist of the OECD finishes his pack for the press with the following,

Almost five years ago, in the summer of 2007, turbulence in the US subprime market sparked off the most dramatic financial and economic crisis in several decades. After five years we cannot yet say that the crisis is behind us. More than once signs of recovery have disappointed. Policy mistakes have been made, sometimes reflecting inaccurate reading of events, at other times reflecting policy and political failures. Is it different this time? As long as confidence is not rebuilt on a solid basis with the right policy choices, downside risks will prevail. This is important everywhere but particularly so in the euro area, where crisis management goes hand in hand with the building of the institutions needed for a monetary union to work properly.

Investors please note – this is the reason we have been cautious all the way through this crisis. Downside risks continue to prevail. 

THis doesn’t mean we are always bearish. Not at all. We are tactically inclined to get on and off moves as buy and sell investors at present. As regular readers know we can and have  jumped on and off rallies and pullbacks numerous time just as we rode up at the end of 2011 and beginning of 2012. But we got off again because we know that the enduring nature of this GFC when balanced out against the short termism of the politico class means that only time, not policies, will eventually heal the global economy.

The current malaise in markets over the past 2 months is part of the general recognition of what Pier Carlo Padoan says above. As we have been saying – it’s not just Greece, although it remains the excuse. This weakness is firmly grounded in the recognition that global growth is going to be lower for longer.

Have a great day

Gregory McKenna


Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

If however you do need advice on Investments, Economics, Funding and Liquidity, Interest Rates and Forex and Derivative markets we are happy to help.

Please Email the team at Lighthouse at info@lighthousesecurities.com.au or Greg directly on greg@lighthousesecurities.com.au

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