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Gavekal Research
Louis Gave
Feb 03rd 2016
Tools Or Jewels?
An asset can have value for reasons of scarcity (a jewel, or gold), or because it is useful and productive, and so over time generates positive cash flows (a tool). In the long run, tools tend to go up more in value than jewels like gold. Tools also have a terrific advantage in that projecting their future productivity and discounting their future cash-flows allows them to be objectively valued. By contrast, valuing jewels like gold is a...
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Gavekal Research
Louis Gave
Feb 02nd 2016
Red Herrings, Margin Calls And Heart Attacks
Most recent commentary we have read suggests that January’s turmoil can be blamed on either the slowdown in China or the fear of an impending US recession. But let us suggest an alternative: these are red herrings which only distract from the real analytical challenges faced by investors.
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Gavekal Research
Nick Andrews
Feb 01st 2016
Symptoms Of Dysfunction
If bank shares are the canary in the global economic coalmine, they are currently singing a very alarming tune. In Japan bank shares have cratered -10% since Friday’s decision by the central bank to move to negative interest rates, even though the new -0.1% rate will only apply on the margin to additional deposits at the Bank of Japan. Elsewhere, in Europe, the banking component of the Euro Stoxx index has slumped -16.8% year-to-date, while the...
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Gavekal Research
Charles Gave, Anatole Kaletsky, Louis Gave, Tan Kai Xian, Will Denyer, Nick Andrews
Feb 01st 2016
The Gavekal Monthly: Enter Ursus Magnus?
January was a hair raising month for investors with a deeply worrying combination of falling oil prices, plunging equities and soaring yields for sub investment grade debt. In this edition of the Gavekal Monthly we seek some answers to the “what next” question, kicking off with Charles and Anatole who take very different views on whether a bear market is upon us.
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Gavekal Research
Cedric Gemehl
Jan 29th 2016
Learning To Love A Weak Ruble
The oil price may have bounced in recent days and with it the ruble, but Russia’s financial situation looks increasingly perilous. The economy is struggling through a second year of recession and Russian corporates must roll over US$120bn of foreign currency debt by mid-2017. Moreover Russia’s central bank seems to have embraced a policy of benign neglect toward the ruble as it tries to preserve a reduced pile of foreign exchange reserves.
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Gavekal Research
Charles Gave
Jan 28th 2016
Anatomy Of The Bear
I wish I shared Anatole’s degree of conviction. In yesterday’s Daily he set out his belief that the current sell-off in financial markets is not the start of “a structural ‘bear market’, still less a structural Ursus Magnus likely to last for many years” (see Is Wall Street In A ‘Bear Market’). I am not so sure. I suspect that what we are witnessing may indeed be the emergence of an Ursus Magnus, the sort of bear market so deep and prolonged...
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Gavekal Research
Nick Andrews
Jan 22nd 2016
The Overlooked Risk In Italy
What is the biggest threat to European stability this year? The continent’s migrant crisis? The chance that the British will vote in a referendum to leave the European Union? Or the danger of contagion from China’s slowing economy and fragile financial markets? All of these do pose risks, but it is possible that the greatest threat to Europe this year could come from a different quarter altogether: Italy’s banking sector. At first the danger...
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Gavekal Research
Arthur Kroeber
Jan 18th 2016
Looking For The Bright Side
By most measures, the first two weeks of 2016 have been the worst-ever start of the year for risk assets. With the MSCI All-Countries index down nearly -20% from last May’s high, we are now in a global bear market.
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Gavekal Research
Nick Andrews
Jan 13th 2016
Unintended Consequences
Forget the Brazilian real and the Chinese renminbi. The world’s worst performing major currency over the last month is actually the British pound, which has fallen a painful -4.95% against the US dollar since mid-December. The beating has been especially brutal in recent days. After data released yesterday showed British manufacturing output is still languishing not just below its 2008 level, but even below its 1997 level, sterling slumped...
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Gavekal Research
François-Xavier Chauchat
Jan 12th 2016
Stronger Macro, Sinking Stocks
The latest macro indicators leave little doubt about the general direction of the eurozone economy. Both hard and soft data suggest that growth re-accelerated from a meagre 0.3% QoQ (1.2% annualized) in 3Q15, probably to 0.4%-0.5% (1.6%-2.0% annualized) at the turn of the year. Eurozone unemployment declined to a four-year low in December, and the economic sentiment indicator compiled by the European Commission from business and consumer surveys...
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Gavekal Research
Anatole Kaletsky, Charles Gave, Will Denyer, Tan Kai Xian, Joyce Poon, Long Chen
Jan 07th 2016
The Gavekal Monthly: The Balance Of Risks
The new year has been a wild ride so far, with sharp drops in the renminbi, Chinese stock markets, and oil prices leading global markets down. In our first Gavekal Monthly of 2016 we try to make sense of the risks facing investors today. As usual there are some strong differences of opinion: Anatole argues that developed economies are in decent shape, the dollar's rise will soon be over, and equities should post a better performance than...
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Gavekal Research
Arthur Kroeber
Jan 04th 2016
Forget About Oil And China, Look To The US In 2016
On the whole, 2015 was a year for investors to forget. US bond and equity prices were both flat, equity gains in Europe were mostly wiped out (for US dollar investors) by the fall of the euro, and commodity plays and high-yield issues crumbled. China sparked a brief panic after a clumsy intervention to cushion a stock-market collapse and an unexpected currency devaluation, but by the end of the year the Shanghai index was still up nearly 5% in...
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Gavekal Research
Arthur Kroeber
Dec 18th 2015
New Economic Realities
As we close the book on 2015, it is worth sifting through our research to find the patterns that are likely to influence events in 2016 and beyond. Three stand out.
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Gavekal Research
François-Xavier Chauchat
Dec 16th 2015
The French Patient
As a Frenchman visiting Italy last week, I had the strong sense that for the first time in decades France was lagging its transalpine neighbor. Italian business and consumer confidence has picked-up over the last two years, and unemployment has declined for four straight quarters. France, by contrast, is the only European country that saw rising unemployment during 2015. Political confidence has evaporated as reinforced by last weekend’s rather...
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Gavekal Research
Arthur Kroeber
Dec 14th 2015
The Clash Over Fossil Fuels
Over the weekend in Paris, the leaders of 195 nations announced a landmark deal to address climate change that its more optimistic supporters say heralds “the end of the fossil fuel era.” But both market action and many government policies point in the opposite direction. Crude oil prices continue to tumble towards the US$30 mark, and coal prices have also collapsed—both moves that reflect abundant global supplies of fossil fuels. The Paris...
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Gavekal Research
Andrew Batson
Dec 10th 2015
The Cure For Low Prices Is Low Prices
What is the latest rout in commodity prices telling us? Certainly, China’s demand for many commodities is weak—but everyone knows this. The most important signal is rather on the supply side: low prices are finally pushing commodity producers to cut output. It is this restructuring that will eventually bring stability to commodity prices.
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Gavekal Research
Nick Andrews
Dec 10th 2015
What A Brexit Means For Markets
This week David Cameron has been on the road in Eastern Europe arguing that British voters will vote for “Brexit” unless it gets a new deal with the European Union. As polls suggest that Britons are pretty much split down the middle on the issue, the prospect of the UK bidding adieu to Brussels is getting more real by the day. Indeed, with the negotiation expected to reach a head early next year, the question of a British exit is likely to...
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Gavekal Research
Charles Gave
Dec 08th 2015
The Apex Of Market Stupidity
In some 40 years of watching financial markets, my dominant emotion has been a mixture of curiosity, amusement and despair. It seems the stock market must have been invented to make the maximum number of people miserable for the greatest possible amount of time. The bond market, meanwhile, has just one goal in life: to make economists’ forecasts for interest rates look even more silly than their other predictions.
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Gavekal Research
Anatole Kaletsky
Dec 07th 2015
A Year-Defining Week
Four hugely important events occurred last week which between them have largely determined the course of the world economy in the year ahead: the strong US payrolls, the Organization of the Petroleum Exporting Countries’ decision not to reduce production, the European Central Bank’s escalation of monetary stimulus and the inclusion of the renmimbi in the International Monetary Fund’s Special Drawing Rights basket. While all these events were...
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Gavekal Research
Nick Andrews
Dec 06th 2015
Video: On Brexit
Nick Andrews discusses the possibility of a "Brexit"
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