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Gavekal Research
Tan Kai Xian
Mar 16th 2021
Let's Twist Again
When they sit down on Wednesday, the members of the Federal Open Market Committee will face a couple of knotty questions. Should they attempt to do anything about rising bond yields? And if so, what?
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Gavekal Research
Tan Kai Xian
Jan 19th 2021
Follow The Money
After last spring’s lockdowns, the Federal Reserve undertook a huge liquidity response and the US government borrowed hand over fist to keep a range of economic actors afloat: US companies got forgivable loans, households received cash grants and the jobless were offered enhanced unemployment payments. Even after this splurge, the Treasury is still left with wheelbarrow-loads of cash. In the year ahead, how these record sums of money are...
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Gavekal Research
Yanmei Xie, Tan Kai Xian
Sep 04th 2020
The Implications Of A Disputed Election
The pundits bill every US presidential election as the most important and dramatic for years, if not decades. This time they may have a point. However, an examination of the laws governing elections and of past ructions suggests any turbulence for investors will be limited and short-lived.
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Gavekal Research
Tan Kai Xian
Jul 27th 2020
Playing Volatility Convergence
When the initial Covid-19 panic gripped US financial markets in March, the near term volatility priced in by both equity and bond markets leapt steeply. But the volatility priced in by the equity market rose far more in relative terms, and has been much slower to recede. As a result equity market vol remains abnormally elevated relative to bond market vol, offering investors an opportunity.
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Gavekal Research
Tan Kai Xian
Jul 07th 2020
Learning To Transact Through Covid
The Covid-19 flare-up in the southern and western United States threatens to slow the country’s recovery, but it is unlikely to be a rerun of the severe economic contraction seen in March and April. Since Americans are learning to maintain economic activity during Covid-19, a Nike swoosh or “stairstep” recovery seems more likely than the feared W-shaped outcome.
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Gavekal Research
Will Denyer, Tan Kai Xian
May 18th 2020
The Upside For Autos And Housing
As the US begins to reopen for business, some segments of the economy will bounce back faster than others. Among the more vigorous will be the auto and housing sectors, where activity will be lifted by a favorable combination of tailwinds. Investors should consider positioning for a strong recovery in both the automobile and residential construction sectors.
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Gavekal Research
Yanmei Xie, Will Denyer, Tan Kai Xian
Mar 30th 2020
Is US$2trn In Fiscal Support Enough?
Will the US$2trn fiscal packiage prove big enough? The initial market reaction might have suggested that it won’t. However, if extreme lockdowns last no longer than a month or two, the fiscal package may well succeed in its twin objectives of averting mass business failures and preventing a big rise in long term unemployment.
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Gavekal Research
Tan Kai Xian
Mar 12th 2020
What US$35 Oil Means For The US
Much of the commentary on the -30% downward breakout in the price of oil over the last couple of weeks has focused on the negative fallout for the US economy. The demand destruction caused by Covid-19 which initiated the oil price fall is a clear economic negative. Yet cheaper energy also promises positive effects. KX weighs the forces at work.
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Gavekal Research
Will Denyer, Tan Kai Xian
Feb 28th 2020
Still Dollar Bears (Humbly)
The Covid-19 outbreak has sparked a flight to safety, reversing an incipient weakening of the US dollar. This is hardly unfounded, as the US so far has been spared a major outbreak and its economy is decently insulated. Yet most of the factors weighing on the US dollar late last year remain valid. Thus Will and KX advise a negative dollar bias.
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Gavekal Research
Tan Kai Xian
Jul 23rd 2019
The Future Of Big Tech
Big Tech is in the US government’s cross-hairs. Google, Facebook, Amazon and Apple face probes into their behavior, and legislation is in the works to clip their wings. The question for investors is: How serious will the stand-off with the government get and will a prolonged downturn in tech spark a broader decline in the US equity market?
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Gavekal Research
Tan Kai Xian, Will Denyer
May 06th 2019
How Long Can Productivity Contain US Inflation Pressure?
April’s US payrolls report showed job creation was stronger than expected and unemployment lower, yet wage pressures were softer. This suggests weaker unit labor costs will allow the Fed to remain dovish, at least for now. All else being equal this is positive for equity investors. The question is: How long can this benign combination persist?
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Gavekal Research
Tan Kai Xian
Feb 25th 2019
The Mystery Of The Missing Stimulus
Since late 2016, the US trade deficit has been widening. Usually, when the US trade deficit expands, the effect is stimulative for the rest of the world. However, this time around there have been no signs that non-US economies are enjoying a resulting pick-up. In this report, KX examines possible explanations for the failure of this longstanding relationship.
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Gavekal Research
Will Denyer, Tan Kai Xian
Nov 21st 2018
The Drag Of US Housing
Despite the overall US growth outlook remaining decent, markets have taken on an ugly tone, with US equities having given back their 2018 gains and credit spreads gapping wider. Adding to grim tidings, yesterday saw weak housing data released, which is a worry as the sector often leads the broader US economy.
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Gavekal Research
Tan Kai Xian
Nov 14th 2018
Credit Availability As An Asset Allocation Tool
US analyst KX bases his equity calls largely on a Wicksellian model that compares the cost of capital with the returns earned by the corporate sector. We remain comfortable that this “spread” remains favorable for US firms, and so recommend a roughly 70% allocation to equities. Yet even if credit is reasonably priced, there is the question of its availability. For this reason, we watch lending standard measures closely, and just got a benign...
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Gavekal Research
Tan Kai Xian
Sep 20th 2018
The Message From US Housing Construction
Wednesday saw a soft US housing data release for August, pointing to a coming weakening in residential construction. With the Fed raising rates and 10-year treasury yields well above 3%, equity investors may sniff late-cycle decay. KX shares such concerns, but advises investors to hold their noses for a while longer.
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Gavekal Research
Will Denyer, Tan Kai Xian
Jul 04th 2018
A Better Fed Model
The “Fed model” which values US equities relative to bonds is now more than 20 years old. In that time, it has become widely used and has attracted equally widespread criticism. In this paper Will and KX revise the original to iron out some of its flaws, and come up with an improved model which offers greatly superior risk-adjusted returns.
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Gavekal Research
Tan Kai Xian
Jun 28th 2018
The New Model Duration Rule
Choosing the right level of duration for a bond portfolio is devilishly tough. It is doubly so when the global interest rate environment is shifting. For this reason KX is introducing a new top-down based duration management tool which encouragingly offers superior signaling and can be used across multiple developed economy bond markets.
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Gavekal Research
Tan Kai Xian
Apr 04th 2018
US Auto Sales: No Longer A Growth Driver
Strong US auto sales in March mask a stagnating longer term trend and rising auto loan delinquencies. Happily, as KX explains, neither has broader implications for overall US consumer demand. Although auto sales may no longer be contributing to US growth, rising bad loans in the sector do not prefigure a wider consumer credit crisis.
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Gavekal Research
Will Denyer, Tan Kai Xian
Mar 28th 2018
Don’t Fret About Libor
A disproportionate increase in Libor relative to other benchmark short term rates over recent months has got many observers flustered. In this concise paper, Will and KX dig down to the cause of the increase, and explain what it does and doesn’t mean for portfolio investors.
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Gavekal Research
Tan Kai Xian
Mar 05th 2018
The US Current Account, Trump’s Trade War And Equities
US president Donald Trump’s announcement last week of tariffs on imports of steel and aluminum are just the first salvo of a trade war aimed at reducing the US$566bn annual US trade deficit. Yet even far more extensive tariffs than those announced on Thursday will do nothing to narrow the US trade gap. As KX argues in this report, more powerful economic forces are working to widen the US trade and current account deficits over the coming...
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