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E.g., 24-05-2018
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    Gavekal Research

    The Illusion Of Liquidity, And Its Consequences

    A decade ago the US corporate bond market was about half as big as it is today, yet bond dealers held about six times more inventory than they do today. In our latest Loser Report which focuses on assets to avoid, Louis worries that the next big financial accident could happen in this aggressively priced arena.

    8
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    Gavekal Research

    The Ogre Eating His Own Children

    Our regular Loser Reports are based on the premise that good money management can be as much about “avoiding losers” as “picking winners”. This month, Louis looks at the (worrying) direction of US fiscal policy and wonders whether the next shoe to drop could be defense contractors and energy producers in the US, and even municipal bonds.

    2
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    Gavekal Research

    What Lies Beneath

    As liquidity in the global financial markets tightens, Louis turns to Gavekal’s longstanding dynamite fishing analogy in a speculative exercise that attempts to identify some of the “whales” that might just go belly up in the squeeze.

    6
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    Gavekal Research

    The Most Important Chart Today

    In a development uncomfortably reminiscent of the breakdown of the 1987 Louvre Accord, recent US dollar weakness has propelled a marked outperformance of Chinese government bonds in US dollar terms relative to treasuries. This potentially leaves Chinese policymakers facing a tricky choice: Will Beijing repeat the BoJ’s great mistake of the late 1980s, or will it prefer the Bundesbank’s hard line?

    0
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    Gavekal Research

    US Budget Deficits, The Falling US$ And Growth Stocks

    In emerging economies, rising yields and a falling currency invariably signals market concern over fiscal policy. The US, of course, is different. Nonetheless, Louis examines how projected increases in the US budget deficit in coming years will weigh on the dollar, and could make investors reconsider holding richly-valued US growth stocks.

    2
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    Gavekal Research

    A “Once In A Generation” Shift

    There is a contradiction at the heart of the current bull market in pretty much all assets. On one hand, investors believe that firms can optimize their operations and keep doing more with less. Yet on the other hand, they assume that the global economy will remain awash with excess capacity. Charles and Louis argue that as such cognitive dissonance may get a reality check, investors may need to radically rethink their portfolio architecture.

    10
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    Gavekal Research

    The Questions For The Coming Year

    The apparent glide path into year-end suggests that 2018 should offer up more of the same seen in 2017. Louis does not rule out a continuation of this “Goldilocks” scenario, but worries that global inflation could be brewing in unexpected quarters at a time when frenzied trading in speculative assets such as bitcoin produces countervailing responses from policymakers. In this wide-ranging tour across the investment landscape he asks whether, in...

    3
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    Gavekal Research

    The Consequences Of Saudi Arabia

    Our new monthly Loser Report aims to identify things that investors should avoid, whether countries, sectors, themes or asset classes. In this second instalment Louis looks at the tumult affecting Saudi Arabia and assesses the ricochet effect across the Middle East and beyond. He wonders whether regional currency pegs could be set to topple and whether a major industry centered in Europe and the US could be a major victim of the shakeout.

    8
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    Gavekal Research

    A Brave New, New World?

    The traffic has been one-way. Since mid-August, the Philly semiconductors index is up 23%, the Nikkei 225 by 18%, the S&P energy index by 14% and the S&P materials index by 10%. In other words, all “deep-cyclicals” and “price monetizers” are ripping higher. So what to make of this?

    2
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    Gavekal Research

    Experiences, Not Things

    It is a core Gavekal belief that good money management is more about “avoiding losers” than “picking winners”. Yet sell-side research focuses almost entirely on identifying winners. This leaves an avenue for a small, independent firm like ours to lean the other way and help clients identify “losers”.

    27
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    Gavekal Research

    An Odd Bull Market

    When supermarket checkout clerks lecture their customers on the merits of leveraged ETFs, investors can be forgiven for thinking the bull market has finally passed its “shoeshine boy” moment. But although there is no shortage of late cycle indicators out there, Louis argues that for several reasons, the current run-up may still have further to go.

    12
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    Gavekal Research

    The Cycle And The Structure

    This bull market has been driven not by conviction, but a belief that in a zero-interest world there is no alternative to equities. Yet with global growth picking up in a seemingly coordinated fashion, commodity prices rising and bond yields firming up, does that condition still hold? Louis thinks that many investors’ “barbell” strategies could be extremely vulnerable to a change in the investment environment that may now be unfolding.

    8
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    Gavekal Research

    The German Election And Macron's Speech

    Somewhat incongruously, French President Emmanuel Macron yesterday delivered a grand new vision of a federalist European Union less than 48 hours after German voters had offered two fingers up to such solutions. Louis applauds Macron for focusing on the logic demanded by the single currency system, but wonders if he may be whistling in the wind as Berlin turns its head eastward.

    4
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    Gavekal Research

    Carthago Delenda Est

    Global geopolitics is characterized by the “land-based” empire of China challenging the dominant “maritime” empire of the United States according to Louis and Charles. What they cannot figure out is the seemingly contradictory responses of Washington to this well telegraphed challenge. In this piece they examine pressing challenges to American power and explore the investment consequences, which may come home to roost far quicker than most...

    4
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    Gavekal Research

    On The Demise Of Populism

    Anyone who bought European equities in the wake of Emmanuel Macron’s impressive win in the French presidential election is down a few percent in euro terms and underperforming global equities by about 1%. Charles are Louis are not convinced that this can be explained away by the markets taking a “breather” after a big run up. They smell darker forces at work.

    5
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    Gavekal Research

    Déjà Vu All Over Again

    Three months ago, I took over the management of our global equities managed accounts and our global equities fund (GAVPLAT:ID for those who care to follow its progress). And so, like every equity manager out there, I was forced to confront the single most important question in the markets today: Does one buy into the “hot” tech stocks that keep on pushing higher? Or does one give the Amazons, Facebooks, Googles and Alibabas of this world a wide...

    8
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    Gavekal Research

    Mapping China’s Asian Dream

    China’s effort to build a regional sphere of influence is upending Asian geopolitics and through huge infrastructure building, quite literally changing the geography. As such, China’s pursuit of empire is an epochal undertaken which investors need to properly factor into their macro understanding of the region. This is why Gavekal’s Tom Miller wrote a book on the topic and as Louis explains in this piece, it is a tome he really wanted to write...

    0
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    Gavekal Research

    Drawing Meaning From 2016, And A Roadmap For 2017

    Having experienced a rough 2016, the temptation for most investors is to clean the slate and start again. Unfortunately, life in financial markets does not allow for such neat endings. In one of his biggest reports in years, Louis argues that after such a complex and tumultuous year, it is essential for investors to draw a breath and derive some understanding of what just happened. Only then should they try to sketch out future scenarios.

    0
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    Gavekal Research

    Polls, Big Data And The French Primary

    It’s been said that big data is like carnal knowledge in teenage boys’ locker rooms: everyone talks about it, but noone really knows much about it. A slew of election results in the last few years supports such a viewpoint, for in an age when everything can supposedly be measured, political forecasts have been proven hugely flawed—the UK general election in 2015, the Brexit vote, the Colombian peace-process referendum, Donald Trump winning the...

    8
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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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