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E.g., 24-09-2017
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    Gavekal Dragonomics

    The Lull In The Tourism Boom

    Chinese outbound tourism is having a rough 2017: growth in international travelers is down to about 6%, from 20%-plus growth in earlier years. So has something fundamental in the Chinese tourism story changed, or is this just a blip? In this piece, Ernan argues this slowdown is largely temporary, caused by events in key destinations in Asia.

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    Gavekal Research

    Building A Bond Valuation Tool

    The “golden rule” of French Nobel laureate Maurice Allais states that over the long run, long term government bond yields always converge with the nominal structural growth rate of the economy. In this paper Charles sets out to build a government bond market valuation tool based on the Allais postulate.

    0
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    Gavekal Research

    The Misleading Signal In US Auto Sales

    Trying to tease economic trends out of recent US data releases is a frustrating business. Take yesterday’s figures. Although the ISM manufacturing PMI ticked down a shade in July to come in a fraction below expectations, at 56.3 the number remained firmly in expansionary territory. On the other hand, two classic cyclical indicators of US economic health—construction spending and automobile sales—both came in weak.

    0
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    Gavekal Research

    Strategy Monthly: India — Poised For A Pickup

    India clearly offers one of the best long-term growth stories in the world today. In 2016 for the first time it added more to global nominal GDP growth than China. Demographics are favorable, opportunities for infrastructure- and housing-driven growth are abundant, and despite some hiccups the Modi government has done a good job of taming inflation and setting the country on a structurally sounder path. For investors, the problem is that Indian...

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    Gavekal Research

    Fade The Latest Commodity Rally

    China’s property market is once again running hotter than expected, pushing prices of iron, steel and coal up by 15%-40% over recent weeks. But the gradual downward trend in property has not changed. And with high prices and government intervention both stimulating more commodity supply, the potential for further price gains is limited.

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    Gavekal Research

    Get Selective Over Eurozone Stocks

    Emmanuel Macron’s political honeymoon proved short-lived, but the new French president’s honeymoon with eurozone equity investors was over before it began. In a classic case of buy the rumor sell the fact, the euro Stoxx index peaked on May 5, the last trading day before the second round of the French presidential election. That run-up had been driven by receding fears of deflation, as investors embraced the idea of eurozone reflation, coupled...

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    Gavekal Research

    An Interesting Configuration

    When the market is suffering from doubts, it pays to start with the facts. And clearly the market is having a few doubts right now. After setting the latest in a series of record highs in intraday trading yesterday, US equities succumbed to the jitters. In the space of an hour, the S&P500 fell -1% and the Nasdaq -2%, as investors questioned the underpinnings of the current run-up in stocks. So, let’s begin with some facts:

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    Gavekal Research

    The Battle Of Brexit Is Over

    Judging by statements made by two of the most fervent Europhobes in Theresa May’s cabinet, Soft Brexit has emerged the victor over Hard Brexit. While this means the UK's exit will be postponed during a transition period, and possibly beyond, Anatole argues this comes with its own drawbacks and risks. Things are likely to get worse before they get better.

    0
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    Gavekal Research

    US Bear Flattening Ahead

    The miniscule change of wording in yesterday’s Federal Reserve statement appears to confirm that the Fed will go ahead and begin to shrink its balance sheet from September. June’s statement said balance sheet normalization would begin “this year”, implying the process would start by December at the latest. Yesterday’s statement altered that to “relatively soon”—and relatively sooner than December suggests September, as the only other meeting...

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    Gavekal Dragonomics

    Profits Heading Down But Not Out

    The profits of China’s industrial sector handily beat expectations in the first half of 2017, rising 22% YoY. In this piece, Thomas surveys the profit cycle’s path over the next 12 months, which mirrors that for the overall economy: a slowdown in the rest of 2017 and into 2018, but quite a gradual one with little risk of a profit recession.

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    Gavekal Research

    When Smoking Pays

    Baseball cards, Beanie Babies, bitcoins... For the last eight years, governments have regarded them as much the same sort of thing, taking a broadly tolerant attitude to the proliferation of crypto-currencies. Not anymore. Yesterday the US SEC declared that blockchain-based digital tokens such as bitcoin are in fact securities and thus subject to the full panoply of SEC regulation.

    0
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    Gavekal Research

    Big Tech Is Not Standard Oil

    Back in May, Louis warned that the regulatory knives were coming out for Big Tech. In the worst case scenario for the dominant technology giants that have done so much to drive the stock market to new highs, Louis argued that they could even face the same treatment that Standard Oil received at the hands of the US government in 1911. Investors were forcibly reminded of this tightening regulatory squeeze yesterday when Google parent Alphabet...

    6
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    Gavekal Research

    The Eurozone Is Now So Far Behind The US, It’s In Front

    Among the many tricky tasks facing investors is to determine the relative positions of the US and eurozone economies in their respective business cycles. Over the preceding two cycles—the ones that peaked in 2000/01 and 2005/06—the two economies moved broadly in phase, with the eurozone lagging the US by around one year. Estimates from the International Monetary Fund and OECD suggest that that relative position is largely unchanged, with the...

    2
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    Gavekal Research

    Draghi Can’t Lean Against The Euro’s Rise

    After the euro broke out of its three-year trading range last week, it is reasonable to assume that the European Central Bank would much rather see a big correction than a further move to the upside. But central bankers can’t always get what they want—and their powers to control the currency markets are much more limited than generally assumed by day traders and media headline writers.

    1
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    Gavekal Dragonomics

    Taking Stock Of The Investment Cycle

    Investment drives China’s growth, but the state of the investment cycle is now being obscured rather than revealed by the most closely followed indicator of capital spending, fixed-asset investment. In this piece, Andrew updates his model of monthly real growth in gross fixed capital formation, and draws three conclusions from its signals.

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    Gavekal Research

    Life’s Certainties And The Euro

    There are very few certainties in life. Death, taxes, US consumers living beyond their means, and Italian central bankers talking down their currency are pretty much the only things I have learnt in my career to be inevitable. Sure enough, Mario Draghi came out yesterday doing his best to sound as dovish as he possibly could. That did not stop the euro from surging past its ceiling of US$1.15 to reach US$1.1620.

    1
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    Gavekal Research

    Value Creation In A Capitalist World

    In a capitalist economy there are three different kinds of value creation: the Schumpeterian, the Ricardian, and the Malthusian. And the companies in each of these value creation segments swing through very different cycles. In this short paper, Charles outlines how each segment works, explains where they are in their cycles, and suggests how investors can build appropriately hedged portfolios.

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    Gavekal Research

    Reading Trump’s Trade Signals

    Donald Trump came into office six months ago today promising to rip up the rules of global trade in order to put America’s narrow interests first and cut its trade deficit. So far, though, his administration’s trade policies have been more smoke than substance. Global trade volume has accelerated smartly since the US election. Threats of a trade war with the main target, China, fizzled in the face of US business interests, Beijing’s ability to...

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    Gavekal Research

    Liquidity: More Bad News Than Good

    Gavekal has long maintained that bull markets rest on three pillars: liquidity, valuations, and growth. Now with the Fed set to tighten further in an environment of weak bank credit growth, KX and Will warn that the liquidity pillar which has done so much to support the current bull market in US equities is looking increasingly shaky. That is especially ominous, given that valuations are no longer cheap and catch-up growth is played out for this...

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    Gavekal Research

    Watch US-Eurozone Rate Differentials

    Interest rate differentials between the US and eurozone are wide by historical standards. This is no surprise. The US has enjoyed uninterrupted growth (at least in year-on-year terms) since 2010, and today the Federal Reserve stands as the most hawkish big central bank in town. In contrast, the eurozone slumped back into recession in 2012, and the European Central Bank remains in full-blown easing mode. As a result, interest rate differentials...

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