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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

    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

    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 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

    5C Europe: Stealth Rate Hike Watch

    In January, when EMU banks began repaying the LTRO loans dished out in the heat of crisis, markets worried that this process effectively constituted a monetary tightening. We wrote at the time not to worry—repayments were a sign of health in the banking system, and with excess liquidity above €600bn, there was no danger of short rates going up (see that piece here). Indeed we recommended forgetting about the issue until excess liquidity fell...

    0
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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

    The End Is Nigh

    1
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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

    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

    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

    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

    Australia And The China Syndrome

    So for the satellite supplier economies to the Chinese juggernaut, is it simply a matter of following the leader? This morning it was announced that China’s economic growth duly slowed to an annual rate of 7.5% in 2Q13 from 7.7% in the previous period. Moreover, the latest credit data shows that China’s credit cycle has decisively turned, implying that last month’s interbank rate spike was no aberration. Dragonomics will publish a detailed look...

    2
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    Gavekal Research

    Europe’s Control Engineers

    “Words are, of course, the most powerful drug used by mankind,” so said Rudyard Kipling. When central bankers meet next month for the annual Jackson Hole shindig, they can ruminate on their success being increasingly dictated less by what they do, than what they say. Take the European Central Bank and Bank of England which in recent months have been fairly taciturn next to a loquacious Federal Reserve. Yet, by yesterday verbalizing forward...

    0
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    Gavekal Research

    Five Corners (3 July 2013)

    In the latest Five Corners biweekly review of global economics and investment, Charles Gave expresses doubt about the supposed rebound in European industry, while Francois Chauchat looks at whether EMU peripheral bonds are a buy after recent sell-offs. We also have Will Denyer on US bonds/housing, Rosealea Yao on China's interbank drama and Cathy Holcombe on the rising emerging market middle classes. See more details below—and please click...

    0
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    Gavekal Research

    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

    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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    Gavekal Research

    Five Corners (19 June 2013)

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

    0
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    Gavekal Research

    The Truth About US Rates

    Interest rates in the US are extraordinarily low. It is common to blame this situation on central bank manipulation, but Federal Reserve bond buying is only part of the story. The bigger reason for ultra-low rates is that bond markets are pricing in an assumption that the past five years of abnormally low nominal GDP growth will be repeated. We think this is unlikely: nominal GDP growth is picking up and bond yields will rise with it. The...

    0
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    Gavekal Research

    Is It A Bond Bear Market?

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