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    Gavekal Research

    Audio & Transcript — Gavekal Research Call January 2018

    In Gavekal’s monthly research call yesterday, Louis Gave reviewed evidence that the investment environment is experiencing a once-in-a-generation shift from a deflationary environment to one that is broadly inflationary. Anatole Kaletsky argued that this metamorphosis will likely be an orderly affair. Arthur Kroeber updated his view on China’s likely impact on global commodity markets.

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    Gavekal Research

    The Drains On Liquidity

    For ease of math, assume that the world consumes 100mn barrels of oil a day. Then further assume an inventory across the system equal to about 100-days’ usage (in pipelines, ships and refineries). Thus, when the price of oil rises by US$10/bbl in three months—as occurred in 4Q17—a “liquidity drain” of about US$100bn is created.

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    Gavekal Research

    Cui Bono?

    Today, with European growth humming along and Beijing having (again) shown an ability to keep China’s economy on a sustained expansion path, no one seems fazed about a possible economic downturn. Apart from the UK (where the obsession is Brexit), concern centers on geopolitical risks. Yet depending on their region, investors are worrying about very different things.

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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 Bitcoin Bubble Changes Shape

    All the talk about crypto-currencies, initial coin offerings, distributed ledgers etc. feels a lot like discussions on carnal knowledge in a high school boys’ locker room. Everyone is talking about it. Yet almost everyone’s experience is extremely limited. And it is likely to stay that way for the time being, because for all the talk, very few of those doing the chattering are actually getting any action. So what is there left to say about the...

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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

    The Bull Market And The Yield Curve

    Keeping up with a runaway bull is no easy task. Which may explain why so many investors remain unenthusiastic participants: the market is old and increasingly unattractive, but holding back could cost them their careers. Yet, the upward march of global equity markets continues relentlessly (for reasons reviewed in recent articles. Today, some 84% of markets around the world are up over the past 12 months in local currency terms. Historically,...

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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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    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?

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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”.

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    Gavekal Research

    Video: Which Messenger To Believe?

    After Louis wrote up today’s Daily on the strange dichotomy between strong growth and moribund yields, we sat down to quiz him further on how this contradiction gets resolved. In this short video, he explains why the bond market is the thing that will probably have to give.

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    Gavekal Research

    The Growth And Yield Dichotomy

    Of the 45 economies tracked by the OECD, all 45 are expanding, and 33 are seeing an acceleration in their rates of growth.Simply put, both official economic data and market prices are pointing the way towards economic growth—which probably explains why a “data-dependent” Federal Reserve is intent on tightening monetary policy.

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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.

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    Gavekal Research

    The Rather Lame US Dollar Rally

    The year is far from over but when the time does come to close the books, it seems likely that the sudden weakness of the US dollar this year will count as one of 2017’s biggest surprises. Most investors started the year with a distinct bullish bias on the dollar, and a consequent bearish bias against emerging markets (an outlook we did not share, see for example our January 19 piece Trump’s Declarations On The Dollar). However, instead of...

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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.

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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.

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    Gavekal Research

    Winners And Losers From The German Election

    Whatever the result of Germany’s election on Monday morning, the leaders of the Christian Democratic Union will start preparing for the post-Merkel era. Which is why this German election matters. Indeed, there is a significant spread of potential outcomes, which have different implications for both the European economy and investors in European assets.

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    Gavekal Research

    Disasters, Bond Yields And The Dollar

    In the past few weeks the US administration cut a deal with opposition Democrats to keep the government open, increasing the likelihood of a budget deficit expansion, and a string of natural disasters have roiled North America. In turn, these events seem to have triggered a sell-off in the US dollar and a global bond rally. Louis outlines two scenarios for where things could go from here.

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    Gavekal Research

    Audio & Transcript — Gavekal Research September Call

    In yesterday’s monthly call Louis Gave presented his view on the global investment outlook for the rest of the year. He argued that the key story so far in 2017 has been the strong performance of Asian equities, which has added a second leg to a bull market led by US technology and consumer stocks. The question is whether this can last.

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    Gavekal Research

    Strategy Monthly: A Two-Legged Equity Bull Market

    For the past several years, the brightest spot in global equity markets has been the US, and in particular tech and consumer stocks. This is changing, and we now have a "two-legged" equity bull market led both by US tech stocks and by a resurgent Asia. In our review of global investment conditions Louis explains why this is so, and argues none of the obvious land mines is likely to go off at any time soon.

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