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E.g., 29-05-2017
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    Gavekal Research

    What The Fed Really, Really Means

    The Federal Open Market Committee has fired the starting gun on its plan to start shrinking the US central bank’s balance sheet before the year is out. The language was coy, but indicated a consensus that outright contraction will start so long as the trajectory of growth and the key policy interest rate matches the committee’s expectations.

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    Gavekal Research

    Strategy Monthly: Global Goldilocks And The Two Bears

    Markets seem convinced that a Global Goldilocks scenario of “just right” growth and rising corporate earnings is unfolding. This is plausible, but a careful review of the US economy suggests that two far more bearish outcomes are also possible. Will Denyer reviews the case for all three scenarios and recommends reducing risk exposure, especially in the US.

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    Gavekal Research

    Taxing Times In The US

    The big news this week is the lack of news. Tectonic changes—that inspired both hope and fear—now look less likely to materialize. The first round result in France’s presidential election suggests that the centrist, pro-euro Emmanuel Macron will be the next head of state, rather than the disruptive Marine Le Pen—no révolution in Europe. Then yesterday Donald Trump revealed his much anticipated tax plan. It only served to show how little progress...

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    Gavekal Research

    Threats To The US Bull Market

    I have spent the last few weeks traveling around Europe telling clients to reduce risk exposure—at least to US equities, if not globally. I see four potential threats to the US bull market, and while none is certain, the odds are high that at least one of them spoils the party. Let’s review:

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    Gavekal Research

    London Seminar — March 2017

    In Gavekal’s seminar in London last week Will Denyer, Charles Gave, Tom Miller and Anatole Kaletsky presented their macroeconomic outlooks and offered investors asset allocation advice.

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    Gavekal Research

    Will Washington Disappoint?

    Equity markets have pretty much straight lined higher since the US election on hopes for market-friendly tax cuts, health care reform, and broad deregulation. Worries about high import tariffs and other potential growth-sapping measures have been set to one side. In short, investors have been counting on “Trump without the bad stuff”. With the S&P 500 yesterday sliding -1.2%—the first fall of more than -1% since November’s election—they now...

    2
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    Gavekal Research

    The Profit Illusion

    Inflation has a way of making things look better than they really are. This is especially true of corporate profits. After a dismal first half last year, S&P 500 companies reported an earnings recovery in 2H16. In the final quarter, they posted profit growth of 6% YoY (with or without financials). Alas, this recovery appears to be a mirage, caused by accelerating inflation. Using official flow of funds data for the domestic non-financial...

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    Gavekal Research

    Are Border Adjustments Protectionist?

    The introduction of border adjustments into the US tax code is by far the most controversial part of the House Republicans’ “blueprint” for tax reform—with good reason. This reform alone would be a game-changer, with many winners and losers. This is why, like all major tax reforms, it faces an uphill battle to become law, and why it may never happen. But the same was said of a Donald Trump presidency, and of Brexit. So, investors still need to...

    5
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    Gavekal Research

    Hong Kong Seminar — February 2017

    Gavekal’s global macroeconomic seminar in Hong Kong in February featured Anatole Kaletsky, Will Denyer and Louis-Vincent Gave. They presented on the global investment outlook under a Trump presidency, the decline in US productivity, and the sustainability of the "Trumpflation" rally.

    0
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    Gavekal Research

    Border Tax Adjustments In Context

    US president Donald Trump moved a step closer to realizing his “America first” trade policy yesterday, promising a 20% tax on imports from Mexico. However, rather than an outright tariff on imports, it is looking increasingly likely that the new levy will come in the form of a border tax adjustment, as envisaged by the House Republican majority as part of a wider US tax reform program. In theory, border tax adjustments should be trade-neutral,...

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    Gavekal Research

    Trump May Yet Learn To Like Border Adjustments

    Last week, Donald Trump dismissed border tax adjustments as “too complicated”. He may yet reconsider. If the newly-installed president has one dominant policy objective, it is to make the US more attractive as a destination for investment and as a location for manufacturing. Alongside deregulation and cutting the US corporate tax rate, imposing border tax adjustments along the lines proposed by the House Republicans is one of the simplest and...

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    Gavekal Research

    Audio & Transcript — Gavekal Research January Call

    Charles Gave argued that Donald Trump’s protectionist policy could lead to a breakdown of the post-1971 fiat money system that is based on a US dollar standard. Will Denyer deconstructed the likely workings of a new trade taxation regime in the US and explained what that means for currencies. Arthur Kroeber outlined the likely Chinese response to a US trade broadside and argued that Beijing was decently well placed to weather the attack.

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    Gavekal Research

    Tax Reform And The Dollar: It’s Not So Straightforward

    Tax reform is high on the agenda both for US president-elect Donald Trump and for the new session of Congress that began earlier this month. Among the reform proposals that could most affect investors are those advanced by the House Republicans, which many commentators have argued could cause a substantial exchange rate appreciation of the US dollar. In theory—all else being equal—this would be true. But our examination of current exchange rate...

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    Gavekal Research

    The US Equity Dilemma

    On the first trading day of the year, we learnt that the Trump trade remains very much alive. The S&P 500 rose 0.8%, 10-year treasury yields inched up 1.3bp and the DXY US dollar index climbed 0.4%. While investors seem focused on the positive ramifications of a Donald Trump presidency, the year ahead is full of uncertainty—with changes in store for fiscal, monetary, regulatory and trade policies, all of which will occur in the context of a...

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    Gavekal Research

    The Post-Fed Risk Of Sector Rotation

    As expected, the US Federal Reserve went ahead and raised its benchmark interest rate by 25bp yesterday. Less widely expected was the positive tone of the Fed’s comments on the economic outlook, and its slightly more hawkish view on the trajectory of rates, with policymakers now projecting three rate increases next year rather than two. Fed chair Janet Yellen described the changes as “tiny”. But the market reaction—10-year treasury yields rose...

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    Gavekal Research

    Cash Repatriation Won’t Trigger A New Buyback Boom

    With the incoming US administration promising big tax breaks on the repatriation of corporate cash piles held overseas, Wall Street is confidently predicting a renewed equity market buyback boom in 2017. On first hearing, this sounds like a reasonable expectation. For one thing, in recent years US companies have consistently chosen to plough their retained earnings—and a sizable amount of debt—into share buybacks, rather than into investment in...

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    Gavekal Research

    The Gavekal Monthly: Preparing For The Trumped-Up Economy

    Markets have been on a startling trajectory since Donald Trump upended investors’ assumptions with his win in the US presidential election. In this issue of the Monthly two Gavekal partners ask whether the macro environment really has fundamentally shifted due to the emerging policy platform of the president-elect.

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    Gavekal Research

    A Wicksellian Spread Update

    US economic growth and corporate profits both rebounded in the third quarter. Yesterday the Bureau of Economic Analysis revised its number for 3Q16 growth in gross domestic product up from 2.9% to 3.2% year-on-year. At the same time the BEA also released its first estimate of 3Q corporate profits, which at first glance also looked positive. For example, profits in the domestic non-financial sector jumped by an annualized 24% in 3Q, after falling...

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    Gavekal Research

    A Cautionary Note On US Housing

    After months of anemic activity, US homebuilding picked up in October. This is a welcome development, given that residential construction is a key leading indicator for the overall economy, and that lately it has been close to sending a recession signal (see On The Brink Of Recession). However, the magnitude of the improvement should not be overstated. While housing starts did post the biggest monthly increase since 1982, this is a volatile...

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    Gavekal Research

    Trump’s Tax Plans And The Dollar

    Following last week’s US election result, the US dollar—as represented by the DXY index—has risen to test the upper bound of the range that has prevailed since the first quarter of 2015. At these levels the US currency looks overvalued, both in real effective exchange rate terms against other major currencies, and on a purchasing power parity basis. Yet it would be premature to bet against a break-out to the upside. Although the dollar’s REER is...

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