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E.g., 26-09-2020
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    Gavekal Research

    Desperately Seeking Anti-Fragility (Part I)

    Since the 1980s, OECD government bonds have tended to be negatively correlated with equities, but during the pandemic that relationship seems to have broken down. Given that the Federal Reserve is embracing a new policy framework aimed at juicing up inflation, there are plenty of reasons to think that bonds cannot continue to play an "anti-fragile" role in portfolios. In this first installment of a two-part series looking at what...

    1
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    Gavekal Research

    The Fed Boosts The Inflation Outlook

    The Federal Reserve made a historic change to its monetary policy framework yesterday when it officially adopted “average inflation targeting”. That bullseye remains 2%, but the definition of the target has changed in a way that, in the current context, effectively raises the inflation outlook. This has important implications for future policymaking and current asset pricing.

    5
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    Rich, But Keeping It Real

    The US consumer's willingness to spend remains reliable, even during the pandemic, as shown by consumer discretionary stocks sharply outperforming the rest of the market. Since this stock grouping includes pandemic winners like Amazon and Home Depot there is little reason to bet on a trend-change, as the macro winds should remain favorable.

    0
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    Video: A South China Sea October Surprise?

    Tensions in the South China Sea between the US and China are ramping up during a presidential campaign where the incumbent has set himself on a collision course with China. You do not have to be a crazed conspiracy theorist to wonder if this theatre could be the scene of an “October Surprise”.

    0
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    Japan Drifts Toward Change

    This week Japanese prime minister Shinzo Abe went into hospital for medical tests, sparking fresh reports that he may soon step down on health grounds. Should Abe exit the scene it is unclear who will succeed him. If a leadership change becomes unavoidable, Abe will likely play a key role in anointing his successor, so there is unlikely to be a big shift in the “Abenomics” program anytime soon.

    0
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    Gavekal Research

    Does Warren Buffett Know Something We Don't?

    The sage of Omaha made an interesting change of tack recently. Warren Buffet sold most of his shares in Goldman Sachs and bought positions in Barrick Gold. Goldman is often held up as the very epitome of the Wall Street financial engineering firm. Meanwhile, Barrick represents the kind of company you would buy if you no longer trusted financial engineering—or the currency in which the financial engineering is taking place.

    6
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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

    A New FDR?

    Joe Biden has accepted the Democratic Party’s nomination to run for the US presidency. Invoking Franklin D. Roosevelt, who responded to the Great Depression with huge public works, Biden promised big fiscal programs to “build back better” after the Covid-19 recession. He also vowed to combat climate change, reduce wealth disparities and advance liberal causes.

    0
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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

    Video: The State Of The US Recovery

    Pandemic aside, the US faces a looming fiscal cliff and rising political risk as the presidential election campaign starts proper. So why is Will so sanguine about the country’s economic prospects? In this video interview, he explains his position.

    0
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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

    Solid US Earnings Do Not Mean Another Boom Beckons

    With more than 90% of firms in the S&P 500 having reported for the second quarter, the hit to earnings came in nowhere near as bad as expected. This picture is likely to be sustained in the coming year, or so and should lay the ground for solid US equity market performance. Yet, those hoping for a sustained economic recovery to generate the kind of epic returns seen in 2Q20, or in 2009 after the financial crisis, will likely be disappointed.

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    Why I Was Wrong To Turn Bearish

    Yesterday, Anatole suggested that stock markets may be soaring to new records because the Covid-19 crisis could indirectly produce a stronger world economy in the coming decade. Today, he seeks to explain his damascene conversion from post-March bearishness in order that readers can better judge the merit of this view.

    8
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    Gavekal Research

    A Death Sentence For Huawei

    The US government has passed a death sentence on Huawei. The questions now are whether it will choose to suspend that sentence, and whether China will retaliate by punishing major US companies. The likely answers, says Dan, are no and no. Huawei is probably finished as a maker of 5G network equipment and smartphones once its inventories run out early next year.

    16
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    Gavekal Research

    Will A Keynesian Phoenix Arise From Covid?

    Two months ago, Anatole dismissed the rebound in equity prices as an outbreak of “market madness” among bored small-time gamblers deprived of the opportunity to bet on horses and sports. He now admits that call was wrong and in this piece explains what has driven the market to new highs. The turnaround likely reflects the largescale reconversion of leading economies to Keynesian demand-management policies and the fact that these seem baked-in...

    17
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    Gavekal Research

    The Past Is Another Country

    With US$3trn added to the US national debt during the Covid-19 crisis and trillions more in the works should new salary replacement payments be agreed in Congress, a vital question for investors is how to think about this runaway government spending and what it means for bonds and the US dollar.

    4
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    Gavekal Research

    Huawei And The Roads Of The Future

    China is engaged in an imperial project that will not be typified by territorial conquest, but by “road building”. This is done to bring commodities to the heart of the empire at the cheapest cost, while higher value-added finished goods are pushed out to its outer realms. It is no coincidence that a common saying for Europeans is that “all roads lead to Rome’”.

    3
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    Gavekal Research

    Keep Chasing Asian Yield

    As US equities brush up against new highs and safety assets like gold and treasuries sell off, global risk appetite has risen this week. Investors are betting that a vaccine for Covid-19 is at hand and if not, the world is at least learning to live with the virus. A potential beneficiary of this situation may be Asian bond markets, where quite decent yield can still be had.

    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.

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