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E.g., 11-12-2017
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    Gavekal Research

    Towards ECB Stealth Tightening?

    As the eurozone’s economy picks up, the European Central Bank finds itself facing a dilemma. In order not to freak out financial markets and push long-dated yields sharply higher, which could threaten to trigger a new financial crisis, it has promised to continue its quantitative easing program of asset purchases until at least September 2018, and not to raise policy rates until well after the end of those purchases. Yet as inflationary...

    3
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    Gavekal Research

    Our 2017 Holiday Reading List

    History, far from being over, looms large in this year’s Gavekal holiday reading list. From failing empires in the Middle East to Europe’s ceaseless struggle for dominance and Asia’s inability to bury ghosts, our writers consider how the past is shaping our future. As befits a research firm, we have lots of economics with a tour of the stagnation debate and an assessment of the threats and benefits offered by artificial intelligence. We consider...

    1
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    Gavekal Research

    Avoiding Equity Duration Risk

    Last week, Louis argued persuasively that investors should shorten portfolio duration in response to the prospect of further central bank monetary tightening, the potential threat of rising inflation in 2018, and the stretched valuations of long-dated assets (see Have We Just Glimpsed Growth Stocks’ Achilles’ Heel?). This goes not just for fixed income investors, but equity investors too.

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    Gavekal Dragonomics

    The End Of The Preschool Boom

    China’s busy and ambitious parents have driven a huge boom in private preschools, with the number of students roughly tripling over the past decade. But the sector is now clouded by allegations of child abuse, which will only strengthen a shift to tougher regulation and public provision of preschools. For now, the private preschool boom is over.

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    Gavekal Research

    What the US Yield Curve Really Says

    Since 1968, the US economy has suffered seven recessions, each preceded by an inversion of the yield curve. It thus makes sense to ask if such an upending of the link between time and interest is necessary for a recession to occur. A follow-on question might be whether a recession cannot happen so long as the yield curve shape is “normal”. With the US yield curve flattening by the day Charles seeks to answer these questions.

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    Gavekal Research

    Asia’s Triple Merit Scenario Lives

    Last week, the Bank of Korea raised its benchmark interest rate for the first time in six years and other Asian central banks seem likely to follow suit. This is not especially surprising given the ongoing global expansion and tightening moves by the Federal Reserve, which have narrowed short-rate differentials for Asian currencies. The worry, as elucidated by Anatole last week, is that such an expansionary scenario threatens the delicate “not...

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    Gavekal Research

    Turning The Page On The Eurocrisis

    You can be forgiven for having missed yesterday’s not so momentous news that Portugal’s finance minister Mario Centeno is taking over the presidency of the Eurogroup of finance ministers. Yet, look a little closer and this switch may, in fact, signify the end of the eurocrisis and a move onto the next phase of eurozone development.

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    Gavekal Dragonomics

    The Deleveraging Progress Report

    Can China manage corporate deleveraging without a credit crunch? Leverage ratios improved in 2015 and 2016, but progress has been more mixed in 2017, as companies borrowed more but raised less new equity. In 2018, Thomas expects stable or modestly deteriorating leverage ratios, with slowing growth somewhat offset by recovering equity issuance.

    0
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    Gavekal Research

    Positioning For US Tax Reform

    What’s not to like about tax cuts? Quite a lot as it turns out. Although the final shape of US tax reform has yet to be settled, there are enough common points between the House and Senate bills to allow Will and KX to conclude that the likely tax cuts will prove inflationary, and could prompt a more aggressive stance from the Fed. Despite some undoubtedly positive macro outcomes, the implications for investors are not exactly bullish.

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    Gavekal Research

    Strategy Monthly: The Long Cycle Continues

    As equity markets everywhere continue to trade higher, money managers are getting increasingly nervous about how long the rally can last. In December’s Strategy Monthly, Anatole argues that we are still only half-way through a secular bull market that can last through the end of the decade. With further US rate hikes on the cards, barring any nasty surprises non-US markets are likely to outperform going forward. The only fly in the ointment is...

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    Gavekal Research

    From A Ferrari To A Jeep

    When I turned 70 (I am still struggling with the fact that I now have a “7” handle), the Gavekal partners had the good idea of bringing into the firm some very bright “quants” and giving them a simple mandate: quantify and qualify the various investment rules that I have been using for decades (somewhat sporadically, and often with biases that I myself sometimes struggled to acknowledge).

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    Gavekal Research

    Equities, The Yen And The BoJ’s Exit

    Last month Bank of Japan governor Haruhiko Kuroda participated in an ECB panel on the importance of communications as a tool of monetary policy. He seems to have taken the message to heart. In the couple of weeks since, scarcely a day has gone by without Kuroda or one of his colleagues on the BoJ’s policy board talking publicly about the “reversal rate”, hinting heavily that the central bank is looking to dial back its ultra-accommodative stance.

    0
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    Gavekal Research

    Goldilocks And The Ten Grizzly Bears

    Over the last fortnight, Anatole has written lengthy pieces on why he remains structurally bullish and how investors should play this trend. Today, he takes a realistic look at factors that could disrupt his generally upbeat assessment of the global economy and markets. This piece is a journey into Anatole’s darker side.

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    Gavekal Dragonomics

    The Rental Housing Solution

    China’s government has a new priority for the housing market: boost the quantity and quality of rental housing. As more middle-class Chinese are priced out of top-tier cities, promoting rentals is a new attempt to address housing affordability. In this piece, Rosealea explains the latest policy push and how it will affect property developers.

    0
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    Gavekal Research

    Have We Just Glimpsed Growth Stocks’ Achilles’ Heel?

    The best scene in HBO’s hit show “Silicon Valley” had brash billionaire Russ Hanneman explain to start-up CEO Richard Hendricks that the first goal of his tech firm should be to avoid booking sales: “If you show revenue, people will ask ‘how much?’ and it will never be enough” (see clip). This scene crystallizes the observation that in recent years investors have been rewarded in spades for loading up on “long-dated assets”. And it has been a...

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    Gavekal Research

    Behind Eurozone Credit Growth

    The eurozone credit cycle is accelerating. Data released yesterday showed loans to non-financial companies grew at 2.9% YoY in October, the fastest rate since June 2009, while loans to households were up 2.7% YoY for the third month running. The pick-up in lending to private businesses bodes well for eurozone growth and markets next year, with respondents to the European Central Bank’s bank lending survey indicating that investment and...

    0
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    Gavekal Research

    India Macro Update: The Pain Before The Gain

    India reports its third quarter GDP tomorrow and in this chartbook Udith and Tom offer their assessment of the economy. They expect the official numbers to show a pick-up in growth due to firms restocking after the rollout of the new Goods & Services Tax and think this trajectory will continue through to next year. They advise investors to stick with richly-valued equities, treat bonds cautiously and not worry too much about a currency...

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    Gavekal Research

    Video: The Pain Before The Gain

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    Gavekal Research

    What Retail Apocalypse?

    With so much US retail activity going online, a CNN headline over the weekend asked if this “Black Friday” might be the last. That is good news for the newly-minted US$100bn man at Amazon and bad news for old-style chains like JC Penney, Sears, and Kmart, which face constant downsizing pressure. But what about more broadly for the economy?

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    Gavekal Research

    A Regime Change For Oil?

    Every US or global recession in the past 50 years has been preceded by a doubling or more of oil prices, but not every doubling of oil prices has been followed by recession. While even US$70/bbl probably does not pose a serious risk to the world economy, any rise above US$70 could spark a combination of inflationary pressure and reduced demand that proves lethal to global financial conditions and growth.

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