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E.g., 22-01-2019
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    Gavekal Research

    The Big Questions For 2019

    The last quarter of 2018 proved to be something of a horror show for most investors and despite this year starting with a firmer tone, the investment landscape looks to have changed in a fairly profound way. In this report, Louis considers the major shifts in the investment environment and asks whether these conditions will persist through 2019.

    0
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    Gavekal Research

    This Century's Suez Crisis

    China’s “Belt and Road” initiative is a clear bid by Beijing to challenge the incumbent imperial power: the US. And in an age when the highest-value commodities are not physical goods, but the binary digits zipping around the world at the speed of light, the battleground of this struggle for dominance will be telecommunication networks.

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    Gavekal Research

    Getting Out Of The Liquidity Squeeze

    With the Trump-Xi summit, compromise between Rome and Brussels, and the oil price down, all the ingredients should have been in the mix for a Santa Claus rally. Instead it's been an ugly few weeks in the markets, which strongly suggests no let up yet in this year's liquidity squeeze. In this detailed report, Louis looks back at recent history to determine what forces might bring the squeeze to an end next year, and therefore what asset...

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    Gavekal Research

    The Next Target Of Trump’s Firepower

    In today’s Daily, Arthur Kroeber offered his analysis of the weekend’s Trump-Xi summit in Buenos Aires. In this short report, Louis takes a slightly different tack, reviewing the series of tumultuous events in recent weeks. His conclusion is that few investors’ portfolios are well positioned for the probable outcome.

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    Gavekal Research

    Salvini, Part Deux?

    This weekend saw protests in France that united demonstrators from all parts of the political spectrum against President Emmanuel Macron. Louis wonders if this represents the beginning of a populist wave that rejects the president’s mushy centrism and joins political bed fellows who have never laid down before. After all, it happened in Italy.

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    Gavekal Research

    Has Oil Set Its High For This Cycle?

    With the price of WTI crude oil now back below its 200-day moving average, Louis puts himself in the shoes of Turkish president Recep Tayyip Erdogan and imagines what sort of leverage he could exert over Donald Trump, what this means for the enforcement of sanctions against Iran, and what that implies for the oil price going forward.

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    Gavekal Research

    Six Impossible Things Before Breakfast

    Louis investigates six of the most incongruous sets of relationships that have held sway this year and offers alternative explanations. In particular, he focuses on the strange case of China’s response to US trade hostility and argues that understanding Beijing’s game plan may hold the key to whether the long US bull market in equities can stay the course.

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    Gavekal Research

    The Big Lesson From Argentina

    One of the reasons this summer’s sell-off in Argentinian debt was so vicious was that few international banks these days are willing to make markets in such “exotic” bonds, and even fewer are prepared to hold a substantial inventory. As a result, when foreign investors rushed for the exit, there was no market. But as Louis explains in this paper, the problem is hardly unique to Argentina. Markets a lot closer to home could face similar trouble.

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    Gavekal Research

    On Getting It Wrong

    Louis went into 2018 with a set of assumptions about how growth and markets around the world would play out. It hasn’t exactly worked out as expected and in this mea culpa he seeks to understand how he got it wrong and what comes next. He concludes that a key driver of the changed investment environment was not so much the strength of the US dollar but China’s decision to allow a renminbi devaluation.

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    Gavekal Research

    The Biggest Question Of The Day

    Should we take Donald Trump literally when he says he wants to eliminate the US trade deficit? In this paper, Louis examines the different ways the US might hope to cut its trade deficit, including its bilateral deficit with China, and explores why the outlook for risk assets depends enormously on the US administration's real aims in launching its international trade war.

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    Gavekal Research

    The Investment Scenarios Ahead

    The interaction of three prices—the US dollar, long-dated US interest rates, and oil—tend to determine the behavior of most other asset values, and so far this year, all three have moved higher. Investors have adjusted to this new reality with some trepidation: among major markets, only the US (S&P 500) and Japan (Nikkei 225, barely) are up year-to-date in US dollar terms.

    3
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    Gavekal Research

    A Structural Change, Or A Return To The Mean?

    Chinese government bond prices have markedly outperformed treasuries for more than a year. This trend could be explained merely by cyclical factors, or that the Chinese fixed income market is going through a structural rerating, driven in part by the internationalization of the renminbi and the inclusion of Chinese government bonds in major benchmarks.

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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.

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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.

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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.

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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.

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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.

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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...

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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.

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