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Gavekal Research
Charles Gave
Mar 18th 2016
We Are Killing The Wrong Pig
Lord Keynes, who was a lot smarter than most Keynesians, argued strongly in favor of the euthanasia of the rentier. I see the logic. The rentier has almost by definition a huge preference for liquidity (to use the Keynesian terminology), which leads automatically to a very low velocity of money, and from there to recession. So the idea is to force the rentier into a lower preference for liquidity, which should lead to a higher velocity of money....
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Gavekal Research
Cedric Gemehl
Mar 18th 2016
The Road To Reflation
For the last ten years or so, ever since the Hartz reforms to the German labor market, Germany has been by far the biggest driver of overall eurozone growth. Indeed, for much of 2012, Germany was the only driver of eurozone growth. This has not been a healthy phenomenon. With German savings rates high, and domestic consumption sluggish, much of Germany’s own growth was propelled by its net exports of goods to the rest of the world beyond the...
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Gavekal Research
Tan Kai Xian
Mar 17th 2016
The Fed Is Falling Behind The Curve
The Federal Reserve surprised no one yesterday when it decided to remain on hold. But the downward shift in its projection of year-end inflation from 1.6% to 1.2%—and the consequent revision of its dot plot to show two, rather than four, rate hikes in 2016—should have raised a few eyebrows. By adopting such a dovish stance, the Fed is in increasing danger of falling behind the curve on inflation, which in turn implies that the risk of sharper...
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Gavekal Research
Charles Gave
Mar 17th 2016
The Bloodhound And The Swedish Economist
After more than 10 years of researching the theories of 19th century radical bourgeois economist Knut Wicksell, Charles concludes that Keynesian monetary policy, which holds market interests down relative to the “natural rate”, leads to slower growth, a more volatile economy, less reliable price signals, and falling P/E ratios. Unfortunately, that is exactly what the US is facing today.
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Gavekal Research
Arthur Kroeber
Mar 16th 2016
China’s Buying: It’s A Good Time To Sell
A flurry of big cross-border mergers and acquisitions by Chinese companies has left many people scratching their heads. Announced Chinese international acquisitions are on track to exceed US$100bn in the first quarter—almost as much as in the whole of 2015. What is driving this torrent of cash?
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Gavekal Research
Tom Miller, Udith Sikand
Mar 15th 2016
The Upside In India
The biggest immediate problem is that corporate India is not investing. Private businesses are over-leveraged and economic demand is weak. Hamstrung by US$130bn of bad loans, India’s state banks aren’t lending. The government has made little headway on the long-running debate over how to clean up their overstretched balance sheets.
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Gavekal Research
Anatole Kaletsky, Cedric Gemehl
Mar 14th 2016
Super Mario: Hero To Zero To Hero
As markets plunged following Thursday’s European Central Bank meeting, it seemed as if Super Mario had turned into Dumb Draghi.But by Friday morning Draghi had again gone from Zero to Hero, with risk-on assets racing ahead in virtually every market around the world.
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Gavekal Dragonomics
Andrew Batson, Rosealea Yao
Mar 14th 2016
A Turn Too Soon
The biggest surprise in China’s latest data was the rally in property: housing sales surged and real estate investment picked up in the first two months of 2016. But this improvement is unlikely to be sustained: the turn in property has come far earlier than fundamentals warrant, and suggests the government does not have a firm grip on the market.
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Gavekal Research
Nick Andrews
Mar 11th 2016
The End Of The Road
The European Central Bank pulled the trigger but the bazooka misfired. European stocks peaked half an hour after yesterday’s new easing measures were announced, but investors quickly focused on the broader significance of the action.
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Gavekal Dragonomics
Ernan Cui
Mar 10th 2016
What To Make Of Industrial Layoffs
When China’s labor minister said the troubled coal and steel industries could shed 1.8mn jobs, the news provoked a lot of excited commentary. But this is not 1998 all over again. The government’s layoff plan does not mean China is about to be swamped by a wave of unemployed workers, nor that officials are “getting serious” about excess capacity.
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Gavekal Research
Joyce Poon
Mar 10th 2016
The Yen And Hard Truths
The renewed “risk-on” moves of recent weeks has seen a vicious rebound in commodity prices, renewed stability in credit markets and, notably, a decline in the euro, which has fallen back to its early year level against the US dollar. The big outlier in these moves is the Japanese yen, which has become the new strong man of the currency world.
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Gavekal Research
Mar 10th 2016
Charles Discussing His Recession Indicator
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Gavekal Research
Nick Andrews
Mar 09th 2016
Draghi’s Difficulty
When the European Central Bank’s governing council meets tomorrow, Mario Draghi and his colleagues will find themselves facing a dilemma. With growth sluggish, and inflation elusive, the consensus expects the ECB to ease its already ultra-loose monetary policy further. Likely steps include cutting the central bank deposit rate by 10bps to -40bps, increasing bond purchases to €70bn a month from €60bn, and extending the program of purchases beyond...
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Gavekal Research
Charles Gave
Mar 09th 2016
A Diagnostic Tool For Bear Markets
One of the most vexing moments in a money manager’s career comes when one of the team—usually the young intern—asks the question: “So, are we in a bear market or not?” Immediately, everybody on the investment committee jumps into the discussion, and without fail everyone has a strong opinion on the matter. A vigorous debate ensues, and when everything is said and done, a lot more has been said than done—and neither the intern nor anyone else on...
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Gavekal Research
Long Chen
Mar 08th 2016
Parsing The Decline In China’s Reserves
After falling by almost US$300bn in the three months to January, China’s foreign reserves showed signs of stabilizing in February. The slower pace of decline is certainly welcome news for the central bank. But the reduced stress owes a lot to recent dollar weakness, and it is too early to say Beijing is fully in control of its new currency regime.
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Gavekal Research
Tan Kai Xian
Mar 08th 2016
The State Of US Profits
With the US earnings season for 4Q15 done and dusted it is clear that the glory days of this cycle are long gone: aggregate sales for S&P 500 firms fell -4.0% YoY, profits tumbled -7.5% and margins for the period (not the trailing measure) compressed by -2.2pp to 6.5%. The big drivers of profits were (i) the oil price collapse, (ii) the strong US dollar and its crimping of exporters, and (iii) the tendency for rising wages to erode margins....
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Gavekal Research
Arthur Kroeber
Mar 07th 2016
Reality Check In Brazil
After a year of terrible news, Brazilian markets rallied last week on the surprise news that former president Lula Ignacio da Silva had been forcibly hauled in for questioning by investigators plumbing a vast and fetid corruption scandal. On the hope that Lula’s brief detention presaged his arrest and the fall of his hand-picked successor, the widely despised president Dilma Rousseff, equities gained 8% in two days and the beaten-down real...
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Gavekal Dragonomics
Andrew Batson
Mar 07th 2016
Papering Over The Credibility Gap
The aura of technocratic competence that once surrounded China’s leadership is tarnished these days. A recent burst of transparency from top officials has not done much to change that. The bigger problem is that the government has locked itself into a growth target that is not credible, which makes all economic policy less credible.
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Gavekal Research
Charles Gave
Mar 07th 2016
Dissolving The People
Populist movements are being greeted with horror by political elites across the Western world. For Charles this is not surprising for such movements threaten the self-perpetuating and self-interested economic structures which our elites have constructed.
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Gavekal Research
Joyce Poon
Mar 04th 2016
Not Yet The Buy Of A Lifetime
With emerging market equities up 13% over the last three weeks, and outstripping developed markets over the year to date, the notion is gaining traction that after four years of underperformance emerging markets are now “the buy of a lifetime”. Investors should be cautious. While it is indeed possible that emerging markets could continue to rally over the next few months as the US dollar tops out and commodity prices stabilize, the longer term...
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