Approach

The beliefs that underlie the work of pi Economics can be summarised in the following statements:

• Markets are Determined Primarily by Liquidity and Flows of Funds
  The medium-to-longer term trends in the markets are driven by liquidity (monetary policy) and flows of funds in the economy (i.e. the financial surpluses and deficits of the major sectors) and the way that these two elements interact with each other.
   
• This Process, and its Interaction with Policy, Drives the Business Cycle
  Monetary policy determines liquidity but fiscal policy can also be an important influence upon the flow of funds within the economy and therefore upon the exchange rate, in particular. The cycle in the economy (and the medium-term course of the financial markets) is determined mostly as a result of these influences.
   
• The Economic View Cannot be Considered in Isolation from the Market View
  In the short-term the markets can affect the economy just as much as the economy can be an influence upon the markets. The best approach to trying to get the direction of markets right is through clear analysis of the relevant macro influences, and recognition of the implications of the analysis for the markets in currencies, and possibly commodities, as well as in bonds and stocks. This should make it possible to identify at an earlier stage whether the markets are confirming or refuting the analysis.

Therefore pi Economics does not provide comprehensive forecasts of economic variables. Forecasts of, for example, GDP growth are generally of little use to investors because the course of the financial markets and of the economy is determined simultaneously, and the relationship between any given economic variable and the behaviour of the markets is not linear.