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E.g., 16-11-2018
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    Gavekal Research

    Australian Banks: Be Wary of the Regionals

    In a recent Five Corners page, we argued that one should Short Australia to Hedge Chinese Risk. Taking this a bit further, in the event of a hard-landing in China, would the ensuing commodity bust trigger a housing and financial meltdown in Australia to rival that suffered in the United States?

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    Gavekal Research

    Brazil’s New Mascot: the RMB Scapegoat

    Last Monday in Sao Paulo, United States Treasury Secretary Tim Geithner indicated that the undervalued Renminbi was a burden for Brazil. This speech caught the markets’ attention as it is unusual for a US Treasury Secretary to comment on the exchange rate between two foreign currencies. This move was widely seen as a US attempt to enlist Brazil in the fight against China’s currency policy—a battle formerly waged by developed countries rather...

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    Gavekal Research

    GaveKal Daily - The EMU's Ides of March?

    January saw decidedly improving investor sentiment in Europe, with narrowing PIIGS spreads and a strengthening Euro. However, over the past two weeks, this trend has stalled, with spreads now widening again and the Euro trading lower. This could be related to the impending deadline for the final stability plan. March looms, and in March the EU is expected to reveal details of its final back-stop—whether and when there will be any haircuts,...

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    Gavekal Research

    Chinese Food Inflation: It’s Not Just the Weather

    Food prices continue to be a serious issue in China, with local vegetable prices up a jarring +64% since July. Administrative price caps instituted in November caused prices to fall temporarily, but they rebounded +37% in January to new highs. Beijing, as well as many economists, blame the recent bout of food inflation on temporary supply shocks caused by bad weather, hoarding or speculation. The implication is that recent high CPI levels are...

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    Gavekal Research

    A Political Breakthrough in Thailand

    If it weren’t for its messy politics, Thailand might be considered one of the best emerging markets stories out there: growth is robust, inflation is reasonably tame compared to its EM peers, and the country is in a good position to gain from the rebound in global trade. Unfortunately, the country’s assets carry (very justifiably) a pretty heavy risk premium because of perennial political instability. In that context, the recent political...

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    Gavekal Research

    Trade Special - The Sources of China's Export Competitiveness

    The sources of China's export competitiveness

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    Gavekal Research

    GaveKal Daily - Shedding Some Light on Turkey's Unorthodox Monetary Policy

    Understanding the real intentions of monetary policymakers has become an even tougher task than usual in these post-crisis times. One example of this can be found in Turkey, where a number of recent monetary actions appear quite contradictory. Despite booming economic growth and worrying global inflationary pressures on food and energy, the Central Bank of the Republic of Turkey (CBRT) has cut its policy rates twice since December. At the same...

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    Gavekal Dragonomics

    DragonWeek - Vegetable Prices and Inflation

    Why vegetable prices are rising

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    Gavekal Research

    Recent Posts

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    Gavekal Research

    GaveKal Daily - The Questions Central Bankers Have to Be Debating

    The surprise resignations of Axel Weber from the ECB and Kevin Warsh from the FOMC do leave the outside observer thinking that debates within the halls of these powerful institutions must be rather spirited. As they should following two years of unprecedented activism, even the most unbiased and dispassionate of observers (which we rarely claim to be!) are left with the following quandaries:

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    Gavekal Research

    Is a Greek Sovereign Default Unavoidable?

    As colorfully expressed last year in an essay by Michael Lewis (see Beware of Greeks Bearing Bonds), the idea that Greece can pull off an aggressive fiscal consolidation and economic reform often faces amused rebuttal. Based on the valuation of Greek bonds, the market currently believes that reversing the Greek debt trap will prove to be an impossible mission. Even the already substantial reforms on which Greece has embarked under the thumb of...

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    Gavekal Research

    GaveKal Daily - The Tighter Liquidity Environment Reveals the Ugly Ducklings

    Of the many insightful sayings from Warren Buffett, the best one has to be his analogy of a tighter liquidity environment with low tide at the beach. This analogy is once again being proven right, this time around in Asia: as the easy money tide withdraws, we are finding out who has been “swimming naked”. Indeed, what started before Christmas with a squeeze on Indian micro-finance providers has now evolved into discoveries or rumors of ‘...

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    Gavekal Research

    GaveKal Daily - The Implications of a Potential Top in Commodities

    The most striking event on the markets over the last couple of weeks has probably been the sell-off in bonds. Taken together with the fact that OECD equities have pushed higher, it would imply that portfolios have briskly adjusted to a growth scenario (as opposed to a ‘double dip’ scenario). Yet the PBoC’s interest rate hike yesterday is a reminder that the recent shifts in asset allocations, as hectic as they seem, might not yet fully reflect...

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    Gavekal Research

    GaveKal Daily - Remember the New Normal?

    In Markets Are Pricing in the ‘New Normal’, we argued that for large fixed income investors to argue that negative real interest rates should now be the norm seemed about as self-serving as when US growth equity managers explained that a ‘new paradigm’ justified a PE of over 35x on the S&P 500 back at the end of the previous millennium. Since then, of course, we have witnessed a significant fixed income bear market and long-dated USTs are...

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    Gavekal Research

    GaveKal Daily - Strong News and Stronger Markets

    With snow hitting the Super Bowl in Dallas, there is little doubt that we are in the midst of a severe winter. And of course, in winter, bears hibernate. Which is just as well, for bears have little to munch on right now: economic activity is bouncing back strongly, jobs are being created (albeit at a slow pace), global trade is soaring, the great majority of companies are reporting better than expected sales, and US profit margins are making...

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    Gavekal Research

    The Franco-German Compromise

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    Gavekal Research

    The ECB Hikes Rates Without Making Headlines

    Whether Fed and the ECB move together, or apart, matters greatly to forex rates. Bernanke and Trichet both responded to the global crisis by flooding their banking systems with excess reserves, thus driving overnight interbank rates down near their respective ‘floor rates,’ the rate paid by central banks for deposits of excess reserves. With the floor rate set at 0.25% in both systems, the short rate spread thus became negligible. However, one...

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    Gavekal Research

    The Fed's Case

    The objections to the unemployment and money supply statistics used to justify interest rates have more to do with economic theory than with the figures themselves. Unemployment is a lagging indicator and many monetarists have reinterpreted the original work of Milton Friedman to argue that that interest rates need to start rising long before unemployment begins to approach its “natural rate”. These people also tend to believe it is the “narrow...

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    Gavekal Research

    A Dovish Fed, a Dovish ECB and a Dovish BoE

    Despite the demands for tighter monetary policy now emanating from an unholy alliance of the Chinese Politburo, the Tea Party, the Bundesbank and the Wall Street Journal, last week the Fed and the ECB made clear that early rate hikes are not on their agenda (though Will argues on page five that the ECB may be tighter than it appears). And the Bank of England is likely to send the same message after Thursday’s meeting of the MPC. So why are the...

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    Gavekal Research

    What Will the Saudis Do Now?

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