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E.g., 26-05-2019
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    Gavekal Research

    The Fed's Money Tree

    QE3 has set off a debate not just over whether this is good or bad (most here agree it is bad) but on what are the short– vs long-term effects on economies as well as markets. Louis and Charles make the contrarian argument that open-ended and more aggressive quantitative easing will ultimately take away, rather than add, to global liquidity, and warn that investors should prepare for a dollar crisis further down the line. Anatole and Francois...

    8
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    Gavekal Research

    The Next American Revolution

    Our little firm has spent much of the last decade telling investors to look east. Asia has thrived on the back of cheap labor which has cemented its status as an industrial powerhouse. But as countries such as China seek the good life, pushing incomes and consumption higher, other economies will be better placed to compete. We are increasingly convinced that the defining comparative advantage of the next decade will be having access to the...

    10
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    Gavekal Research

    A Big Week For US Growth Data

    This week will deliver some potential market-moving data releases from the world’s largest economy. The Institute of Supply Management’s manufacturing PMI is released today, the ISM non-manufacturing PMI and ADP’s private employment estimate Thursday, and official payrolls Friday. Unfortunately, a number of the early signs do not look good, especially in manufacturing.

    1
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    Gavekal Research

    US Corporate Profits: On The Roof Or In The Stratosphere?

    One of the biggest weights on US equity prices is, ironically, record profits. Based on the maxim that nothing good lasts forever, the fear is that record margins will inevitably be taken down a peg. A popular way to illustrate the situation is to show corporate profits’ “share” of gross national income (product). As the red line in the first chart below shows, the corporate profits to GNI ratio has gone through the roof recently. Many...

    20
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    Gavekal Research

    New Century, New Labor Market

    Stronger employment numbers and a falling jobless rate over the past several months have spurred hopes that the US economy is finally on the path to a broad-based recovery. The latest good news came from payroll processor ADP, which estimates that 216,000 new private sector jobs were created in February, bringing the 4-month moving average to 220,000 jobs a month, the highest rate of this cycle. The strong employment numbers support our call...

    9
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    Gavekal Research

    QSCB: The Global Bond Yield Conundrum

    2
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    Gavekal Research

    US Deleveraging: Still A Long Road Ahead

    It is three years since the nadir of the financial crisis that brought the US household credit boom to an abrupt stop. After the collapse in asset prices sent leverage ratios into the stratosphere in 2009, US consumers have been gradually reducing their debt; meanwhile the recovery in equity markets has done even more to bring leverage ratios back down. But US consumers have a lot more deleveraging to do. At best, household leverage is only...

    12
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    Gavekal Research

    The ECB Is Already Doing QE, Its Own Way

    The current pleas for the ECB to start “quantitative easing” often miss one important detail: the ECB is already conducting QE, in every way but in name. The two core elements of what is commonly referred to as QE are: 1) the expansion of the asset side of a central bank’s balance sheet, well beyond what is required to simply target short-term policy rates and with the aim of easing credit conditions; and 2) the expansion of a central bank’s...

    1
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    Gavekal Research

    The Fed's Exposure to Interest Rate Risk

    It goes without saying that the bold policy measures by the Fed and the ECB have increased risks for both central banks, and in turn both of their currencies. But the risks taken on each side of the Atlantic are very different in nature. The ECB is primarily vulnerable to “balance sheet risks” stemming from increasingly suspect outright holdings and collateral (see today’s Daily). This is a real concern in today’s environment of weakening EMU...

    0
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    Gavekal Research

    Monthly Strategy Chart Book - USA: A Two-Speed Economy

    In the short term, it looks like the US will avoid recession once again. But there is the risk that the recovery could prove fairly anemic or short lived. The bigger question is what are the structural sources of growth that can get the US back on track to its long-term average growth rate of 3% plus?

    0
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    Gavekal Research

    Is the ECB Aiming for 'Stealth Cut' to 0.75%?

    Recent moves by the ECB are more significant than some may realize, and could prove significantly bearish for the Euro/USD as excess liquidity is flooded into the system by the end of the month. And yet the Euro has risen since the ECB announcements on October 6th, likely for the following reasons:

    0
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    Gavekal Research

    The US Needs Brent Below $90 and Gas Below $3

    Dark clouds loom—as US data teeters on the edge of recession territory, the EMU struggles to remain united and avoid its own recession, and Beijing continues to rein in credit growth despite evermore fears of a ‘hard landing’. But the silver lining to these dark clouds may be the resulting softness in oil prices. Along with developments in Libya, China tightening and lower global growth outlooks have killed the momentum in oil prices. But what...

    0
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    Gavekal Research

    This is Not 2010: The Context of this Fed Meeting

    As the Fed sits down to discuss monetary policy options, the environment seems, at least on the surface, to bear an uncomfortable resemblance to the 2010 “soft patch”, which of course brought us QE2. Indeed, regional manufacturing surveys have plummeted to levels that incite double-dip fears, while national data such as the manufacturing and services ISMs, factory orders and industrial production have also rolled over and now hover uncomfortably...

    0
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    Gavekal Research

    Central Banks Prepare for a Potential USD Squeeze

    When the Fed announced plans for US Dollar loans to a number of global central banks at last week’s meeting of finance ministers in Poland, it was easy to see this as confirmation that the long-awaited Dollar crunch was now upon us. Yet, while the USD has risen some recently, it has not yet shot up in the fashion of the late 2008 Dollar short squeeze. Likewise, USD LIBOR rates and spreads have ticked up some, but remain quite low, especially...

    0
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    Gavekal Research

    The Swiss Version of QE

    How far is the SNB willing to go to defend its new ceiling of 1.20 Francs per Euro, and for how long? The short answer is that, assuming the Euro remains, the SNB will likely defend the ceiling aggressively, so long as this is consistent with the SNB’s desired domestic monetary policy stance. Here is why...

    0
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    Gavekal Research

    The Good & the Bad in Recent US Money Growth

    In the US, M2 has swung from a weak +1.5% YoY growth rate in mid-2010 to a frothy +10.2% today. And this is not due to a low base effect; M2 has grown at an annualized rate of +42% in the last month! This has raised quite a few eyebrows and we have received several questions on this topic. Should we be excited or cautious, in view of these impressive moves in money supply growth? Our answer is, well, both:

    0
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    Gavekal Research

    Why We Have Not Seen a US$ Squeeze This Time

    As the last few days have made painfully clear, markets face a level of uncertainty that is high even on today’s standards. But one question that most investors (ourselves included) are struggling with is why, in this uncertain environment, the US$ is not faring better? Indeed, in recent months we have repeatedly laid out the case for of an international US$ Liquidity Crisis. This was largely based on the observation that the growth rate of US$...

    0
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    Gavekal Research

    A Review of Ben Bernanke's Latest Speech

    We received a number of questions on Ben Bernanke’s speech yesterday. Below is Will’s take on it:

    0
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    Gavekal Research

    The US$-Euro From Here

    In recent years, the USD’s path of least resistance has been lower, except at times of crisis and financial market stress. And undeniably today, a number of potential “fat tail-risks” could shake markets. These include another flair-up in the EMU crisis, a crisis in one of the several countries around the globe currently exhibiting a high combination of trade and budget deficits (see p. 35 of our Quarterly), a shortage of Dollars abroad to...

    0
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    Gavekal Research

    QSCB - 3Q11 - Life After QE2

    Many of the key risks in global financial markets can ultimately be linked to the Fed's enthusiasm for printing money (which even, to some extent, exacerbates the Euro crisis). Thus, the end of QE2 in June will likely bring the world economy to a cross-roads. For this reason, we have decided to focus our latest Quarterly on what the end of QE2 should entail.

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