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E.g., 24-04-2019
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    Gavekal Research

    US Financial Asset Valuations Stretched Every Which Way

    Charles dusts off his equity and bond valuation models for the US and is disturbed to see that for only the fourth time since the mid-1980s both asset classes are simultaneously overvalued. In this piece, he asks: what gives?

    1
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    Beyond The Yield Curve Inversion

    The current yield curve inversion and softness in growth data are curious developments, given that the four prices that matter most for the global economy—long bond yields, corporate credit spreads, the oil price, and the value of the US dollar—are all relatively favorable. Louis and Charles weigh five different explanations for what may be going on—from bullish to highly bearish—and examine the investment implications.

    2
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    Not Modern, Not About Money, And Not Really Much Of A Theory

    Charles has had enough of all the talk going round about Modern Monetary Theory. In this forceful polemic he lets fly with both barrels at the proponents of MMT, arguing that they have no knowledge of financial history, little understanding of the nature of money, and are clueless about what constitutes a theory.

    7
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    The Recession Of 2019: Revisited

    Six months ago Charles posited the idea of a global recession starting in and around March 2019. He revisits that idea in this piece and concludes that there is clear evidence of the global system suffering a marked slowdown. Here, he seeks to identify the source of the problem by a process of elimination (spoiler alert, the problem isn’t China).

    4
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    Musings On Brexit

    With the UK’s elite intent on frustrating the democratically-expressed will of the British people to quit the EU, the lesson for the rest of the continent is that there can be no legal or peaceful exit from the technocratic super-state. As Charles argues here, this increases the probability of disorderly exits in the future, and therefore greatly heightens European political risk.

    8
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    The Real Gilets Jaunes

    France’s yellow vest protest movement may have been the first since 1789 not to stem from left-wing origins, argues Charles. Instead, it reflected a great uprising by the forgotten people of middle France who have had enough of being the piggy bank that funds the lives of an urban elite which has rigged the system to its favor.

    4
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    The Art Of (Trade) War

    Donald Trump’s trade war against China demonstrates that the Washington consensus is dead and buried. This suggests that the world will split into three monetary zones, each with its own anchor currency and risk-free asset class. As a result, the close relationship between the renminbi and the US dollar is a thing of the past and China’s vast current account surplus will become unsustainable. Charles examines what all this means for investment...

    2
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    Asia And The Emergence Of A New Monetary Zone

    Having broadly developed as an integrated whole over the last 30 years, Charles thinks the world economy is now splitting into three big groups—North America, Europe and Asia. In this piece he considers Asia whose economies are increasingly coalescing around the renminbi and suggests a new-fangled balanced portfolio approach for maximizing risk-adjusted returns.

    3
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    An Update On The Dollar Liquidity Crisis

    Yesterday saw a worsening of the US dollar squeeze faced by weak links such as Argentina and Turkey. For much of this year, Charles has been on the lookout for market dislocations due to vulnerable economies having too few readily available dollars. One of his key tools has been the “world monetary base” and that is now sending worrying signals.

    15
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    Trouble With Monopsonies II: Joan Robinson Versus David Ricardo

    Among the discussion topics at this week’s Jackson Hole meeting of world central bankers will be whether the market power of giant corporations is so great it allows them to hold down workers’ wages at the global level. Charles has no doubt, arguing in this paper that the development of platform companies into labor monopsonies accounts for what has been misunderstood as “secular stagnation”.

    5
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    No Exit From Brexit

    On Friday, Anatole set out his view that a second Brexit referendum is likely, and that in all probability it will reverse the original 2016 vote. Exercising his right to reply, today Charles explains why no second referendum is possible, why a no-deal, hard Brexit is increasingly likely, and why this will present a great buying opportunity in UK assets.

    15
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    The Recession Of 2019

    Over the last three months, I have become increasingly concerned that a recession will hit the world economy in 2019. In this paper, I shall explain why. My reasoning is simple, and is based on the behavior of an indicator I have long followed, which I call the World Monetary Base, or WMB. Every time in the past that this monetary aggregate has shown a year-on-year decline in real terms, a recession has followed, often accompanied by a flock of...

    17
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    What Bothers Me About The Eurozone

    With Italy facing a constitutional crisis and likely fresh elections within months, attention is set to again focus on Europe’s single currency system. One effect of the euro is that it distorts self-correcting price adjustments, which regulate normal market-based economies. Understanding this dynamic is crucial, argues Charles, if equity investors are not to be pulled into value-traps, of the type which are now presenting themselves.

    1
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    Portfolio Construction In The Time Of An Inflationary Reserve Currency

    In today’s Daily, Charles argued that the key focus of economic conflict between the US and China may end up being over currencies rather than trade spats. He advised investors to monitor the price of treasuries as expressed in gold to see how that struggle is playing out. In this piece, he tells unconstrained investors how to hedge a portfolio in light of the US dollar being subject to inflationary policymaking. Spoiler alert: the answer also...

    3
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    The Upcoming Monetary War, With Gold As An Arbiter

    When President Trump was recently asked if he was starting a war in traded goods with China, he countered that the US had lost that struggle 20 years ago. As the US retains a comparative advantage in technology, such arguments have led some to conclude that the world’s two biggest economies will fight their next economic battle in this new theater. That may be true, but for me the real fight will be less about trade than a struggle for dominance...

    0
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    A (Slightly) Different Wicksellian Analysis

    In developing “Wicksellian” theory and applying it to portfolio management, readers may have noticed that Charles and Will Denyer have plowed slightly different furrows. The aim of this piece is to clarify points of agreement and highlight differences in their methodology. In so doing, Charles hopes to illuminate both approaches and help readers to navigate a subject that is fairly central to Gavekal research.

    5
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    Bond Market Risks

    Charles is bemused by the cacophony of commentary on the apparent bursting of a US government bond bubble. By his reckoning, treasuries are at about fair value. The same cannot be said for certain other big bond markets, where far bigger risks lurk. In this short piece, he updates his broad view on risks in the global bond market.

    12
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    CSI Wall Street (Part II)

    On Monday, in CSI Wall Street Anatole morphed into Sherlock Holmes to investigate the crime scene following the market correction. He concluded that: “There’s nothing to see here. Please move along.” And the markets promptly did. Over the past week, equities have rallied around the world while volatility has gradually ratcheted down. A few more weeks like the past one, and the market moves of late January and early February will quickly be...

    5
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    What the US Yield Curve Really Says

    Since 1968, the US economy has suffered seven recessions, each preceded by an inversion of the yield curve. It thus makes sense to ask if such an upending of the link between time and interest is necessary for a recession to occur. A follow-on question might be whether a recession cannot happen so long as the yield curve shape is “normal”. With the US yield curve flattening by the day Charles seeks to answer these questions.

    0
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    May’s Misguided Brexit Speech

    Listening to Theresa May’s speech last week in Florence, Charles thought the British prime minister sounded like an unfaithful wife attempting to achieve an amicable separation from the husband she cuckolded. Her approach is mistaken. May’s interlocutors in Brussels cannot be mollified with promises of continued affection. They are ideologues, and they are out to punish the UK for daring to challenge their ideology.

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