A Yawner in Essen

The recent Group of Seven (G7) meeting in Essen, Germany was ho-hum. Is it so much to ask for a lousy protest or two on global warming or saving the rainforests to liven things up a bit? How about at least throwing us a bone with a little bickering between Russian and US dignitaries? But we got nothing. Everyone played nice. And while there were few revelations and little juicy gossip, there were a few noteworthy items to report.

But before we get to that, a brief cautionary note: G7 meetings, and other such economic "summits," are usually a lot more hype than substance. Investors and journalists giddily fetishize each detail, intonating that everything from currency movements to stock price fluctuations are massively affected by the meeting's outcome.

This is likely far from the truth. In reality, such meetings have very loose agendas and are more about politics and diplomacy than real, actionable economic policy. Very seldom does any big action result. However, it's worth noting the tone and rhetoric of the meetings to get a sense of current political and economic attitudes around the world, and what developments might happen down the line.

• First, the G7 stated global growth is "more balanced" and member economies' performances remain "favorable." This is a good sign that governments are recognizing global economic strength.
• Likely the most positive statement was the G7's reaffirmed commitment to resist protectionist sentiment and fully support the re-launch of the Doha Round of trade liberalization talks. Who knows what will come of it, but pointing things in the direction of further free trade instead of protectionism is a positive in our view.
• The G7 also reaffirmed their view that exchange rates should reflect economic fundamentals and that excess volatility and disorderly movements in exchange rates are undesirable for economic growth. This makes us a bit uneasy. There's still a proclivity out there for governments to intervene in free market exchanges—which in the long run is a negative for capital markets and the world economy. Let the markets determine what's appropriate, not governments.
• The G7 then warned that investors could get burned betting in one direction on the yen as Japan's economy continues to strengthen. Clearly, the G7 guys and gals couldn't quite refrain from trying to direct the course of currency markets with a little jawboning…
• Given the strong growth of the hedge fund industry and the instruments they trade, the G-7 said it needs to be "vigilant." A classic G7 line of opaque rhetoric. We don't even know what this means, other than maybe they would consider regulating hedge funds in the future. But for now, no action.

All in all, the G7's tone was predominantly in favor of free trade and globalization and raised no major red flags on policy changes or protectionism. That might make the meeting a yawner, but no new news is good news for stocks to continue their climb.