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Impressions From The Road: Part 3, Bitcoin, China, Trump Cabinet, Taiwan

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Impressions From The Road: Part 3, Bitcoin, China, Trump Cabinet, Taiwan

Louis-Vincent Gave
11 Dec 2024
Louis recently completed a long global tour visiting many Gavekal clients and has come back fizzing with both ideas and challenges to his way of thinking. In this third set of dispatches from that trip he looks at the hurdles now faced by a well-capitalized crypto market, the likely policy pathway of the incoming Trump administration and what comes next for China in both economic and strategic terms.
The Meaning Of Accelerating Velocity

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The Meaning Of Accelerating Velocity

Charles Gave
11 Dec 2024
Gavekal's velocity indicator is at its highest in 18 years, which signals the arrival of an economic boom of epic proportions, argues Charles. He gives investment advice based on what this this means for inflation and oil prices.

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Will Trump Choose Growth Over Tariffs?

Anatole Kaletsky
10 Dec 2024
After Scott Bessent was unveiled as Donald Trump’s pick for Treasury Secretary two weeks ago, Anatole wrote a piece explaining what this key personnel move meant for the US macro outlook and markets. In this follow-up, he digs deeper into the theme by exploring the conflict between Trump’s avowed policy of trade protectionism and his political imperative to avoid another inflationary surge.

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India Macro Update: A Normal Slowdown

Udith Sikand, Tom Miller
10 Dec 2024
Despite consternation over the sharp deceleration in GDP growth, India’s economic slowdown looks cyclical rather than structural, argue Udith and Tom. A continued pickup in private consumption together with a revival of government spending is expected to improve the growth outlook in the near term.

The global view

Impressions From The Road: Part 3, Bitcoin, China, Trump Cabinet, Taiwan
Louis recently completed a long global tour visiting many Gavekal clients and has come back fizzing with both ideas and challenges to his way of thinking. In this third set of dispatches from that trip he looks at the hurdles now faced by a well-capitalized crypto market, the likely policy pathway of the incoming Trump administration and what comes next for China in both economic and strategic terms.
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Conversation: Assessing The 2025 Tail Risks
Market valuations are looking stretched and behavior feels frothy, at least in the US. Simultaneously, the backdrop seems favorable for risk assets, with easier fiscal and monetary policies in the major economic areas even as uncertainty abounds on important issues, most notably US trade policy. Anatole and Louis sit down to discuss how investors can navigate the current landscape.
The International Liquidity Situation
In the first of two papers, Charles examines the anomalous developments in the international US dollar liquidity situation over the last 10 years and concludes that that the world is heading deeper into a dangerously unstable disequilibrium.
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The Fall Of The Barnier Government
The government of French prime minister Michel Barnier has fallen. And Germany, Romania, Georgia and most recently South Korea are facing political crises of their own while there is an effective power void in Washington. So, are the problems affecting these Western and Western-aligned democracies all idiosyncratic, and nothing to do with each other? Or are they symptoms of a greater malaise?
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Test Your Knowledge
Which European Union country has taken in the most Syrian refugees per capita from 2015-16?
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Chart of the Week

Week 49, 2024
The BITCOIN Act of 2024 would have the US government create a strategic bitcoin reserve, funded in part with remittances from the Federal Reserve to the Treasury. The problem is the Fed is currently operating at a loss of over -US$1bn per week, due to a negative interest margin.
Open Chart

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Essential Reading: A Book For Every Week Of The Year

Gavekal is often asked for a recommended reading list. So, here it is: a book a week that everyone interested in the world of macro investing—whether hoary veteran or eager apprentice—can benefit from reading.

US economy & markets

US Immigration Policy Under Trump
During Donald Trump’s first term as president, net immigration into the US slowed. Given Trump’s uncompromising policy stance since November’s election and his appointment of hard-liner Tom Homan as his border “czar,” it is probable that net immigration will slow again during his second term. This slowdown will have macroeconomic and market implications.
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A Disinflationary Energy Policy
Among Donald Trump’s cabinet picks, the choice of a hydraulic fracking executive to head the Energy Department may be the least surprising. The US president-elect ran on a promise to favor hydrocarbon energy sources and Chris Wright seems set to deliver on that. Kai Xian weighs the outlook for equities, commodities and electricity prices going forward.
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Gold Down, Bitcoin Up
Since the US election on November 5, the US dollar price of gold has fallen by -4.7% while the price of bitcoin has risen 29%. This divergence is interesting. Given that both gold and bitcoin are widely regarded as alternatives to the US dollar, they tend to trade in the same direction. But anyone contemplating a short gold, long bitcoin position should consider the risks of this trade.
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Red States, Green Screens
The count continues, and technically the White House could still go either way. But barring a miracle, Donald Trump will be the next president of the United States. Beyond that, Trump’s Republicans have won the Senate, and look likely—but not certain—to take the House of Representatives. This makes it possible to draw a number of conclusions for the economy and markets.
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Webinar: The Tough Case For Europe

Louis-Vincent Gave, Anatole Kaletsky, Yanmei Xie, Cedric Gemehl
6 Dec 2024
With the fall of French prime minister Michel Barnier’s three-month-old government, reasons are mounting to be grumpy about Europe. Our panel considers all the relevant factors, yet also ask whether the gloom is overdone given that almost no one is asking what happens if things go right, or prove to be not as bad as expected.

Emerging markets

Video: Southeast Asia Under Trump 2.0
Global investors are rightly focused on the potential losers from the United States pursuing an aggressively protectionist trade policy agenda, but there may be winners as well. Tom went in search of such economies last week. Today he explains how such “swing states” are likely to perform in an intensified period of great power rivalry between the US and China.
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China Turbocharges EM Investment
As the rich world pulls up the protectionist drawbridge, investors risk missing a bigger story in emerging markets. Here, Chinese outbound investment is rebounding after the fallow Covid years, and is driving a new wave of industrialization that promises to lower the cost of the green-energy transition.
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Why This Time Has Been Different
During past episodes of risk-off volatility, the correlation between emerging market risk assets has shot up. But early August’s bout of market volatility saw a bifurcation in EMs, and no broader macroeconomic spillover effects—which speaks well of the growing maturity of emerging markets as an asset class.
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Video: The Yen Carry Trade And Emerging Markets
Usually when developed market volatility spikes, the world’s emerging markets fall victim to collateral damage. Things have been less simple this time around. Although Latin American currencies, especially the Mexican peso, have been hit hard by the unwinding of the yen carry trade, East Asian currencies have risen strongly. Udith Sikand explores what lies behind the divergence.
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Latest video

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Video: Chinese Equities In 2025

Thomas Gatley
6 Dec 2024
After their spectacular run-up in late September and early October, Chinese equities have given back a big chunk of their gains. While onshore trading volumes remain elevated and domestic sentiment remains bullish on hopes of more government support, offshore investors in particular are nervous about the impact of potential US tariffs on Chinese goods. In this video interview, Thomas weighs the opposing forces that will drive China’s equity markets in 2025.

Middle East

Syria, Russia And Energy Dominance
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The Syrian Revolution
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Conversation: What Could Derail The Inflationary Boom
Hedging The Inflationary Bust
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What Next In The Middle East?
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Video: The Israel-Hezbollah Standoff
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India chartbook

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India Macro Update: A Normal Slowdown

Udith Sikand, Tom Miller
10 Dec 2024
Despite consternation over the sharp deceleration in GDP growth, India’s economic slowdown looks cyclical rather than structural, argue Udith and Tom. A continued pickup in private consumption together with a revival of government spending is expected to improve the growth outlook in the near term.

China chartbook

Gavekal Dragonomics

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The Chinese Consumer In 2024

Ernan Cui
25 Nov 2024
China’s consumption growth has weakened for most of 2024, as the property-market downturn has softened the labor market and eroded household balance sheets. But since late September, policymakers have pivoted to a more stimulative approach to economic policy. In her annual chartbook, Ernan breaks down the key cyclical and structural drivers for household consumption, and examines how the stimulus could change the current trajectory.

Europe's economy

The Euro Leg’s Poor Gait
A week ago, the euro fell below the key support of US$1.05, which had held since December 2022. Despite the common currency having steadied on the announcement of Scott Bessent being President-elect Donald Trump’s pick for US treasury secretary, Europe’s weak fundamental position still raises the question of whether parity against the dollar is coming into view.
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Testing The Barnier Put
On Tuesday, the European Commission said that France had set out a credible fiscal plan to make its debt sustainable. The good news stops here, as France’s latest fiscal plan likely exceeds the shelf life of Barnier’s government. Cedric examines the political and economic tightrope France's government is walking and the impact on French bonds.
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The Changing Politics Of Germany’s Debt Brake
The chance of Germany moving toward reforming its debt brake rose last week as Friedrich Merz, the head of the CDU and the man most likely to be Germany’s next chancellor, opened the door to reforming Germany’s spend-averse debt brake mechanism. The question is whether the impending election produces a political result allowing for a change in the constitutionally-mandated cap on deficit spending.
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Germany On A Brink Of Sorts
Olaf Scholz’s three-year-old German government effectively collapsed within hours of Trump’s 2024 reelection. On first blush, this denouement came at the worst time but there may be a silver lining for Germany and Europe, says Cedric. It should mean an early election in Germany, with the chance to reset a faltering economic model.
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Strategy Chartbook

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US Strategy: Trading Politics

Will Denyer, Tan Kai Xian
27 Aug 2024
In November, US voters will decide who controls the White House, Senate and House of Representatives. The two parties differ significantly on key policy positions that will heavily impact the economy and markets. In this Strategy Chartbook, Will and KX compare the parties’ major policy stances and assess what they mean for markets—especially US equities, US bonds and the US dollar.

Equities

Conversation: Assessing The 2025 Tail Risks
Video: Chinese Equities In 2025
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Impressions From The Road: Part 1
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The Hong Kong-China Performance Divergence
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The Case For Equities Over Metals
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A Grand Bargain And US Reindustrialization
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Currencies

Impressions From The Road: Part 1
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The Euro Leg’s Poor Gait
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Trump And The Renminbi
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It’s The Geopolitics, Stupid
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How To Devalue The Dollar
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So Long, Soft Patch
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Fixed income

Conversation: Assessing The 2025 Tail Risks
Chinese Bonds’ Sobering Message On The Economy
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Impressions From The Road: Part 1
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It’s The Geopolitics, Stupid
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Behind The Bond Sell-Off
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A New Era For Eurozone Bonds
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Oil & commodities

The Syrian Revolution
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Conversation: What Could Derail The Inflationary Boom
Hedging The Inflationary Bust
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The Energy Faceplant
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Who Is Going Bust?
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Video: Beyond The Slide In Energy Prices

China tech

China’s Export Controls Send A Serious Signal
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Xi Goes All In On Tech
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Webinar: Setting The Agenda For China's Plenum
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The Localization Drive Steps Up
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After The Melt-Up In Semiconductors
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Vietnam’s Bamboo Diplomacy
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Then Yen Carry Trade Unwinds

Video: The Yen Carry Trade And Emerging Markets
Usually when developed market volatility spikes, the world’s emerging markets fall victim to collateral damage. Things have been less simple this time around. Although Latin American currencies, especially the Mexican peso, have been hit hard by the unwinding of the yen carry trade, East Asian currencies have risen strongly. Udith Sikand explores what lies behind the divergence.
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More Questions Than Answers
It’s a dedicated Frenchman who consents to work in August. But the financial market volatility of the last week has seen Louis hard at it, fielding client questions about the outlook for global markets and economies. In this paper, he sets out the most salient questions, and offers his answers.
The Root Cause Of Summer Ructions
Investors are no longer seeing virtue in a Goldilocks scenario of moderating demand and easing price pressures, but having a summer freak-out over faltering global growth. Udith and Kai Xian diagnose the market jitters and say that the sell-off in high-yield currencies and tech stocks likely stems from movements in Japan rather than disappointing US economic data.
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The Yen And Deindustrialization
There is a theory out there which holds that the extreme undervaluation of the yen is a consequence of Japanese deindustrialization, as Japan Inc. has shipped its factories abroad, pushing Japan's economy into an irreversible trade deficit even while it continues to run a monster current account surplus. Not so fast, says Charles, whose analysis of Japan’s external balances throws up a different explanation—and suggests a compelling investment opportunity.
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From the archives: oldies but goodies

Deficit Deniers Of The World Unite
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Deficit Deniers Of The World Unite

Anatole Kaletsky
In our politically correct age the pressure to bow down before certain popularly accepted and apparently proven “truths” can be overwhelming. In the aftermath of the US elections, two such nostrums are unnecessarily vexing investors—the urgency of deficit reduction and fear of higher taxes. I believe that both of these obsessions will soon be forgotten.
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Are We Entering into Revolutionary Times?
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Are We Entering into Revolutionary Times?

Louis-Vincent Gave
The role of a society’s elite is to rise to the challenges of the times, and find solutions fitting to those times, even if this involves a radical break with the past. But the modus operandi for most leaders is to try and maintain the status quo. But if the problems are large enough, this does not work, and the same challenges reappear until either a solution is found, the elite is replaced by a new elite, or the country, system or civilization disappears.
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The High Cost Of Free Money
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The High Cost Of Free Money

Charles Gave
Perhaps the most famous economic law is the one that there is no such thing as a free lunch. By keeping US short rates at abnormally low levels beyond the financial crisis and as growth bounces back beyond the dreams of the wildest optimists, the Fed increasingly seems to be trying to ‘feed the US economy for nothing’. This is worrying, for extended periods of cheap money typically come back with a hefty price tag.
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