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    Gavekal Research

    A New Kind Of Trigger Point

    19
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    Gavekal Research

    Five Corners (20 November 2013)

    In our the latest bi-weekly review of global economics and investment, Anatole bullishly notes that central bank doves are back in the ascendency; Will Denyer’s wrap on the earnings season has a shale twist; Francois Chauchat argues that China reforms spell opportunity for Europe; Andrew Batson and Rosealea Yao assess the deleveraging process; and Nate Taplin writes on energy price liberalization in China.

    0
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    5C US: A Shale Boost To Downstream Earnings

    So far it has been business as usual this earnings season, with companies managing to squeeze reasonably decent profits out of lackluster sales. In the few areas where we did see surprises, the shale gas revolution was a factor.

    0
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    The Facts Have Changed

    As Keynes famously replied to some pedantic critic whom history has long forgotten: “When the facts change, I change my mind. What do you do, Sir?” Of all Keynes’s brilliant aphorism this is perhaps the most important. In economics, the only certainty is uncertainty and change. I start with this apologia because ten days ago I wrote a mildly bearish Daily about US equities for the first time since 2011.

    2
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    Gavekal Research

    A First Take On The TTIP

    A key concern following the Global Financial Crisis was that protectionist barriers would inevitably rise, just as high walls were constructed around trade after the Great Depression. But even though the Doha round of multilateral trade negotiations has stalled, momentum continues to gather pace for deeper, more integrated free-trade blocs.

    0
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    Gavekal Research

    A Re-Energized US Industrial Machine

    2
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    Gavekal Research

    Forget The Yield Curve, Watch The Wicksellian Spread

    11
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    Gavekal Research

    Ready To Hit Sell

    7
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    Gavekal Research

    Discretion And Valor On Wall Street

    Is it time for the equity bulls to pull in their horns? Even those of us who have been continuously and stubbornly bullish about equities throughout this year—insisting that the US election, the fiscal cliff panic, the taper tantrum and the government shutdown were all opportunities to “buy on dips”—are starting to feel a little queasy as prices keep rising day after day.

    4
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    Gavekal Research

    Latam’s Free Marketers

    Outside of peripheral Europe and a handful of city states, Northeast Asia is the only region where rural backwaters have managed to develop into fully industrialized economies. For the most part, this ‘miracle’ was not achieved using the standard Washington prescription of open markets, liberalized financial systems and political pluralism. Indeed, rarely has the development nostrums promoted by the International Monetary Fund and World Bank...

    0
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    Gavekal Research

    Another Milestone For Chinese Offshore Bonds

    On Friday the three-year-old Chinese offshore renminbi bond market marked a new milestone: the first AAA issue by a foreign government. The Canadian province of British Columbia issued a one-year, RMB2.5bn (a little over US$400mn) bond yielding 2.25%. This is big news, for many different reasons.

    1
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    Gavekal Research

    5C Demographics: Let The Race Begin

    In Race Against The Machine, Erik Brynjolfsson and Andrew McAfee speculate that many of the jobs cut in the Great Recession may never come back, as employers take the opportunity to switch to automated services. The authors warn of “a growing mismatch between rapidly advancing digital technologies and slow-changing humans.” The challenge for workers—the “Race” in the title of the book—is to develop new skills or be left behind by the digital...

    10
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    Gavekal Research

    5C US: Can We Keep Climbing The Wall Of Worry?

    Data was mixed, Washington remained dysfunctional, but corporate earnings were decent and the Fed stayed incontinent. Despite this muddled state of affairs, equities made new highs. So it was another normal week in the US, but did we learn anything new?

    0
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    Gavekal Research

    5C Overview: Stocks As A Lagging Indicator

    Stock markets are, by nature, leading indicators of future economic conditions. They are the first responders to changes in financing rates, demand, inflation expectations, etc. So long as returns on future investments are expected to be above the cost of capital, the millions of players in the stock market will bid up equities. If marginal returns move below the cost of capital, the market will go down, and so eventually will the economy. Fine...

    1
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    Gavekal Research

    How Slack Is The US Labor Market?

    8
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    Gavekal Research

    Resource EMs Reopening The Doors

    Two years ago, with commodity prices high, emerging market resource producers scrambled to restrict or regulate foreign investment in their mines and oilfields, in the hopes of keeping most of their windfall profits on shore. Now they are scrambling the other way: in the past three months, Mexico, Brazil, Mongolia, Indonesia and Russia have all announced new policies to ease commodity-related FDI, or signed new export deals on favorable terms...

    0
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    Gavekal Research

    Brace For US Disappointments

    0
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    Gavekal Research

    Brazil: Back To The Bad Old Days

    A few short years ago, Brazil was considered the “It” country. After weathering the financial downturn better than nearly any other large economy, Brazil attracted record inflows of foreign direct investment and its currency soared 46% between late 2008 and the end of 2010. But since then growth has slowed sharply, from a peak of 7.5% in 2010 to a dismal 0.9% in 2012. Meanwhile inflation remains high at 6%, despite the freezing of gasoline...

    2
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    Gavekal Research

    Tapering And "Boehnanke"

    0
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    Gavekal Research

    Velocity In Asset Allocation

    This is the second in a two-part series of articles which aims to illustrate why investors ignore at their peril the pace at which money circulates through the financial system. In part one, I argued that ‘V’ as defined in the classic monetary formulation MV=PQ is an independent variable with the capacity to transform the investment weather (see A Fisherian Take On Velocity). I am endlessly amazed by the lack of attention that this vital...

    11
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    Gavekal Research

    5C US: Fed To Ease While Tightening

    While no major policy changes are expected at next week’s FOMC meeting, the market will leave no tea leaf unturned in the run-up. One action already garnering attention is the Federal Reserve’s testing of a new operation—the overnight fixed-rate reverse repo facility. This is an interesting new lever that the Fed may pull during its exit. It is worth understanding the context and rationale behind this new tool.

    0
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    Gavekal Research

    5C Overview: Waiting For Godot, And Capex

    In the Samuel Beckett play Waiting for Godot, we wait throughout the performance for the eponymous character to appear. A similarly fruitless wait seems to be affecting US capital spending, which according to every demand-side econometric model (think Keynesian) should be on the cusp of a surge. That at least has been the story for the last three years and capital spending is still going nowhere fast. The same is true for employment, which after...

    8
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    Gavekal Research

    The End Of The Matter

    The purveyors of conventional wisdom in Washington and Wall Street responded with world-weary cynicism to last night’s budget votes. “A short-term deal merits relief but not celebration,” was the Financial Times’ reaction. “The deal offers only a temporary fix and does not resolve the fundamental issues of spending and deficits that divide Republicans and Democrats. It funds the government until Jan. 15 and raises the debt ceiling until Feb. 7,...

    3
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    Gavekal Research

    Washington Gridlock And QE Infinity

    2
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    Gavekal Research

    The Yellen Thud

    12
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    Gavekal Research

    Changing The EM Pavlovian Response

    0
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    Gavekal Research

    A Fisherian Take On Velocity

    Defining the velocity of money is not an easy task. John Maynard Keynes summed it up as the ‘animal spirits,’ the Austrians called it ‘the preference for liquidity,’ Knut Wicksell labeled it the spread between the ‘market rate’ of interest and ‘the natural rate.’ Joseph Schumpeter tied changes in velocity to entrepreneurs’ willingness to take risk, which in turn is tied to factors including the legal systems in which they operate, property...

    10
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    Gavekal Research

    Waiting For The Last Minute

    We have tried to avoid saying too much on the very slow moving situation in Washington DC for a number of reasons, including the fact that a) every broker is already on this one so why join the fray, b) each time one writes about politics, one is likely to not only anger roughly one half of the readership but also half of the GaveKal partnership (whether Red Anatole, Green Arthur etc.) and finally c) markets had, until now, mostly treated the...

    1
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    Gavekal Research

    5C Overview: East Asia's Reforms: Thank The US

    1
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    Gavekal Research

    5C US: Thinking The Unthinkable

    Hitting the debt ceiling is unlikely, but quite possible. This raises the unthinkable prospect that the US might default on its debt, thereby removing the pillar upon which rests the modern global credit system, the current reserve currency, and arguably the whole fiat money system—namely, the full faith and credit of the US government.

    0
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    Gavekal Research

    Tragedy Or Comedy?

    Even before last night’s hint of a climb-down by House Speaker John Boehner, the tragi-comedy of the US budget seemed fairly harmless. But they say in the theatre that the difference between comedy and tragedy is timing—and the longer this pantomime continues the greater the probability that it turns into something grim.

    8
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    Gavekal Research

    Hong Kong's Stay Of Execution

    The political showdown in the United States could turn out to be highly damaging for the US recovery, but it is providing a reprieve for those markets sensitive to US monetary policy settings. In Hong Kong, where property prices are up 125% since the Federal Reserve began quantitative easing in 2009, one might say that this reprieve feels eerily like a stay of execution. Share prices have crept back up in recent weeks, but are still trading at...

    3
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    Gavekal Research

    The Lambs That Turned

    Given recent events in Washington it might be worth looking at the basic relations that bind our modern democracies. Back in the age of enlightenment, the founding fathers of a young American republic thrashed out a system of government that allowed the majority to pursue life, liberty and happiness, while ensuring that democracy did not descend into mobocracy. As debate raged over appropriate constitutional arrangements, one Benjamin Franklin...

    59
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    Gavekal Research

    Washington's Wrestling Extravaganza

    Now that market obsession with the Fed tapering scare has subsided, one might have expected investors and analysts to return to the serious business of analysing economic data and corporate financial results. Instead, the markets have discovered a new excuse to feed their obsession with US policy and politics. The battles in Washington over the budget and Obamacare will reach a climax at the end of the US fiscal year on Monday. And this crisis...

    2
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    Gavekal Research

    Using Wicksell To Manage Money

    All my life, I have conducted research by following two simple steps. Firstly, I try to understand the logic of the economic or financial system under consideration (economics is a branch of logic, itself a branch of philosophy rather than a subset of mathematics or even astrology). This is a messy and time-consuming process, but is aided by following the insights of great economists from times past.

    1
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    Gavekal Research

    Is US Consumer Deleveraging Over?

    The Federal Reserve’s latest snapshot of US household balance sheets, contained in its Flow of Funds report, shows that net worth rose a further 1.8% in the second quarter. Meanwhile net household borrowing was flat. This is a continuation of a multi-year story. Through a combination of unprecedented debt reduction and a rebound in both equity and house prices, major progress has been made in the US household deleveraging story. In fact, we have...

    7
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    Gavekal Research

    The Unwatched Variable

    The Federal Reserve has panicked and we can expect to hear yet more justification for the decision to drag out its great monetary experiment. Yesterday, we had FOMC leading light William Dudley opine on the conditions that must apply before those geniuses in Foggy Bottom can think about tapering. The only tangible impact from last week’s action has been to further weaken the dollar, which is exacerbating one of the most frequently overlooked...

    7
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    Gavekal Research

    5C Overview: A Surprising New Fed

    Ben Bernanke has always made it very clear that, if nothing else, the Federal Reserve would not “surprise” the markets as long as he was chairman. This makes last week's non-taper decision all the much harder to stomach for bond traders who, following the Fed’s signals, had started to position their portfolios for a lighter QE program.

    0
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    Gavekal Research

    5C US: A Valuation Tool For Residential Construction

    One of the reasons the Federal Reserve delayed QE tapering last week was to allow more time to assess how the economy reacts to the rise in interest rates since May. The residential construction sector is an obvious area of focus. How will it do? My bet: OK.

    3
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    Gavekal Research

    5C Demographics: Pensions And Property

    Detroit’s spectacular downfall is an extreme case, but many other US cities and states face pressures similar to those that drove the Motor City to file for bankruptcy. In particular, pension liabilities are rising, both for accounting reasons and demographics. It is not just muni bondholders who should worry about these funding pressures. So should property owners—including private equity firms which have scooped up apartment complexes in the...

    0
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    Gavekal Research

    Don't Fight The Fed

    So it was, after all, a storm in a teacup. Financial markets around the world have been going through a series of “taper tantrums” since Ben Bernanke first mentioned the idea of gradually reducing or “tapering” the Federal Reserve’s asset purchases. Throughout this four months, I have argued that financial markets had grossly exaggerated or completely misunderstood the significance of Bernanke’s comments. This has turned out to be the case, as...

    3
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    Gavekal Research

    A Panicked Fed Doubles Down

    0
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    Expectations All But Tapered

    Today is the big day when Ben Bernanke is expected to begin the process of finishing what he started. It has been a strange week in markets with Larry Summer’s surprise move putting attention back on the current Fed’s policy approach. Market reaction to Summers’ withdrawal from the Fed chairmanship race has been to assume that President Obama will now appoint a consensus candidate, most likely Janet Yellen (see Summer’s Officially Over)....

    0
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    Gavekal Dragonomics

    DragonWeek - Charting An Export Recovery

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    0
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    Gavekal Research

    Summer's Officially Over

    0
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    Gavekal Research

    5C US: America Is Ready And Willing For Tapering

    Next week Ben Bernanke is expected to announce that the US economy and its financial system are ready to tolerate a gradual tapering of the Federal Reserve’s bond purchase program. Encouragingly, the money markets, bond and equity markets, as well as business managers, all seem to agree. Confidence runs high.

    1
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    Gavekal Research

    Equities Fail To Rejoice In The Good News

    With the Citigroup Economic Surprise index set to hit a new 52 week high, the summer lull in OECD data increasingly looks like it was just that. And unsurprisingly, bond markets are reacting, with US ten-year government bond yields hitting 3%. What is interesting, however, is that in recent weeks, as the economic data has surprised on the upside, equity markets have not broken out to new highs. Cyclical markets like the Kospi are still negative...

    0
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    Gavekal Research

    Of Wicksell And Fed Fallacies

    Let's start with the great Wicksellian “insight”.

    4
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    Gavekal Research

    The Washington Watch

    The next few weeks will bring a confluence of four US policy events that will set the tone for financial markets everywhere. These are the monthly employment report this Friday; the Federal Reserve’s tapering decision on September 18; the announcement of a new Fed chairman expected soon after that; and the Congressional vote on the Treasury debt limit required by mid-October. After a week in the US talking to informed investors, Fed-watchers and...

    1
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    Gavekal Research

    Are Interest Rates High Or Low?

    The debate over rising US bond yields seems simple. Either interest rates are now too high and will snuff out any hope of a sustainable recovery; or this is just a “normalization” from excessively low interest rates, and thus nothing to worry about. In fact, this is the wrong debate.

    10
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    Gavekal Research

    Sophie's Choice: Munis Or Equities?

    We have been told that the mood at the Federal Reserve is so bad that some directors no longer even speak to others (hence the need for a thick-skinned Larry Summers to take the helm). Needless to say, we have no way to know whether this is true or not—though given how poisonous the overall atmosphere in Washington, DC generally is, we would not be surprised. After all, why should the Fed be immune to the overall US government trend of refusing...

    0
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    Gavekal Research

    Syria And The US Consumer

    It took a while, but markets have finally reacted to the deteriorating situation in Syria, and in a rather dramatic fashion. Brent oil shot up 3% to a six-month high of US$114 per barrel yesterday, its biggest gain since October. World equity markets were broadly down by -1 to -2%. This follows US Secretary of State John Kerry’s stern rhetoric on Monday, and Britain’s signaling that it was on board for a possible coordinated missile strike with...

    1
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    Gavekal Research

    Free Money vs Growth

    9
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    Gavekal Research

    It’s Not A Balance Sheet Problem

    There is a growing fear that emerging markets could be on the cusp of a general crisis of the type seen in the early 1980s or late 1990s. The concern is that too much debt was racked up during an easy money phase and chickens are coming home to roost as the US moves toward a tightening cycle (see Resetting Expectations For Emerging Markets). Attention has understandably focused on those emerging economies with sizeable current account deficits,...

    13
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    Gavekal Research

    5C US: The Bond Sell-Off Has Not Overshot

    The great bond trade is now unwinding. And as is typical of bursting bubbles, there is potential for bonds to overshoot. But they have not done so yet.

    0
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    Gavekal Research

    5C Overview: Is Bad News Good, Or Bad?

    The past month's trading sessions in US equity markets have been challenging for investors. The obvious starting point is that much of the recent news has been bad. US economic data releases (new home sales, durable good orders, mortgage applications) have been uninspiring. A pattern of disappointing releases has triggered the hope that the Fed would only apply “taper-lite” and seemed to push us back into an environment in which “bad news...

    0
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    Gavekal Research

    The End Is Nigh

    1
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    Gavekal Research

    Of Dynamite Fishing And Whales

    13
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    Gavekal Research

    What It Takes For A Dollar Bull Market

    Some air has been sucked out of the US bond bubble since May, and the global effects have been quite vivid. Most emerging market currencies have plunged against the dollar, and even countries with the sturdiest of fundamentals—like Singapore with a current account surplus of 17% of GDP—have suffered from the fallout. Yet recently, the US dollar seems to be losing some of its pluck, especially against the other majors. Japan, after all, is in the...

    0
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    Gavekal Research

    A Young Man's Game

    I started in the fascinating business of trying to understand why markets go up and down in February 1971. The old money manager in the French bank which had hired me straight away said: "Charles, you will never get rich in this business using other people's money. Do NOT leverage your positions. Leverage might be all right for fellows who deal in real estate, but for those in stock markets, it only brings misery."

    7
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    Gavekal Research

    Student Loans: Bubble, What Bubble? - Will Denyer & Tan Kai Xian

    Last Friday, the US enacted legislation that will peg the interest charges on student loans to 10-year treasury yields. The move headed off an automatic surge in loan rates and should ensure reasonably priced student finance for years to come. But even as Washington celebrated an outbreak of bipartisanship there were concerns that these latest reforms could wrongly incentivize young Americans to pursue higher education.

    19
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    Gavekal Research

    The Debt Ceiling Showdown That Won't Be

    In the past few weeks, as interest in Fed tapering has subsided, the latter-day Kremlinologists in Washington are seeking to justify their salaries by stirring up excitement about some new policy drama. Two candidates have emerged for the next economic drama: announcement of the next Federal Reserve chairman and the next debt ceiling deadline, both of which will hit the markets in November or December.

    2
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    Gavekal Research

    5C US: An Unusual Arbitrage Opportunity

    In a normal circumstances there is no particular reason to think the US stock market should outperform the UK stock market over the long term. Over many years I have argued that total return of the US stock market compared to the UK stock market offers no discernible trend—my series goes back to December 1969 and is based on reinvestment of dividends, price appreciation and currency changes.

    0
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    Gavekal Research

    5C Energy: Mexican Oil Sector Opening Is No Gusher

    [LEFT]

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    Gavekal Research

    Greek Tragedies Always End The Same

    28
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    Gavekal Research

    A Supply-Sider’s View Of The UK

    Since 2000, central bankers and governments have competed to find “better” ways to direct economic activity. Interest rates, money supply and exchange rates have all been manipulated by clever fellows who are sure they are smarter than the markets. This meddlesome brood succumb to Hayek's “fatal conceit,” not because of their commercial success in the real world, but because they got the best grades at school.

    18
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    Gavekal Research

    When Good Is Bad

    3
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    Gavekal Research

    Shoot The Fed Watchers

    Fed watchers have rarely been in such demand as the art of divining the language, tone and likely psychological motivations of the actors on the stage reaches new levels of silliness. In contrast to his oblique and strategically ambiguous predecessor, Ben Bernanke promised a transparent, plain speaking and supposedly rather dull Federal Reserve. As things turned out, we are back pondering the etymological distinction between adjectival forms....

    3
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    Gavekal Research

    Look To EM For Real Yield

    Tomorrow is the big day. Market participants have their microscopes out to scrutinize the FOMC’s statement for any tonal change regarding the Bernanke put. Judging from the narrowing spreads over US treasuries in global bond markets, no major surprises are expected. However the yield-chasing game is not back in full swing: many emerging market bonds, which suffered a scorching sell-off earlier in the summer, have lagged the recent recovery....

    2
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    Gavekal Research

    5C Energy: US Consumers Not Yet Guzzling

    The notion of “peak oil” production has been severely undermined by the recent expansion of shale fuel development. However the idea of oil demand peaking always seemed a better bet as the US economy has become far less oil-intensive, while new technology constantly improves fuel efficiency. Yet over the last eight weeks, US oil demand has surged, raising the specter that improved US economic performance may be turning consumers back into gas...

    0
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    Gavekal Research

    The Emergence Of A US Underclass

    ). This dour relationship has been maintained over the last two years and median income has, as I suspected, continued to fall. Make no mistake, if monetary policy is not substantially changed, then median incomes will continue to fall.

    50
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    Gavekal Research

    5C US: Disability And The US Job Market

    Global investors with an interest in Federal Reserve policy moves have rarely had to scrutinize the US labor market so closely. However, we wonder if a substantial part of the US employment picture is being overlooked by most observers. If so, the implication for future monetary policy decisions could be significant.

    0
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    Gavekal Research

    Reconciling Conflicting Views

    In recent weeks, Charles, Louis and Anatole have sparred over both the health of the global economy and the outlook for markets. On the face of it, those views seem irreconcilable (a view held by the protagonists), but as a technical analyst I would argue that a synthesis of sorts can be achieved. This is because the strongly conflicting outlooks are connected through a bridge known as investor perceptions. My argument rests on a reconciliation...

    0
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    Gavekal Research

    Game Over For Austerians

    Margaret Thatcher used to say that “There Is No Alternative” to whatever policy she believed in. But there is always an alternative to banging your head against a brick wall—you can stop banging your head against a brick wall. The G20 meeting in Moscow last weekend may have marked such a moment of revelation.

    4
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    Gavekal Research

    Taper Timing: What To Watch

    In case you hadn’t noticed, Ben Bernanke wants to dial back the Federal Reserve’s quantitative easing program later this year. This has focused intense scrutiny of the chairman’s every utterance, which is turning hard-nosed Fed-watchers into amateur psychologists. Some ask whether he will initiate a tapering of the program as a professional courtesy to his successor, while others opine on the legacy he may want to secure in the central banking...

    6
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    Gavekal Research

    Can The Shale Revolution Go Global?

    More than a year after Argentina incensed oil majors by nationalizing YPF, a state oil firm half-owned by Spain’s Repsol, the industry seems ready to move on. Chevron signed a US$1.24bn deal on Wednesday to develop shale oil assets in the ominously named Vaca Muerta (“dead cow”) basin. It was the first production deal outside of North America since the US started to ramp up unconventional production last year.

    2
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    Gavekal Research

    Housing, Bonds & Ben Bernanke

    Ben Bernanke again tried to calm market nerves yesterday by stressing the conditionality of any tapering to the Federal Reserve’s quantitative easing program. In particular, the Fed chairman pointed out that his committee “will be watching to see if the movement in mortgage rates has any material effect on housing.” This is important qualification since yesterday saw new data released which suggests the recent rise in prices and interest rates...

    2
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    Gavekal Research

    Five Corners (17 July 2013)

    In the latest Five Corners biweekly review of global economics and investment:

    0
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    Gavekal Research

    Good Omens

    Two months ago I gave ten reasons for believing that April’s break-out of the S&P 500 from its 13-year trading range “could mark the start of a secular bull market in global equities”. This piece, which came out on May 20, was singularly ill-timed, since equity markets peaked the very next day and then plunged on May 22, after Ben Bernanke’s tapering comments (see Goldilocks And The Ten Bears). Luckily for my credibility, I did end this...

    5
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    Gavekal Research

    Fed’s Fire Drill Obscures The Real Risk

    Whenever Alan Greenspan was praised for delivering a clear message on US monetary policy, he liked to reply: “If you think that, you have misunderstood what I said”. Ben Bernanke prefers the opposite approach, trying to explain in painstaking detail the precise conditions and possible timing of monetary tapering. He might do the world economy, and his own reputation, a favor by imitating Greenspan’s obfuscation. The Federal Reserve minutes...

    0
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    What's Going On With Oil?

    Commodities have been hammered this year, but the most important resource to the industrial economy has proved remarkably resilient. Crude oil prices understandably shot higher after political chaos in Egypt threatened the safe passage of tankers through the Suez Canal. And yet we wonder whether the real story for oil is less tied to Middle Eastern events than fundamental trends in the United States. Exhibit A is the fact that the international...

    4
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    Bad Omens

    In late May we published a debate piece on the near-term outlook for equity markets. Since then, emerging markets have once again lived up to their name by proving themselves hard to emerge from during an emergency (in USD terms, Brazil is down –35% year to date while Chinese valuations are back to 2008-crisis levels); for their part, European and US equity markets have pulled back, while the only salvation has come from Japan (the one market...

    10
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    Gavekal Research

    Counter-Balancing Market Trends?

    Over the past decade, investors needed to come up with one of two ideas to ensure outsized success: “front run the Chinese” or alternatively "front run the Fed".

    5
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    A Better Dollar Tool Required

    6
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    The Trend Lives

    Major equity markets have had a decent bounce in the last three trading sessions which suggests that the pull-back has stabilized. In recent weeks Charles, Louis, Francois and others have all offered fundamental analysis on how the normalization of bond yields will impact markets—my approach will be to give a technical view on the outlook for equities.

    0
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    Will Higher Rates Kill US Housing?

    Both US house prices and interest rates have experienced big upward moves—raising the obvious question of whether a higher cost of money will derail the housing recovery. Our approach was to test affordability levels based on a range of higher interest rates. We found that the housing market can easily bear 10-year treasury yields at 3%, and may eventually bear higher rates than that, but the fast and easy gains are behind us.

    5
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    Gavekal Research

    When To Buy US Long Bonds

    With yields having surged back to a near two year high, there is an increasingly strong case for buying US long bonds. The more interesting question surrounds the timing of such a move and the level of conviction that should be exhibited in building a position.

    4
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    Gavekal Research

    Volcker’s Return

    Despite the forests that have been sacrificed to explain the end of quantitative easing, it is very simple—Ben Bernanke seems to have finally done the right thing. Call it his Volcker moment.

    6
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    Gavekal Research

    A Bearish Blunder

    Since Ben Bernanke mentioned on May 22 that the Federal Reserve Board might start to taper its program of quantitative easing later this year, more than $2 trillion has been wiped off the value of global stock markets—and probably far more from the value of global bonds.

    3
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    Gavekal Research

    What's Wrong With An Optimistic Fed?

    The Federal Reserve made no policy changes yesterday—short rates remain near zero and quantitative easing continues at a fast clip of $85bn per month. The Fed did however adjust its economic projections, for the better—unemployment is expected to fall faster than previously thought, and inflation lower. Chairman Bernanke then spent an hour with reporters trying to clarify what this means for the future policy trajectory.

    3
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    Five Corners (19 June 2013)

    In the latest Five Corners biweekly review of global economics and investment:

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    The Problem With Leading Indicators

    4
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    Gavekal Research

    When Good Comes Of Bad

    It’s cynical, manipulative and hypocritical—and it looks like it is going to work. How often do you hear a sentence like this, to describe a government initiative or economic policy? Not often enough.

    5
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    Gavekal Research

    The Incredible Deflating Gas Market

    Emerging markets are taking a pounding with commodity-producing centers worst affected. Everywhere we look we see resource markets that are either over-supplied or have the potential to be so. The old market adage that the best cure for high prices is high prices would seem as relevant as ever. But it isn’t just iron ore and copper stocks which are bulging; LNG prices have plunged almost 25% in the last couple months.

    6
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    More On The Deflationary Bust Risk

    As we look back throughout history, it quickly becomes obvious that Christopher Columbus was the world’s first modern central banker. He left without knowing where he was going, when he arrived he did not know where he was, and he did it all with other people’s money.

    6
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    It's The Economy, Not The 'Tapering'

    Friday’s better than expected US payrolls were too ambiguous to settle definitely the debate about whether the US economy is accelerating or slowing, but there was one issue this release should have settled once and for all. Contrary to what we read every day on Bloomberg and Reuters, financial markets have been paying almost no attention to the debate about “Fed tapering” that has obsessed Wall Street pundits and media talking heads.

    0
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    Asia And The Dollar

    Asian risk assets have been sucked into the volatility vortex since the latest panic started over the end-game for the Federal Reserve's quantitative easing program.

    0
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    Gavekal Research

    Five Corners (5 June 2013)

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    An Old Fashioned Deflationary Bust

    19
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    From Goldilocks To New Clocks - The GaveKal Team

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