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E.g., 04-12-2020
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    Gavekal Research

    The ECB And Euro Strength

    In the last couple of days the euro has broken higher against the US dollar. The last time the euro hit US$1.20, European Central Bank officials led by president Christine Lagarde emerged to talk the currency down, worried that euro strength would import deflation and erode European competitiveness. The question now is whether the ECB will again come out to jawbone the euro lower.

    0
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    Gavekal Research

    The Fate Of Chinese Listings In The US

    Today, there are 365 Chinese companies listed on US markets. A handful of these have dual listings in Hong Kong, but for most, the US is their sole listing. Together, these 365 companies account for US$1.92trn of market capitalization. This increasingly looks like an anomaly. Why should Chinese companies choose to raise capital on Wall Street when they can tap the capital market in Hong Kong?

    4
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    Gavekal Research

    Yield Curves, The Euro And The Dollar

    The balance of probability points towards a steeper US yield curve over the short to medium term as US short rates remain pinned at zero and long-dated US treasury yields push higher. One might think that higher US long rates should attract capital inflows, but what matters is the relative shift in gradients, notably between the US dollar and euro yield curves.

    0
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    Gavekal Research

    Dear Cedric And Nick, Allow Me To Disagree...

    ...in Thursday’s Daily you argued that Hungary and Poland’s effort to veto yet another power grab by Brussels represents a mere hiccup in the march towards a European nation state. You can add Slovenia into that basket of recalcitrants. I believe that these three countries are posing an essential question: where does the legitimacy of a government come from?

    6
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    Gavekal Research

    Webinar: Europe And The Second Wave

    European markets were ebullient earlier this week on news that an effective Covid-19 vaccine may be approved for use early next year. In the meantime, regional lockdowns aimed at curbing the escalating pandemic threatens Europe's economic recovery. This all but guarantees loose monetary and fiscal policy for the foreseeable future. In yesterday's webinar Nick and Cedric discussed how this shakes out for investors.

    0
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    Gavekal Research

    Limits To EU Solidarity

    This week, Hungary and Poland vetoed the European Union’s €750bn recovery fund in a fit of pique at a new mechanism that will stop money going to “bad boy” states deemed to impede the rule of law. With southern Europe waiting for EU cash to support its post-Covid recovery, the two eastern bloc countries hope to force a compromise that will stop outside interference in their domestic affairs. The issue tops the agenda of today’s EU leaders’...

    2
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    Gavekal Research

    Biden And Brexit

    Despite the UK enduring another Covid lockdown and facing a key Brexit deadline on November 15, its political class spent this week obsessing over a personality struggle inside the prime minister’s office. The real significance of a Brexit-supporting aide to Boris Johnson quitting his post may be that the UK is about to accept a trade deal will leave it as an effective satellite of the European Union. After all, hopes for a plucky Britain going...

    3
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    Gavekal Research

    After Consolidation, A Further Rerating

    Given the violence of Monday’s rotation-driven rally on soaring hopes of an early coronavirus vaccine rollout, it is small surprise that equity markets are now giving back some of those gains. Expectations are still high that developed economies will be able to begin vaccination programs as early as the first quarter of next year. But the intervening days have given investors a keener appreciation of the challenges involved. Meanwhile, the...

    0
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    Gavekal Research

    Let’s Build A Second Maginot Line!

    With the coronavirus endemic in Europe, the new anti-Covid lockdowns being imposed by governments across the region, including in France, Germany and the UK, make about as much sense as a second, smaller, Maginot line would have done back in 1943 when the Germans were firmly entrenched in France.

    23
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    Gavekal Research

    Webinar: US Election & Global Investment Roundtable (in French)

    Charles Gave, Louis-Vincent Gave, Didier Darcet and Cedric Gemehl delved into the results of the US election, and discussed the latest impact of Covid-19 on the global economy and markets. Additionally, they presented Gavekal’s latest research on portfolio construction.

    0
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    Gavekal Research

    Europe’s Bitter Winter

    Just a couple of weeks ago there were still reasons to be sanguine about the damage that rising coronavirus infections would inflict on Europe’s economy and financial markets. Today those reasons are looking a good deal thinner. Europe’s near term trajectory increasingly resembles a “W-shaped” recovery.

    0
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    Gavekal Research

    The Three Key Prices: 10-Year Treasury Yields

    A core thesis for Louis is that in financial markets three prices matter above all others: the price of oil, the price of US dollars and the yield on 10-year US treasuries. In this second part of a three-part series, he addresses the bond market question. US treasuries are currently pricing in a highly deflationary future on both a cyclical and structural basis. Such an outcome would defy recent experience in the US bond market.

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    Gavekal Research

    No Fiscal Panacea

    It’s been a big week in Europe’s debt capital markets. The European Union sold €17bn of bonds for its SURE job support program and Italy issued €8bn of 30-year bonds yielding 1.76%. The strength of demand was an encouraging sign, given the outsize role that debt-funded government stimulus will have to play in driving the eurozone’s economic recovery from the Covid crisis.

    0
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    Gavekal Research

    Crisis Averted, Hard Times Ahead

    This week, Boris Johnson got what he needed politically: a bromide from Brussels that will allow him to camouflage the compromises he must make to secure a trade deal with the EU before the year’s end. But it will be a minimalist deal that will leave the UK’s service sector out in the cold, increasingly shut out of the EU’s markets.

    6
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    Gavekal Research

    The Biggest Event Of 2020 (By Analogy With 2007)

    What’s the most important event of 2020? Easy, you will answer: the Covid-19 pandemic. Maybe. But will it really look that way in hindsight? Sure, Covid seems pretty momentous today. But years hence, will it really be seen as a key driver of structural change? Or will the most important event of 2020 be regarded as something else entirely?

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    Gavekal Research

    Erdoğan’s Dangerous Game

    Turkey’s economy is in crisis. The International Monetary Fund is forecasting a -5% contraction in GDP this year, the Turkish lira is down -28% against the euro year-to-date, unemployment and inflation are both in double digits, and bond yields are soaring. Yet President Recep Tayyip Erdoğan is pressing ahead with costly military adventures. Turkey tested its new Russian missile air-defense system in mid-October, defying its NATO allies. It is...

    0
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    Gavekal Research

    Webinar: Understanding Chinese State Capitalism

    The advance of the private sector and the retreat of the state sector has been central to China’s long transformation from an isolated socialist nation to a globally connected economy. Yet the notions of China’s private sector being either in the ascendency, or facing a squeeze in the statist Xi Jinping era are not born out by the facts. Andrew Batson discussed the findings in his recent major piece of research on this topic.

    0
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    Gavekal Research

    Europe Battens Down

    Having remained sanguine over recent weeks as coronavirus infection rates in Europe mounted, on Thursday investors sat up and paid attention. After the French government imposed a 9:00pm curfew on Paris and eight other cities, and after the German government tightened restrictions on Covid hotspots including Berlin and Frankfurt, the euro Stoxx index fell -2.2% during Thursday’s session. Clearly as infection rates have risen, and governments...

    0
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    Gavekal Research

    The Three Key Prices: Oil

    In financial markets, there are three prices matter above all: the price of the US dollar, the yield on 10-year US treasuries, and the price of oil. Get the direction of these right, and the other pieces of the investment puzzle fall into place. In the first of a three-part series, Louis examines in depth what could cause the oil price to break out of its current trading range.

    6
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    Gavekal Research

    New Tech, Same Fiat Money (For Now)

    This week saw seven western central banks and the Bank for International Settlements issue a joint report on central bank digital currencies. They come not to bury cash nor to undermine banks, but to modernize payments for a digital age. If so, the introduction of CBDCs is unlikely to upend the banking system and monetary policy, but would resemble the rollout of ATMs in the 1960s.

    2
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    Gavekal Research

    Counting Europe’s Zombies

    Usually when an economy contracts, corporate bankruptcies go up. This time is different. In European countries, bankruptcies in the second quarter—the low point of the lockdown-induced economic collapse—were down by anywhere between -16% and -33% in year-on-year terms. By suspending normal bankruptcy regulations and offering generous liquidity assistance, European governments successfully prevented their lockdowns from causing a mass wave of job...

    0
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    Gavekal Research

    A Typology Of Bear Markets Based On Wicksellian Analysis

    In half a century of doing financial analysis, Charles has acquired the core conviction that there is not one type of bear market, but two. Think of these as the gentle black bear-type downturn that is survivable and the highly-dangerous, big brown grizzly collapse that for many money managers proves fatal. In this piece, Charles seeks to map this insight with some analytical rigor.

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    Gavekal Research

    Keeping It Super Simple

    Let me start with President Donald Trump’s policies as I understand them. As a businessman, since taking office in 2017 his singular goal has been to keep US firms’ return on invested capital as high as possible. So, if Trump is reelected on November 3, I would expect more of the same. In contrast, a Joe Biden win would lower ROIC and cause the US dollar to fall against the euro.

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable, October 2020

    Yanmei Xie discussed the US team’s assessment of risks surrounding the US election, Anatole Kaletsky explained the reasons for his return to bullishness and Louis Gave talked about global asset allocation and how to find “anti-fragile” assets.

    0
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    Gavekal Research

    Video: The Euro's Next Move

    The euro’s appreciation against the US dollar has stalled out as resurgent Covid-19 infections threaten new lockdown measures, and a possible upending of the economic recovery. Nick argues that the euro’s decade-long run as a “weak currency” was down to policy settings that kept domestic demand weak. A convincing reversal is not likely until those domestic drivers are again firing.

    0
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    Gavekal Research

    European Divergence Is Back

    Like a car, the more excess weight you add to an economy, the slower it drives. Slapping restrictions on normal activities, even if income support measures are offered, makes it harder for an economy to grow. In Europe, the second wave of Covid-19 infections is having an uneven effect depending on the severity of the outbreak and the sector composition of the affected economy. The result will be to deepen the divergence in European growth and...

    0
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    Gavekal Research

    A Dove With Ammunition

    Hawks want the European Central Bank to wind down its monetary stimulus once the immediate Covid crisis is over. On Wednesday, ECB president Christine Lagarde poured a large bucket of cold water over that idea. Speaking in Frankfurt about the central bank’s current strategy review, she made clear that the ECB regards deflation, not inflation, as the main monetary risk, and opened the door to a symmetric inflation target going forward. In the...

    1
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    Gavekal Research

    The UK’s Savings Problem

    The British government's new job support scheme to take effect next month offers much less generous subsidies, and job losses are inevitable. Heightened job insecurity will mean increased precautionary savings, compounding the downturn in consumption. But the government faces institutional constraints on how much it is willing and able to borrow to plug the gap.

    0
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    Gavekal Research

    Lockdown-Lite

    A series of controls have been announced by European countries in reaction to sharp increases in the numbers testing positive for the Sars-CoV-2 virus.This has raised fears of renewed lockdowns and economic havoc. But it appears European policymakers are opting for a lockdown-lite approach to public health restrictions in order to minimize the economic damage.

    4
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    Gavekal Research

    Riding Europe’s Second Wave

    The latest Covid figures from Europe make sobering reading, with countries including France, Spain and others seeing pronounced second waves of new cases. Equity markets, however, have reserved judgment. Yes, the rebound that started in mid-March has been stalled for the last two months as infections have mounted. However, European markets have not sold off significantly, despite this month’s US volatility. And an examination of the opposing...

    2
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    Gavekal Research

    The Challenge Of Valuing Gold

    Gold ranks as the ultimate “scarcity asset”, as its value is dictated not by its utility but because it is rare. Valuing such assets is tough as there is no “underlying value” to reference and prices are driven by the immediate supply and demand situation. Yet, in periods when both government budget deficits and monetary aggregates have rapidly grown, gold has historically outperformed—and it is doing so now.

    0
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    Gavekal Research

    When Export Strength Is A Sign Of Weakness

    China’s manufacturers are back to normal, and then some. Exports and manufacturing output are running faster than their pre-pandemic trend in 2019, even as global trade is contracting. In this piece, Andrew and Thomas explain what’s driving those strong numbers, and why they are actually a sign of continued weakness in the global economy.

    2
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    Gavekal Research

    Death, Taxes And Covid-19: Things That Cannot Be Avoided

    Six months after the first western countries went into lockdown, data suggest that unless imposed very early on, lockdowns did little to avert excess deaths. With weekly death rates in many western countries now running close to decade lows, Louis argues that this leaves politicians in an awkward spot, with one of three possible policy paths.

    40
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    Gavekal Research

    A British Mad Man

    The world’s worst performing major currency, stock market and economy have all been located in Britain since Boris Johnson was reelected last December. This is not surprising. With hindsight, his decision to outlaw any possible extension of the Brexit transition period as soon as he was reelected fully justified the switch from bullish to bearish on sterling assets that I recommended immediately after this announcement.

    2
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    Gavekal Research

    The Trouble With Covid Testing

    Last week, professional rugby started up again in France. The authorities have decreed that if any team finds that three or more of its players test positive for Covid-19, its games must be played at a later date. This ruling is being rigidly enforced even though in reality a player who tests positive has less than a 50% probability of actually having the disease.

    12
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    Gavekal Research

    Of Gold And Gold Miners

    In recent weeks, attention has focused on the surge, and subsequent correction, in US technology stocks. Yet an asset class that has greatly outperformed the Nasdaq 100 this year is gold-mining equities. In this piece, Charles seeks to develop firmer investment rules for managing gold and gold-mining stocks within a portfolio.

    3
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    Gavekal Research

    Webinar: From Bearish To (Conditionally) Bullish

    Anatole and Will presented their views on the efficacy of US fiscal and monetary policy in response to the Covid crisis, and outlined the prospects for the economy and asset markets.

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable (in French), Sept 2020

    In a turbulent economic environment, Louis sought to identify assets with “anti-fragile” qualities; Cedric deciphered the message from European markets; Didier Darcet refreshed refresh an old Gavekal framework with “Four Quadrants 2.0” and Charles moderated the discussion.

    0
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    Gavekal Research

    Better Days For Europe’s Domestic Plays

    It is hardly surprising that euro strength is generally bad for European exporter stocks and good for domestically-focused firms; or that exporter-heavy markets, like Germany, tend to lag at such moments. We saw this in 2017, when the euro rose almost 12% against the dollar between April and August, spurring a -2.4% fall in the DAX and a 0.7% gain in the broad Eurostoxx. So how to explain this year’s topsy-turvy markets, where the sprightly DAX...

    0
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    Gavekal Research

    Desperately Seeking Anti-Fragility (Part II): In The Eye Of The Beholder

    Previously, Louis outlined the four asset classes that investors appear to regard as anti-fragile, now that US treasuries no longer fit the bill. With each of these four asset classes enjoying a roaring bull-run, today Louis examines the typical life cycle that lifts an asset class from unloved hell to anti-fragile heaven.

    1
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    Gavekal Research

    Webinar: Global Investment Roundtable, September 2020

    Charles Gave, Louis Gave and Will Denyer joined Arthur Kroeber at the global investment roundtable to discuss what's going on in the global economy. Charles identified three big trends that will affect the investment environment in the long term, Will gave an in-dept update on the US economy, and Louis examined where to find assets with “anti-fragile” properties.

    0
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    Gavekal Research

    Why I Was Right To Turn Bullish

    Previously, Anatole tried to explain why he had abandoned the bearish view on equities. We will not know for a long time whether any of his explanations make sense, but Jerome Powell’s speech about the Federal Reserve’s new operating philosophy bolstered his confidence in a once-in-a-generation economic regime change.

    10
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    Gavekal Research

    Strategy Monthly: Eight Questions, 11 Answers

    With US equities once again at record highs and the Fed promising to keep rates nailed to the floor, it is time to ask hard questions of the bull market that won’t die. That interrogation is conducted by Charles and Louis Gave. In these strange times, the case for owning anti-fragile assets has rarely been stronger, they contend. Four stand out for having weathered the pandemic and should be treated seriously.

    0
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    Gavekal Research

    A Bottom In Sight For European Banks

    No sector has been so beaten down as eurozone banks. But although bad loan ratios are rising, and further big writedowns are on the cards, this bad news is in the price. What is less adequately priced in is the change in policy from the European Union which means there will be no early return to austerity. Eurozone banks may be better placed than investors believe to generate earnings.

    6
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    Gavekal Research

    The Euro's Solid Ground

    After a breakneck 10% rally against the US dollar since mid-May, the euro faces headwinds as rising Covid-19 cases means that European nations must re-instigate social distancing measures. Still, Europe’s newly-agreed common purpose in facing such travails makes any sell-off in the single currency a buying opportunity as the unit looks set on a path of structural appreciation.

    1
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    Gavekal Research

    Making Biarritz Great Again (Part II)

    A few years back Charles and Louis bought into the storied Biarritz Olympique Rugby Club in order to save it from a looming bankruptcy. The ups and downs of this Basque region club during Covid is a microcosm of the French economy’s travails, as the state seeks to protect all players on the field of commerce from both crunching tackles and a spell in the sin bin.

    9
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    Gavekal Research

    Europe’s Job-Protection Choices

    Between February and April, some 22mn Americans lost their jobs. The rate of unemployment soared to nearly 15%—four percentage points above its last record high in 1982—but across the pond in Europe joblessness barely budged, inching up to 7.8%, from 7.2% in March. Taking the lead from Germany, governments across Europe decided it was better to keep people in jobs than to fire and rehire them later. As Europe again faces a worsening Covid-19...

    0
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    Gavekal Research

    Building A New System

    On Monday, Charles argued that developed economies’ moves to nationalize both the creation of money and the distribution of credit would degrade the unit-of-account function played by fiat currencies in many markets. Today, he outlines new monetary mechanisms that are likely to replace, or at least live alongside, fiat currencies.

    3
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    Gavekal Research

    Europe's Covid-19 Loan Drag

    In response to the Covid-19 crisis, central banks in Europe have shoveled money to banks in a bid to have them deliver liquidity to stressed companies. A worry is that this new debt binge will weigh down corporate balance sheets for years to come, and limit growth. These concerns are probably overdone.

    0
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    Gavekal Research

    The Destruction Of The Monetary System

    A basic assumption for Charles has long been that the creation of money was not under the control of governments but loosely related to value being added in the private sector of the economy. However, with governments now willfully upending this relationship, he thinks the capitalist system faces its biggest upheaval since 1917.

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