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E.g., 21-10-2021
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    Gavekal Research

    Marginal Analysis In Capital Markets

    At the end of the 19th century, a revolution hit economics with the arrival of what is called “marginal analysis”. The idea was simple: prices were not determined by average demand meeting average supply, but by the marginal demand meeting the marginal supply; and the resulting price was used to determine the value of all the products or assets concerned. As long as nobody interfered with this price, it guaranteed a proper allocation of scarce...

    5
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    Gavekal Research

    The Fed’s Price Keeping Operation

    The US equity market is a constant source of surprise, but what really amazes Charles is any suggestion that it is “trying to tell us something”. Between algorithms, indexation, regulations, exchange traded funds, structured products, trackers, negative interest rates and of course massive central bank intervention, “Mr. Market” probably has little to say, save that he is hopelessly lost.

    1
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    Gavekal Research

    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

    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.

    7
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    Gavekal Research

    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...

    7
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    Gavekal Research

    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

    Video: On Wicksellian Theory

    0
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    Gavekal Research

    Seeing The Chinese Forest, Not The Trees

    I do not know as much as I should about China, but I would beg readers’ indulgence as I have some general knowledge of how economies work, and some particular insights into economic history. My fairly unoriginal starting point is that the first phase of China’s development, starting in about 1990, required a focus on building infrastructure and this caused particular rules to be adopted. Since the essential roads, bridges, power plants and...

    7
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    Gavekal Research

    Housing And Deflation

    As regular readers will know, I have been warning for some months that the US economy is on the verge of a deflationary bust, which is by far the most dangerous part of any economic cycle (see Four Quadrants: The Growth Question or The Typology Of A Deflationary Bust). So the question readers are probably asking now is this: did the January data released last Friday, which showed US consumer price index inflation accelerating to 1.4% with core...

    3
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    Gavekal Research

    Elijah And The Prophets Of Baal

    As central banks in Europe and Japan push interest rates more deeply negative in an attempt to reflate their struggling economies, it is astonishing that no central bankers seem to have considered that far from staving off deflation as intended, their low rate policies have achieved the exact opposite, bringing the world to the brink of the very deflationary bust they have been trying to avert. For economists steeped in the academic orthodoxies...

    8
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    Gavekal Research

    The Gavekal Monthly: Enter Ursus Magnus?

    January was a hair raising month for investors with a deeply worrying combination of falling oil prices, plunging equities and soaring yields for sub investment grade debt. In this edition of the Gavekal Monthly we seek some answers to the “what next” question, kicking off with Charles and Anatole who take very different views on whether a bear market is upon us.

    0
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    Gavekal Research

    Anatomy Of The Bear

    I wish I shared Anatole’s degree of conviction. In yesterday’s Daily he set out his belief that the current sell-off in financial markets is not the start of “a structural ‘bear market’, still less a structural Ursus Magnus likely to last for many years” (see Is Wall Street In A ‘Bear Market’). I am not so sure. I suspect that what we are witnessing may indeed be the emergence of an Ursus Magnus, the sort of bear market so deep and prolonged...

    2
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    Gavekal Research

    Here Comes Daddy Bear

    For the last few months I have been concerned that a bear market was likely to unfold. It is my considered opinion that we are now on such a trajectory. Of course the next question has to be what kind of bear market, for history suggests that such episodes come in two distinct extremes.

    2
  • Gavekal Research

    Four Quadrants: The Growth Question

    Charles has been on a near 40 year quest to find a rules-based solution to the most basic of economic questions “what is the current situation?”. He has long used his Four Quadrants methodology which categorizes an economy as being in either an inflationary boom or bust, or alternatively a disinflationary boom or bust. In the first part of this series he proposed a framework to show whether the US was in the inflationary or disinflationary part...

    0
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    Gavekal Research

    It’s About The Dollar, Not The Renminbi

    In my 50 year career working in financial markets, I have never seen the money supply of one country move across the border to another country. Hence I must confess to being perplexed when reading recent commentary fretting about “capital flight” from China. Never mind that China’s highest denomination bill is RMB100, meaning that a fleet of trucks would be needed to move any meaningful sums into Hong Kong, but the country still has foreign...

    1
  • Gavekal Research

    Four Quadrants: A Wicksellian Analysis

    In 1978, when still young and creative, I produced my first four quadrants chart. The idea was that there are four basic investment environments depending if economic activity is expanding or contracting, and whether prices are rising or falling. It was usually obvious which state we had just left—for example the UK having suffered an inflationary bust in 1977—but far harder to judge what state we had entered. Being able to make such a call in...

    1
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    Gavekal Research

    The Gavekal Monthly: The Balance Of Risks

    The new year has been a wild ride so far, with sharp drops in the renminbi, Chinese stock markets, and oil prices leading global markets down. In our first Gavekal Monthly of 2016 we try to make sense of the risks facing investors today. As usual there are some strong differences of opinion: Anatole argues that developed economies are in decent shape, the dollar's rise will soon be over, and equities should post a better performance than...

    0
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    Gavekal Research

    The Last Holdout Of US Value

    Some readers have expressed surprise at my contention that the US stock market is “not that expensive” as their direct experience suggests otherwise. The objection is reasonable, so I have conducted a review of my US equity valuation model. I like to compare equities to a long-dated US zero coupon bond because it has the same annual volatility as the US stock market. Hence, the chart below compares the S&P 500 with the price index of a zero...

    0
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    Gavekal Research

    The Apex Of Market Stupidity

    In some 40 years of watching financial markets, my dominant emotion has been a mixture of curiosity, amusement and despair. It seems the stock market must have been invented to make the maximum number of people miserable for the greatest possible amount of time. The bond market, meanwhile, has just one goal in life: to make economists’ forecasts for interest rates look even more silly than their other predictions.

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    Gavekal Research

    Why Not To Trust In Central Bankers

    More than ever investors are fixated with central bankers, whether it be the latest utterance of Janet Yellen or what Mario Draghi may announce later today. To my mind, there are bigger issues on the horizon.

    6
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