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    Gavekal Research

    Making America Great Again

    Markets have been sending contradictory signals since the US political equation changed radically 10 days ago. In this piece, Louis seeks to unscramble the mixed messages as he tries to feel his way into the new investment environment.

    3
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    Gavekal Research

    Arthur Kroeber: A New Era Of Sino-US Relations

    While Donald Trump has threatened to slap huge tariffs on Chinese exports, Arthur thinks this would be an act of self-harm given the economic co-dependence between China and the US. In this video interview, he maps out the likely evolution of relations between the two countries in the years ahead.

    0
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    Gavekal Research

    Trump’s Tax Plans And The Dollar

    Following last week’s US election result, the US dollar—as represented by the DXY index—has risen to test the upper bound of the range that has prevailed since the first quarter of 2015. At these levels the US currency looks overvalued, both in real effective exchange rate terms against other major currencies, and on a purchasing power parity basis. Yet it would be premature to bet against a break-out to the upside. Although the dollar’s REER is...

    0
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    Gavekal Research

    When You Sleep With An Elephant

    It is always comforting to be back in familiar territory. In a long career in investment—45 years and counting—I have seen a few Mexican crises. All these years on, I have fond memories of the 1976 peso devaluation, and of the subsequent 1980 devaluation. I remember the 1982 debt crisis well, and the “década perdida”—the lost decade—which followed. Then came the hyperinflation of the early 1990s which led to the introduction in 1993 of the new...

    2
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    Gavekal Research

    The Decision Tree From Here

    For months, I have argued that the MSCI World’s push to within a couple of percentage points of its all time high was driven by two powerful forces: the extremely low level of global bond yields, and the continued compression of foreign exchange volatility. I went as far as to argue that this environment was reminiscent of 1986-87, and the Louvre Accord, whose breakdown ultimately triggered the 1987 crash (see Forget Central Banks, Watch Foreign...

    6
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    Gavekal Research

    Prospects For The US Bond Market

    Back in July, I wrote a paper on the US bond market which came to the conclusion that things were getting complicated. My thesis at the time was that there was no value left in the US long bond—the 30-year treasury—and that it could no longer be used as a hedge against a potential deflationary bust. At the time the long bond yield was around 2.3%. Since then the election of Donald Trump as president of the US has had a severe impact on bond...

    0
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    Gavekal Research

    Audio & Transcript — Gavekal Research November Call

    Anatole Kaletsky, Arthur Kroeber and Charles Gave presented their views on what a Donald Trump presidency means. Anatole outlined both positive and negative potential outcomes. On the positive side, US growth could see a boost from expansionary fiscal policy, but isolationist trade policies could threaten US firms and equity prices. Arthur warned of the geopolitical risk of a power vacuum should the US pull back from its treaty obligations....

    0
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    Gavekal Research

    Arthur Kroeber: What A Trump Presidency Means

    This is an excerpt from Arthur Kroeber's presentation at Gavekal's Hong Kong seminar on November 10. In this video Arthur presents his initial thoughts on the changes in the political situation in the US, and what it means for the rest of the world.

    0
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    Gavekal Research

    Trump’s Bond Market Correction

    The new US leadership was always likely to inherit a bond market correction. Now, the Republicans’ clean sweep in winning control of the White House and both houses of Congress significantly increases the odds of a deep bond market sell-off. Which in turn will be likely to knock equities down a few notches.

    6
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    Gavekal Research

    India’s Banknote Bombshell

    While the world’s attention was riveted on this week’s US election, India sprang a surprise.On Tuesday Prime Minister Narendra Modi announced the immediate demonetization of all existing banknotes with denominations of INR500 and INR1,000—note issues which together accounted for nearly 90% of the total currency in circulation by value.

    0
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    Gavekal Research

    What A Trump Presidency Means For Global Investors

    The social and geopolitical implications of the Trump shock are much too complex and too charged with emotion for instant assessments to be worthwhile. Even in the case of ordinary presidential elections, the immediate first-day market reaction usually turns out to be wrong. I will therefore try to avoid moral judgements and confine myself largely to economic observations, dividing them into ten items of good and bad news from a strictly...

    3
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    Gavekal Research

    President Trump And The Fall Of Davos Man

    For decades, all around the world but especially in Europe, the notion of the sovereign nation has been under fierce attack. Leading the assault have been the international bureaucrats and a clique of economists in league with those I have dubbed the men of Davos, all of them resolute proponents of crony capitalism (see Dissolving The People).

    8
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    Gavekal Research

    When Elites Fail

    Burkean conservative in me wants to agree with de Tocqueville: the passions unleashed by this election will hopefully once again, go back into their box for the next three and half years, only to be stirred up again the next time the electoral cycle comes around. Still, there are two elements of this week’s vote that do raise discomfort.

    0
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    Gavekal Research

    Deteriorating Price Momentum And Rising Political Risk

    As of Friday’s close the S&P 500 had recorded nine consecutive down days, falling back to its 200-day moving average. One can point the finger for this pull-back at any of several factors: broadly disappointing earnings (ex-financials), rising foreign exchange volatility (see Is Perfidious Albion Undermining The ‘Shanghai Agreement?’), higher long term interest rates and, of course, rising political risk. Unfortunately, none of these forces...

    2
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    Gavekal Research

    Will Denyer: Assessing US Recession Risk

    Despite recent headline data releases being mildly encouraging, Will is worried that the US economy is limping toward recession territory. In this video interview he discusses his framework for assessing the US economy and proposes investment strategies to deal with what he sees as the two most likely scenarios; namely, an outright contraction or a mild growth pick-up associated with rising inflation.

    0
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    Gavekal Research

    A Good Bond Repricing, Anyone?

    Even after the recent move higher in yields, there is general agreement at Gavekal that long-dated bonds remain horribly overvalued. The question is whether the adjustment toward fair value happens in a disruptive manner, or through a smooth transition to a new growth cycle. Anatole tends to the view that US economic growth should pick up from here, while Will Denyer is on recession-watch. The Federal Reserve, for its part, is worried about...

    2
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    Gavekal Research

    The Gavekal Monthly: Deflation Ends; What Next?

    The biggest market move of the past month was a significant rise in bond yields across the US and Europe. Much commentary has suggested that this might be a symptom of a sustained rise in inflationary pressures, as wages and rents start to push up prices in the US, and Chinese producer prices end four long years spent in negative territory. We are skeptical. The recent rise in yields has so far reversed only half of the decline in the first half...

    0
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    Gavekal Research

    On The Brink Of Recession

    Full steam ahead, then? Friday’s release of the first GDP estimate for 3Q16 headline showed US growth rising to an annualized 2.9%, up from 1.4% in 2Q and 0.8% in 1Q. On the face of it, this reading points to the US economy emerging from yet another soft patch, and so backing away from the recession frontier. Not so fast. A close look at the underlying components of the GDP report reveals the US as being perilously close to that threshold.

    4
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    Gavekal Research

    When The Keynesian Multiplier Goes Negative

    Last week I published a paper whose main point was that Keynesian policies lead to an inevitable decline in an economy’s structural growth rate (see Is The Second Shoe About To Drop?). My immediate concern is that developed economies seem set to head off on another public spending binge as they try to slay “secular stagnation”. That piece stirred a number of questions from readers, so I am following up with an addendum that extends the argument...

    6
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    Gavekal Research

    When The Facts Change, I Change My Mind

    After the Brexit vote, Anatole became deeply bearish, fearing that a populist insurgency could unleash a destructive retreat from globalization. With the US electorate seemingly set to reject that pathway on November 8, the likelihood of other nations following Britain by turning in on themselves is greatly diminished.

    17
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