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    Gavekal Research

    Hello US Capital Spending?

    The US has managed a steady but sub-par economic recovery with the crucial missing ingredient being a sustained pick-up in capital spending. There is some evidence this may be changing since yesterday’s second revision for 2Q14 GDP pointed to the main two engines of investment spending starting to fire simultaneously. It may be too early to declare the start of a new capital spending cycle, but for pretty much the first time since the post-2009...

    0
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    Gavekal Research

    The Shifting Sands Under US Homes

    The US housing market seems to be coming off the boil with the latest national price measures pointing to significantly reduced gains. The worry is that professional investors are pulling back from the market as the share of home purchases made with cash fell to 37.9% in 2Q14 from a high of 42% the previous quarter (see report). Private equity firms such as Blackstone Group, the largest private landlord in the US, have bought an estimated 200,...

    2
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    Gavekal Research

    The US Consumer Lives, Really

    Even as US real wage growth has picked up over the last 18 months, consumption spending has been slow to respond. The relatively weak state of the US consumer, once the irresistible force pulling along the global economy, has emboldened those advocating a ‘secular stagnation’ thesis. But is this really a fair analysis? The answer has a particular relevance as central bankers gather for the Federal Reserve’s annual Jackson Hole shindig and...

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    Gavekal Research

    US 2Q Earnings Favor Industrials

    As the second quarter US earnings season winds up, the dominant picture is of stronger sales and faster earnings growth. That’s handy. In the early stages of this five year bull market, it was central bank liquidity that pushed equity prices higher. Then over the last two years, multiple expansion took over. Now, with valuations back in line with fair value, top and bottom line growth are emerging as the market’s main driving force (see The...

    3
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    Gavekal Research

    The US Growth Engine Sparks Into Life

    Second quarter US GDP growth came in encouragingly strong at 4% quarter-on-quarter annualized, much better than the expected 3%. At the same time the 1Q number was revised up to -2.1%. That’s up from -2.9%, but it’s still a contraction; so a strong 2Q reading was crucial to show the previous GDP number was just a blip and not the start of a slide into recession. But looking past the headlines, was this really a strong report?

    0
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    Gavekal Research

    Emerging Asia's Leverage Problem

    Aggregate debt levels in Asia (ex-China) are back to levels seen just prior to the 1997-98 Asian Financial Crisis. This does not pose a near term macro-economic risk since most Asian economies have large foreign currency reserves and run flexible currency regimes. Indeed, this was the mercantilist lesson most Asian economies learnt from the late '90s crisis. Still, Joyce and KX show in this chart book that the likes of China, South Korea...

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    Gavekal Research

    US Construction: Once More Into The Breach

    Having been a key driver of the US economic recovery, the residential property sector has had a tough year. Ructions in the bond market last summer forced up mortgage rates and gave a shock to both buyers and builders of property. And just as markets calmed down, severe winter weather meant that construction workers were more likely to break their tools than break ground on fresh projects. The onset of warmer weather has inevitably produced a...

    2
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    Gavekal Research

    5C US: Profits: Past The Peak Or Just A Blip?

    US statisticians recently provided a far more shocking view of the first quarter than the benign picture we got from the S&P500 earnings season, reinforcing concerns that the exceptional US profit story is peaking and that margins are finally going to mean revert.

    0
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    Gavekal Research

    Unpicking The US Capital Spending Puzzle

    US statisticians told us yesterday that GDP, business investment, and corporate sales all dropped in 1Q14. Such weakness can be blamed on freak winter weather, but looking back to last fall, growth trends were not exactly stellar. The nagging issue for US economy watchers in recent times has been the sustained weakness in business investment. In the immediate aftermath of the 2008-09 slump capital spending (ex-housing) snapped back, raising...

    6
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    Gavekal Research

    Five Corners (28 May 2014)

    In the latest bi-weekly review of global economics and investment:

    0
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    Gavekal Research

    5C US: Hello Stagflation?

    Inflation’s back. In April US CPI rose to 2% YoY with both goods and services making a meaningful contribution. Manufacturers are starting to report higher output prices according to business surveys by the Philadelphia Fed and the NFIB, a small business representative body. After a weak GDP growth in 1Q14, mutterings of “stagflation” can be heard in the bear camp. But is this really what the data suggests?

    1
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    Gavekal Research

    Fat Margins, Thin Growth Prospects

    With more than 450 of the S&P 500’s constituents having reported first quarter earnings, investors were sufficiently happy with the outcome of the results season to bid the index up to a new record close of 1,897 on Monday. In aggregate, the story told by first quarter earnings was more of the same—extraordinary margins, but lackluster growth. As a result, the pessimists expecting a collapse in growth or a mean reversion in margins have been...

    0
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    Gavekal Research

    5C US: A Rotation Into Value, Not Defensives

    Since mid March, we have seen a drastic rotation into value stocks. Clearly, investors are starting to rethink the kind of multiples they are willing to buy into.

    0
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    Gavekal Research

    Five Corners (30 April 2014)

    In the latest bi-weekly review of global economics and investment, Arthur Kroeber considers the implications of Asian deflation. Will Denyer & Tan Kai Xian consider the strong rental market for US homes and wonder what this means for the broader housing sector. Nick Andrews looks up close at reduced liquidity in the eurozone’s financial system. Chen Long looks at a favorable convergence between national GDP numbers and the growth claims made...

    0
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    Gavekal Research

    5C United States: Fed Targets + Weak Global Inflation = Rising Rents

    The US housing market has had a rough time recently—first mortgage rates rose then an extreme winter hit. So don’t expect residential construction to be a positive contributor to first quarter GDP growth (out Thursday). But how will the housing market fare going forward? Our bet is that it won’t be too bad.

    0
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    Gavekal Research

    The End Of The Automobile? Not So Fast

    US auto sales have had a strong run and are nearly back on their pre-crisis trend. This is hardly surprising since Americans have long shown a willingness to scrimp on life’s essentials rather than give up their vehicles—through the 1930s depression they kept on driving even while relying on soup kitchens for nutrition. But how much juice is left in this purring engine of US consumption?

    3
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    Gavekal Research

    5C US: A Little Late For Early Cyclicals

    US consumer discretionary stocks are considered “early cyclicals” because they tend to outperform in the first two or three years of the cycle. This time around, the firms that make everything from iPhones to automobiles have outperformed for nearly five years! Are we really still in the early part of this cycle? Or are we starting to see signs of fatigue in an overextended rally? The sector is down –2.4% year to date, finally underperforming...

    0
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    Gavekal Research

    An Elitist Housing Recovery

    Yesterday’s data spit showed that US existing home sales edged up slightly in December, good news after several months of declining momentum. But it remains to be seen if the US housing recovery can get back on track, and this is worrying for two reasons. The first, obvious one, is that the rebound in house prices since 2011 has been a key support for an otherwise struggling US economy. The second worry is that consumer confidence has been...

    4
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    Gavekal Research

    5C US: The Yield Spread Matters For Profit Margins

    With US corporate profit margins at extreme highs, investors are on high alert for the dreaded “mean reversion.” One concern has been that after years of benefitting from extremely low interest rates, margins are going to fall as rates normalize. We don’t buy it.

    0
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    Gavekal Research

    On Profits: There Will Be No Revolution

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