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    Gavekal Research

    The Darkest Hour Before Euro Dawn

    Two weeks ago we suggested that the euro’s decline against the US dollar—probably the clearest consensus trade of 2015—could soon be over. As luck would have it, we published this article on the very day the euro rebounded from a 12-year low against the US dollar of US$1.05 (see Beware The Euro Consensus). Dumb luck of this kind is certainly not evidence of wisdom or special insight. But now that the modest bounce following the euro’s March 13...

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    Gavekal Research

    London Seminar March 2015 - Anatole, François, Andrew & Charles

    We held our main spring seminar in London on March 17 with Anatole, François, Andrew and Charles offering their views of the global economic pulse and recent market and central bank developments.

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  • Gavekal Research

    Beware The Euro Consensus

    The US dollar is hitting new 12-year highs almost daily and the euro seems to be plunging inexorably to below parity. Recent events in the foreign exchange markets seem to have a fairly obvious explanation which most economists and policymakers accept and endorse. President Hollande, for one, has embraced the plunging euro: “It makes things nice and clear: one euro equals a dollar,” he told an audience of industrialists last week. But it is...

    1
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    Gavekal Research

    Nice Economy, Shame About The Politics

    While sterling is setting new post-2007 highs almost daily against the euro and on its trade-weighted index, economic optimism seems to outweigh political nervousness as Britain heads towards its most unpredictable election in living memory on May 7. But is Britain’s economic outlook really good enough to compensate for the political mess that almost everyone now expects?

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    Gavekal Research

    5C Overview: The Importance Of Property

    Property, both residential and commercial, is the world’s oldest investment and, in the long run, the most reliable and profitable store of economic value. Like the world’s oldest profession, however, it operates in the financial shadows. Property lacks the transparency of mainstream asset classes such as equities, bonds and currencies, with no completely objective price benchmarks to measure returns reliably even in sophisticated markets such...

    3
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    Gavekal Research

    Patience Is A Virtue

    The clichéd phrase “patience is a virtue” does not, strictly speaking, refer to the sort of patience promised by the Federal Reserve in its minutes last night. When Janet Yellen speaks of “patience”, she means a wait of at least three month before she does anything—however gentle—that could conceivably impede US economic growth. But the patience described by medieval Christian scholars as one of the “Seven Heavenly Virtues” was not the opposite...

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    Gavekal Research

    The Risks Recede in Europe

    What is the opposite of a perfect storm? Whatever the term for a sudden confluence of three unexpected blessings—or for the simultaneous removal of three mortal perils—European markets are about to enjoy it.

    2
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    Gavekal Research

    Greeks Gaming Themselves Out

    Yanis Varoufakis, the new Greek finance minister, is a professor of economics who specializes in game theory, but when it comes to negotiating strategy he has more to learn than to teach. Varoufakis’ idea of a winning strategy is to hold a gun to his own head and then demand a ransom for not pulling the trigger. Not surprisingly, this bluff has been called, first by the German government and now by the European Central Bank. As a result the...

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    Gavekal Research

    Ignore The US GDP ‘Surprise’

    How worried should we be about the weakening of the US economy towards the end of last year? The answer, despite Friday’s sharp fall in equities and the record low set by the 30-year treasury bond yield, is not at all. Whatever the reasons might have been for last week’s market gyrations, they could not have been connected with the economic slowdown ‘revealed’ by Friday’s fourth quarter GDP figures, since this slowdown was almost certainly an...

    3
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    Gavekal Research

    5C Overview: Easier For Longer

    Following Mario Draghi’s dramatic quantitative easing announcement last week all the main central banks are singing from the same hymn-sheet. The obvious point is that this musical offering is more of a fugue than a unison chorus: Each central bank repeats the Federal Reserve’s original themes of ZIRP and QE in its own time and key, creating a complex pattern of overlapping harmonies and the occasional dissonance. As in a fugue, however, a...

    0
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    Gavekal Research

    5C Overview: The Oil Plunge Really Is Good News - by Anatole Kaletsky

    If there is one number that has even more impact on the global economy and financial markets than the Fed funds rate, it is the price of oil. Every global recession since 1970 has been preceded by a doubling of the oil price (January to March 1974, March to October 1979, July to October 1990, June 1999 to March 2000, January 2007 to July 2008). And when oil prices have fallen by more than 50%, the plunge has generally been followed by rapidly...

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    Gavekal Research

    The Macro Dividend From Oil

    Now that the markets have dealt with their post-New Year hangover and the buy-on-dips normal service has been resumed, it seems a good time to step back and consider some of the themes that could dominate markets in the months ahead. Here are some suggestions for this year’s main macro stories, with some financial implications at the end.

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    Gavekal Research

    Catching The Russian Knife

    Why does a country with US$416bn of foreign exchange reserves and a current account surplus bigger than China or Japan relative to the size of its economy, suffer a currency crisis? The obvious answer is that the country is called Russia and it has launched an undeclared war against the US and EU. On closer inspection, however, this year’s 50% devaluation of the ruble, which culminated with an apparent death-plunge on Wednesday morning after the...

    1
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    Gavekal Research

    Will US$50 Be Oil’s Floor, Or Its Ceiling?

    As I explained in yesterday’s Daily, the oil price is set to remain depressed at least through 2015, until the Saudis are satisfied that they have injured their geopolitical and economic competitors severely enough to regain pricing power. The big question now is whether a price of around US$50 a barrel—some 10-15% below present levels—forms the floor of oil’s trading range for the next few years, as it did between 2005 to 2014, or whether US$...

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  • Gavekal Research

    Oil: Lower For Longer

    How low can the oil price go? And how long can it stay down? These two questions are weighing on the mind of every investor in the world these days, to the exclusion of almost everything else. Nobody can respond to the first question with any confidence—although we take a stab below—but the second is actually pretty easy to answer.

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    Gavekal Research

    5C Overview: The Remaking Of Global Oil Markets

    Almost everyone can agree that plunging oil prices are good for the world economy and crippling for oil producers such as Russia and Venezuela, but what about the big oil companies? The shareholders of oil majors such as Exxon, Chevron, Shell, BP and Total could be surprising beneficiaries if prices fall far enough to persuade corporate raiders or LBO investors that these companies should stop spending money on exploration and instead be...

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    Gavekal Research

    The Great Policy Convergence

    Yesterday’s announcement that the European Central Bank is preparing to buy government bonds from the first quarter of next year is an event of historic importance. As the logical follow-up to Mario Draghi’s commitment to expand the ECB’s balance sheet by €1trn, yesterday’s statement by ECB vice-president Vitor Constâncio confirms beyond reasonable doubt that Europe is ready, at last, to implement full-blown quantitative easing, over-riding the...

    1
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    Gavekal Research

    Here Comes The Melt-Up

    Back in mid-October as stock markets around the world plunged faster than at any time since 2011, many investors and economists feared a meltdown. But with the US economy steadily expanding, monetary and fiscal policy becoming more stimulative in other parts of the world and the autumn season for financial crises now over, a melt-up seems more likely than a melt-down.

    0
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    Gavekal Research

    Beware The British Roller Coaster

    Mark Carney’s quarterly press conference at the Bank of England tomorrow could be the catalyst which reminds investors of the warning that we have issued several times over the past few months: Britain is no longer a haven of political and economic stability amid the turbulence in Europe—and this loss of safe-haven status is not yet remotely discounted in British asset prices, especially the sterling-dollar exchange rate and prime property in...

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    Gavekal Research

    Gridlock Itself Is Not The Problem

    The votes are in and the result is yet more gridlock in Washington. For the US there is nothing unusual in this situation. Presidents have been opposed by both houses of Congress in 32 out of the 70 years since WWII, and opposed by one house in another 14 years (see here). However, political paralysis is becoming the norm in many democracies, especially in Europe. An important question is therefore how different countries and regions can cope...

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