In its report released today the Organization for Economic Cooperation and Development suggests slower global economic growth in the future as business investment is not accelerating and the consumer is reluctant to spend (something that we have been discussing in this blog on an ongoing basis):
However, buried in the heart of the report (p 37, 38) and what caught my eye are some "extraordinary risk factors that are not taken into account in the projections that could have potentially big effects"
As Risk Managers then, we need to be especially attentive:
"An abrupt and simultaneous resolution of these excesses could disrupt financial markets seriously and have considerable negative implication for the real economy, if accompanied by large losses for investors, reduced risk tolerance and higher uncertainty."
"These signs of excesses in financial markets, and hence risks of corrections, are particularly uncomfortable as ongoing changes in the structure of financial markets could amplify shocks."
"Indeed, the amplitude of price movements has recently increased in some markets . Higher volatility in bond markets may reflect longer-term trends related to automation and prevalence of high-frequency trading").
"Also, ongoing changes in bank regulation to reduce risk taking could discourage banks from acting as market makers, increasing volatility . "
We continue to advise caution!
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist