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E.g., 20-11-2018
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    Gavekal Research

    GE Is More Fish Than Fowl

    There is suddenly a flood of commentary speculating that General Electric is a canary in the proverbial coal mine for the US corporate credit market. With investors focused on the troubled conglomerate’s underfunded pension scheme and ailing power business, GE has seen its credit rating downgraded and become a focal point for broader fears that US corporates have taken on too much debt and bought back too much equity. Without taking a view on GE...

    3
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    Gavekal Dragonomics

    Solving The Private Sector's Liquidity Crisis

    China’s leaders are now falling over themselves to show love for the private sector. This political rhetoric has a practical purpose: easing the financial stress on private firms that is freezing up the corporate bond market and driving down stock prices. In this piece, Thomas examines the tools for solving the private sector’s liquidity crisis.

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    Gavekal Research

    The Winding Road To Vassalage

    No one much likes Theresa May’s compromise deal that would leave Britain as a rule-taking, semi-detached appendage to the European Union. That, however, is the most likely outcome after the UK cabinet yesterday approved an exit deal that sets up a November 25 summit, where EU leaders will be asked for their assent. Shortly afterwards, the UK parliament will have its say, and despite challenging math in the House of Commons a “national interest”...

    0
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    Gavekal Research

    China Data: Worse Before It Gets Better

    The latest round of data releases painted a mixed picture of Chinese economic activity in October. Most notably, credit growth was weak. Given that without an acceleration in credit growth there will be no broad pick-up in overall economic growth, this indicates that Beijing will loosen policy further over the coming months. But how far and how fast?

    2
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    Gavekal Research

    Credit Availability As An Asset Allocation Tool

    US analyst KX bases his equity calls largely on a Wicksellian model that compares the cost of capital with the returns earned by the corporate sector. We remain comfortable that this “spread” remains favorable for US firms, and so recommend a roughly 70% allocation to equities. Yet even if credit is reasonably priced, there is the question of its availability. For this reason, we watch lending standard measures closely, and just got a benign...

    2
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    Gavekal Research

    Video: The Battle For Chinese Tech

    China imports more semiconductors than it does crude oil, highlighting its dependence on foreign technology and know-how. The US recognizes this weakness and is intent on squeezing China’s tech sector before it is able to produce the most advanced chips at home and in scale. For this reason, tech sits at the heart of the US-China tensions.

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    Gavekal Dragonomics

    The Next Wave Of SOE Consolidation

    Chinese officials are making another call to renew reform of state-owned enterprises. But a return to privatization is far away: the most concrete aspect of SOE reform is the guided restructuring of central-government-controlled firms. In this piece, Yanmei explains how big SOEs are using M&A in different ways to achieve consolidation.

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    Gavekal Research

    The Doom Loop Tightens

    The stand-off between Rome and Brussels over Italy’s 2019 budget claimed its first casualty on Monday. Italy’s major banks were forced to club together to support an emergency bond issue by Banca Carige, after the rise in Italian government bond yields triggered by the budget battle eroded the mid-sized lender’s capital base, pushing it to the brink of collapse.

    0
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    Gavekal Research

    This Really May Be The Start Of A Year-End Rally

    Although this week started with a violent sell-off, Anatole argues that the stars are aligned for a year-end equity rally, especially in emerging markets. This is because EMs have sold off not on US interest rate worries but a combination of rising oil prices and heightened political risk. Those headwinds now seem to be abating and beaten up markets could surprise before year-end.

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    Gavekal Research

    The True Story Of Eurozone Equities

    Since the financial crisis, European equities have proven serial duds compared to their transatlantic cousins. Cedric argues this divergence is simple reflection of the higher earnings-per-share achieved by US firms. Looking forward, however, he says it will be almost impossible for US firms to maintain this profits gap.

    1
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    Gavekal Research

    Germany, And Europe, After Merkel

    All political careers end in failure. Doubtless Angela Merkel is already feeling the sting. Even as the long-serving German chancellor stands up on Tuesday to address the European parliament in Strasbourg, political observers and investors are looking beyond Merkel’s term in office to the identity of her successor. That is likely to be decided on December 7, when Merkel’s Christian Democratic Union is set to elect a new party chairman, so...

    0
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    Gavekal Research

    London Seminar — October 2018

    At Gavekal’s seminar in London last month Charles Gave and Anatole Kaletsky presented on whether the world is breaking up into three different monetary zones, and whether this is a correction to, or an end to, the long-running global bull market. Micahel Clendenin of Gavekal RedTech explained how they conduct research on the Chinese technology and internet sector.

    0
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    Gavekal Research

    Hong Kong Seminar — November 2018

    At Gavekal’s seminar in Hong Kong this week, Yanmei Xie, Arthur Kroeber and Will Denyer presented their latest views on China's economy, trade war, and how to approach asset allocation in the US.

    0
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    Gavekal Research

    A More Timely Wicksellian Tool

    According to my Wicksellian analysis of the US, when the market rate of interest moves above the natural rate (essentially the structural growth rate of corporate profits), then a recession is coming, and investors should exit US equities and load up on treasuries. I now propose an updated and more timely proxy for the "Wicksellian market rate".

    3
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    Gavekal Dragonomics

    The Many Misjudgments Of Supply-Side Reform

    Supply-side reform, Xi Jinping’s signature policy of cutting excess capacity in steel, coal and other industries, is widely considered a success. Yet Rosealea’s extensive review finds that this campaign was marred by repeated misjudgments that caused undesired spikes in prices. The justifications for continuing the policy are now wearing thin.

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    Gavekal Research

    What's Changed In The Oil Market

    “Sanctions are coming,” proclaimed Donald Trump in a tweet last week, three days before the imposition of the latest US embargo on Iranian oil exports. The oil market was not impressed. Since late September, when crude hit four-year highs, the Brent price has slumped -16.7% from US$86.29 to US$71.91, with WTI falling -19.1%.

    0
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    Gavekal Research

    Gridlock is Good

    The Democrats have wrested back control of the US House of Representatives, while Republicans have expanded their Senate majority. Hence, the US’s bicameral legislature is set for two years of gridlock. This was the most benign result possible from this midterm election. While largely expected, confirmation is probably positive for risk assets.

    0
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    Gavekal Research

    Handicapping The Trump-Xi Summit

    As the US prepares to wrap up its Congressional election season, Donald Trump’s administration is sending mixed signals on its China policy. The outcome of the upcoming G-20 meeting between Donald Trump and Xi Jinping is now basically a coin-flip. Either way, argues Arthur, US pressure on China’s technology sector is likely to intensify.

    1
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    Gavekal Dragonomics

    Pledged Shares Put Private Firms In Peril

    China’s bear market has created a crisis for hundreds of listed companies whose shareholders had pledged shares as collateral for bank loans, and now face the threat of margin calls. In this piece, Thomas explains the share-pledging crisis and how it is reshuffling corporate ownership, as state entities and others move to rescue distressed firms.

    0
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    Gavekal Research

    Hot, But Not Too Hot

    It remains unclear if the US is moderating its approach to trade war, but there are other factors to keep equity investors on edge. Friday’s US payroll report showed average hourly earnings rising to a cycle-high of 3.1%, confirming the picture of a tight labor market. Hence, with 10-year treasury yields just below their recent peak of 3.23%, the question is whether the US economy can weather a higher cost of capital. For now, I think the answer...

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