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E.g., 08-07-2020
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    Gavekal Research

    Europe’s Equity Bet

    On the face of it, the opportunity in European equities is hardly exciting. US stocks may be close to their high while European equities languish 10% below their April peak, but on a valuation basis the two markets are similar. A comparison of their price-to-earnings ratios, both on a trailing and forward basis, sits near its historical average. Things, however, start to look more interesting when a cyclically-adjusted P/E ratio is applied—CAPE...

    2
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    Gavekal Research

    Wicksell And Capital Misallocation

    Accepted opinion among investors is that, when it eventually comes, the Federal Reserve’s first interest rate increase in almost nine and a half years will have been signaled so well in advance and will be so small—effectively from zero to 25bps—that it will have little or no effect on either the financial markets or the real economy. Unfortunately, given the monetary policy settings that have prevailed since 2010, I am not convinced the...

    12
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    Gavekal Research

    China’s Half-Hearted Rebalancing

    The risk for China’s relatively closed economy was never that it would suffer a standard emerging market solvency crisis. The real worry was that it would duck the hard decisions needed to navigate a transition from capital-intensive growth to a broader model of development. I have been cautiously optimistic over the last three years that Beijing would take the necessary medicine, but am coming to the conclusion that it is instead set on the...

    1
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    Gavekal Research

    France Under Attack

    In the worst days of the Northern Ireland troubles, British policymakers spoke of a “tolerable level of violence”. It was taken for granted that senseless and murderous acts would be committed, but what mattered was ensuring that these did not “get out of hand”.

    9
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    Gavekal Dragonomics

    The Benefits Of Membership

    The renminbi’s path to becoming the fifth sovereign currency in the SDR is now clear, with IMF chief Christine Lagarde endorsing the move on Friday. This is a diplomatic coup for China and a victory for its central bank. But we do not see SDR inclusion as a game-changer for capital flows into China, though they will continue to rise.

    0
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    Gavekal Research

    Brexit: A Blunder To Rank With The Boston Tea Party

    Ask any divorced couple whether their relationship would have been different had they never married. Actually, don’t bother asking, since the answer is obvious. Strangely, most conservative politicians do not seem to understand this—and neither do 48% of British voters. That is the number, according to recent opinion polls, who want a divorce from the European Union.

    2
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    Gavekal Research

    Brace For Lower US Margins

    As the end of the 3Q15 US earnings season comes into view, what stands out is how little things have changed from the last quarter. Alas, corporate America’s financial performance is stabilizing at the weakest level seen since the 2008 crisis—with more than 90% of S&P 500 firms having reported, both revenue and profits came in about -4.5% lower compared with a year ago. This grim performance is partly explained by the ongoing bloodbath in...

    0
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    Gavekal Research

    A Happy Apologist

    At Gavekal the conversation with clients never stops and from time to time we like to offer up a taste of debates that strike us as interesting. Louis got into just such a discussion earlier this week with one of our smarter, free-market embracing US clients. The topic of discussion was China and why Louis is such an apologist for the Chinese Communist Party when he clearly has little time for governments meddling with markets elsewhere?

    2
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    Gavekal Dragonomics

    Dead Cat Bounce Or Tiger’s Leap?

    With China’s stock market and currency both up from their lows, the “stabilization trade” looks to be firmly in effect. But while this stabilization is definitely warranted, it is mostly markets correcting their over-reaction to the August currency move. It has little to do with any broader stabilization of the real economy, which is still weak.

    5
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    Gavekal Research

    Drifting In The Mid-Atlantic

    On the one hand the United Kingdom looks to have similar dynamics to recovering European economies, where growth is picking up nicely even though deflationary pressure still looms—Britain’s headline CPI rate stands at -0.1% and real rates have swung positive from a low of -4.7%. Such a cautious view explains why the Bank of England offered a report last week whose dovishness surprised some. Yet, on the other hand mid-Atlantic Britain in many...

    4
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    Gavekal Research

    The Catastrophe Of Negative Rates

    Yesterday both Reserve Bank of India governor Raghuram Rajan and Bundesbank president Jens Weidmann broke ranks, daring to suggest that ultra-low interest rates may not be such a good thing after all. If rates were held too low for too long, warned Rajan, the risk of financial instability would be greatly heightened, a concern Weidmann shares. Unfortunately, that’s not the half of it.

    13
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    Gavekal Research

    The Limits Of Xi Jinping’s Grand Plan

    As China’s growth slowdown deepens, making even the government’s reduced growth target of 6.5% a year for the rest of this decade look less and less realistic, policymakers are increasingly pinning their hopes on Beijing’s much-touted “Belt and Road Initiative”. Not only do they hope that the plan to build new trading networks across Central Asia and the Indian Ocean will boost China’s flagging exports, but that the demand for commodities and...

    2
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    Gavekal Dragonomics

    The Chinese Dream (I): The Empire Strikes Back

    Xi Jinping’s project of national rejuvenation needs to be taken seriously, with an understanding of the history from which it springs.

    0
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    Gavekal Dragonomics

    The Never-Ending Slowdown

    Xi Jinping’s ambition to extend China’s global influence is obvious. Whether he can sustain the long-run economic growth needed to finance that ambition is less clear.

    0
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    Gavekal Dragonomics

    The Chinese Dream (II): Great Leap Outward Along The New Silk Road

    The Belt-and-Road Initiative promises an infrastructure bonanza for Asia’s least-connected regions. How much it will extend China’s political influence is an open question.

    0
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    Gavekal Dragonomics

    The Chinese Dream (III): Should We Fear It?

    As a ‘peace-loving’ China flaunts its military, political and economic might, Asia and the US puzzle over how to respond.

    0
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    Gavekal Dragonomics

    Financing China’s Global Dreams

    Beijing has promised to put a lot of money to work building infrastructure across Eurasia. But the actual amount of finance China is likely to mobilize in the next several years is much less than the extravagant headline figures. The biggest constraint on its ambitions to revive is not money, but finding viable projects are to finance.

    0
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    Gavekal Dragonomics

    China And Russia: Locked In Reluctant Embrace

    China’s economic activity is gradually reducing Russian influence in Central Asia. Despite that, shared authoritarian values keep the two countries closely aligned on many issues.

    0
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    Gavekal Dragonomics

    Instead Of A Balance Of Power, Create Better Rules Of The Game

    Critiques of Obama’s ‘rebalance to Asia’ miss the point. It is not about adjusting the balance of power in Asia, but about refining the rules of the international order that China is inexorably entering.

    0
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    Gavekal Dragonomics

    How Should The US Respond To China’s Rise?

    The longstanding US approach to a rising China—economic engagement and military balancing—no longer works. More muscular balancing, and smarter engagement, is now required.

    0
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