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    Gavekal Research

    Don’t Misread The BoJ’s Signals

    The monetary policy committees of both the Federal Reserve and the Bank of Japan meet tomorrow. But whereas the Fed faces a simple binary call—either raise rates or don’t—the decision confronting the Bank of Japan is more complex.

    0
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    Gavekal Research

    The End Of A Bubble?

    Ask three economists for the definition of a financial bubble, and you will be lucky to get fewer than four different answers. Even in our little shop, we like to make distinctions between bubbles in productive assets (US railroads, the internet, fiber optic cables, shale gas wells...) and bubbles in unproductive assets (gold, tulips, Japanese land, Florida condos…). We also like to make distinctions on how bubbles are financed: equity (good) or...

    2
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    Gavekal Research

    The ECB And BoJ: Brothers Disarmed

    The combination of negative interest rates and quantitative easing is not working as central banks had hoped. Yesterday European Central Bank president Mario Draghi conceded that more than two years after introducing negative rates and 18 months after commencing asset purchases, the ECB is no closer to hitting its 2% inflation target than when it first adopted its unconventional policies. Although headline inflation is set to tick up over the...

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    Gavekal Research

    Gavekal Research Monthly Conference Call — September 2016

    In the inaugural Gavekal Research monthly conference call, Louis, Anatole and Arthur addressed the global growth environment and offered asset allocation suggestions.

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    Gavekal Research

    Yes, Those Indian Growth Numbers Are For Real

    China has long been the whipping boy of skeptics who claim its growth numbers can’t be trusted. Data denialists got a fat new target in 2015 when India adopted a new set of national accounts that magically bumped up its GDP growth by 1.5 percentage points to over 7%, vaulting it past China as the world’s fastest growing big economy. This seemed just a bit too good to be true. Is India’s growth for real, or just a mirage conjured up by...

    1
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    Gavekal Research

    A Better G-20 Communiqué

    Another year, another G-20, another yawn. Though the group of the world’s 20 biggest economies was useful in the aftermath of the 2008 financial crisis, it has since degenerated into another global drawing room where leaders explain to one other how the world would be a better place if only it were a better place. This was a missed opportunity.

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    Gavekal Research

    India’s Quiet Revolution

    Last week India announced a partial liberalization of its debt and currency markets, which should open up the economy to more long term foreign capital. Such money is sorely needed to finance an estimated US$1trn of infrastructure spending over the next five years. While India has a fairly open equity market, debt issuance has been tightly controlled and banks account for some 80% of total financing across the economy. The issue is whether banks...

    0
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    Gavekal Research

    Real Yields Still Favor A Strong Yen

    Haruhiko Kuroda didn’t quite say he will do “whatever it takes” to push up inflation expectations, but he did the next best thing. Speaking at Jackson Hole on Saturday, the Bank of Japan governor promised “to take additional easing measures without hesitation”. Declaring there is “ample space” to expand the size and the scope of the BoJ’s asset purchases, as well as to push short term interest rates further into negative territory, Kuroda...

    0
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    Gavekal Research

    The Falling Natural Rate Is No Mystery

    As the high priests of global central banking congregate in Jackson Hole, much of the chatter ahead of the meeting has concentrated on the “mystifying” fall over recent years in the natural rate of interest, and possible reasons why it should have declined to such an extent. Having spent the last ten years attempting to apply the economic theories of the great 19th century Swedish economist Knut Wicksell, I have to say I am delighted with the...

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    Gavekal Research

    Indonesia: Bet On Stability Not Growth

    Late last summer, Indonesia looked like a disaster in the making as the worsening commodity bust caused its currency and equity markets to plunge. A sharp fall in exports had caused economic growth to crater, while high inflation limited the scope for monetary easing. It was a time for strong leadership and decisive action, yet President Joko “Jokowi” Widodo seemed weak and ineffectual. A year on and much has changed with economic growth up,...

    0
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    Gavekal Research

    Demographic Dividend Or Demographic Nightmare?

    Among the Herculean challenges facing the government of India, job creation ranks first. Simply put, the number of new jobs is not keeping up with economic growth—a huge problem in a country where half the population is aged below 25. India needs to create roughly 8mn new jobs every year to absorb new entrants into the labor force. In addition, it needs to create more opportunities both for farmers seeking better-paying non-agricultural work and...

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    Video: Indian Growth And Demographics

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    Gavekal Research

    India’s Enhanced Central Bank

    Louis is fond of quoting Lenin that there are “decades when nothing happens and weeks when decades happen”. Given India’s generally sclerotic pace of institutional change, these seem to be revolutionary times that will dictate the policymaking framework for years to come. Last week saw parliamentary approval granted for a national goods and services tax that should spur a genuinely common market, while lawmakers this weekend signed-off on an...

    0
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    Gavekal Research

    India’s Great Leap Forward

    India, finally, is on course to become a genuine economic power. Calling it a “Treaty of Rome” moment goes too far, but India’s Goods and Services Tax could prove nearly as significant as the agreement that created the European common market. India has been a strong political state for nearly 70 years, but its fragmented economy prevents goods and many services from moving freely within its borders. The GST promises to create a genuinely common...

    2
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    Gavekal Research

    The Death Throes Of The JGB Market

    While the Japanese government was rolling out its latest stimulus package yesterday—with a headline value of ¥28trn, but only ¥4.6trn of additional fiscal spending this year—investor attention was fixated on the spasms in the JGB market. Having touched a record low of -0.3% last Wednesday, the yield on 10-year JGBs leapt 28bp in just five trading days to hit a four and a half month high of -0.02% yesterday morning. On one level the spike in...

    4
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    Gavekal Research

    The Gavekal Monthly: Shall We Dance?

    In a world in which the Fed shows no inclination to get ahead of the curve on inflation and in which both the ECB and the BoJ are in full quantitative easing mode, investors everywhere are on the hunt for yield. But the chase is a nervous one. Investors are all too aware that equities and bonds are sending conflicting signals, and that the favorable trends that have lifted most assets over the last six months could be disrupted by a sudden spike...

    0
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    Gavekal Research

    The EM Equity Question

    Despite this year’s strong run-up, there remain good reasons to stick with emerging market assets. The twin impact of collapsed borrowing costs amid a renewed global hunt for yield, and greatly reduced exchange rate volatility has been the ideal environment for EM yield curve flattening trades.

    2
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    Gavekal Research

    The Flow Through To EM Equities

    These are strange times for investors with bond yields in big developed markets plumbing new depths on dark concerns about never ending deflation and stagnation. Yet in a clearly related development, US equities are making new highs while corporate- and emerging market-bonds continue to rally.

    2
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    Gavekal Research

    The JGB Endgame Approaches

    Over the last couple of weeks, the world’s attention has been focused by turns on British politics, Italy’s banking crisis, the US presidential race and most recently, last night’s ghastly events in Nice. It is little surprise then, that a series of three stories from Japan (or perhaps just two and a half) has passed largely under the radar. Taken together, however, these developments bear heavily on the future of the Japanese government bond...

    2
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    Gavekal Research

    Can ‘Make In India’ Work?

    In September 2014, Prime Minister Narendra Modi launched an initiative to transform India from an industrial laggard into a global manufacturing hub. The “Make in India” plan is sorely needed: in 2014, India’s merchandise exports accounted for a paltry 1.7% share of the global total. That was on a par with Taiwan, whose population is smaller than Delhi’s. India relies heavily on imports of consumer goods, especially from China, and runs a large...

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