Decisions, decisions

At a time when the battle over the R-word - that's R for recession - has got so hot that it has been mentioned over 2,700 times in the Aussie newspapers in this December quarter, it's comforting to learn that the Paris-based think tank, the OECD, says we won't have a recession.

(I have just added two more 'you know whats' to that count of 2,700! However, the residual message will be more positive than those that have been left by most of my media mates.)

Mind you, I am not certain we will avoid the outcome beginning with R, but I have long argued that we could. There's no earthly good reason to expect a bad future unless it looks highly likely.

Keeping growth positive

The Commonwealth Bank economics team only last week told me that there was a 60 to 70 per cent chance that we would remain in positive growth territory.

Until recently, most of the big banks were in the "we could avoid it" camp, and I noticed Westpac's Bill Evans virtually said it could be a close run thing after seeing his bank's Leading Index which predicts where the economy is going.

For those who like to bag governments and politicians, and I have made a good career doing exactly that, for good, objectives reasons I have to add, the OECD praised our public policy makers in explaining why we could keep growth positive.

"Massive government and central bank interventions to provide capital, liquidity and guarantees has averted immediate risk of systemic failure of the financial system," the OECD boffins concluded.

Crystal clear

Be clear on this, this positive view rests on some important developments. China has to stay in the growth game at least up to expectations. They have promised to inject money into their economy, but we will need to see growth numbers around 8 per cent to keep Australia's exports at good enough levels.

The lower dollar will help with export demand, but it still faces a Western world in the grip of recession, so there will be a lot less tourists from overseas. Of course, internal tourism will grow as Aussies are poorer nowadays if they head overseas with a 60-something dollar.

We also need to see the world's credit markets improve and no more Citigroup problems requiring government bailouts are important to help rebuild investor confidence.

Added bonus

Better than expected economic readings, especially in the USA, would be a bonus but for the next few months this could be a tall order. Many economists still think the US can show recovery signs after mid-2009 and so some early signs that this is on the cards would be ideal.

Leadership woes

We don't need to see any more dumb leadership decisions coming out of the USA and I am a little worried about the Europeans.

The recent massive slump of the stock market followed the US Treasury Secretary Henry Paulson's decision to opt out of using the bank bail out rescue money to buy toxic mortgage assets off the banks. This created negativity and uncertainty and sell-offs.

This culminated in the Citigroup calamity. We don't need anymore of these stuff ups.

Some months ago I argued that poor leadership got the world into this financial and economic challenge and it was going to take great leadership to get us out. We're in our leaders' hands.

For a year or so before the stock market nosedived, it had overshot to the boom side and now we have overshot to the doom side. Our markets at their worst were down 50%, but a 20% penalty for our excesses would be reasonable, however reason is not prevailing with volatility so high.

Market conditions

The condition of the credit markets - the LIBOR rate in London, which is the inter-bank offered rate at which banks lend to each other - and the VIX or fear index, which measures market volatility are the key measures to watch.

My technical buddy - Lance Lai - has positioned himself for a rising market, but he doesn't think it can last.

He watches the S&P 500 index in the USA and says we're moving in a wide range around the 961 level. And while he thinks we will see a short-term spike, he doesn't think it will last.

Examine the charts

This is where big, hairy, credible decisions by smart leaders - government, central bank and corporate ones - need to do something to push stock markets out of the 961's market magnetic pull.

The technical analysts simply look at squiggly lines that tell you about the weight of money. It's like looking at a firming favourite in a horse race at Randwick or Flemington.

Really bad decisions by leaders - banking and regulator ones in particular - got us into this mess and only great decisions can get us out of it.

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Decisions, decisions

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