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E.g., 09-05-2021
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    Gavekal Research

    5C US: No Longer Cheap, But Keep Reaching For Yield

    In 2012 and early 2013, it was easy to argue in favor of selling bonds and loading up on US equities on the basis of valuations alone. Equities were extremely cheap, bonds extremely expensive, and you would have been hard pressed to find standard metrics to indicate otherwise. Even Charles, who was anything but enthusiastic about the US policy mix, suggested overweighting equities and shunning bonds. Now the valuation call is no longer obvious,...

    0
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    Gavekal Research

    The Next Phase Of The Rally

    With US equities making new highs and another earnings season now under way, it is a good time to remember that to be sustainable, a bull market should rest on three pillars: liquidity, valuations, and growth. At any given point in time, however, just one of the pillars is likely to be doing most of the load-bearing. Consider the current bull market. At the outset, central bank liquidity played the key role. Then last year was largely about...

    2
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    Gavekal Research

    5C US: The Inflation Rebound Is For Real

    US inflation measures have bounced back up near the Federal Reserve’s 2% target. This is not just noise. The rebound is evident not only in the volatile headline CPI, but also in the core and median metrics (see chart). Moreover, there is growing corroborating evidence of economic actors regaining pricing power.

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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: Housing Will Support Growth Again - Will Denyer

    For the US economy to grow at a decent clip in the coming quarters two things are required from the housing market. The recovery in construction needs to be confirmed, and house prices must hold up.

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    Gavekal Research

    Will The Fed Spoil The Party?

    With tapering set to consign quantitative easing to the history books before the end of this year, the burning question now is how long the US Federal Reserve will stick to its zero interest rate policy (ZIRP). The statement following this week’s two-day meeting is unlikely to tell us anything we don’t already know. But we will all listen to tomorrow’s press conference for any guidance on short term interest rate policy. The consensus is that...

    5
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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.

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    Gavekal Research

    The ECB's Real Deal

    The European Central Bank has broken with tradition and over-delivered. We had our doubts, but a complete package has arrived, that in the near term should be positive for risk assets and negative for the euro. Leading up to yesterday’s meeting; we said that the ECB needed to come up with a package that lowered short rates. It did. It also needed to provide liquidity operations that were sufficiently attractive for banks to actually use them....

    3
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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

    High Profit Margins Are Here To Stay

    Non-financial profit margins in the US stand at more than 6% today. By the standards of the last 40 years, this is a sky-high reading. But although high compared to recent historical levels, it is not unprecedented. Looking at the history books, we found that US companies enjoyed similarly fat margins in the 1960s. That caused us to wonder: what can this uncertain age possibly have in common with the go-go years of the 1960s? The answer is weak...

    19
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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

    The End Is In Sight For Zero US Rates

    US inflation is rebounding. Both goods and services prices increased in April, pushing the CPI up to 2% YoY after nearly a year below the Federal Reserve's target. Pressure is coming from housing rents and, lately, from the rebound in commodities. Businesses are also raising prices as wage growth squeezes margins, and better off consumers prove willing to pay more. This could be viewed as just the rebound in real activity and inflation that...

    0
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    Gavekal Research

    Time To Sell Treasuries

    The benchmark 10-year treasury yield has traded sideways in a range from 2.5% to 3% since the taper tantrum of last summer. Now it is threatening to break out on the downside. If you expect a collapse in yields, you should load up on bonds and sell everything else. We don’t.

    4
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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

    What Ails The Dollar

    A curious brew of cheap money, a grinding cyclical recovery and “new economy” verisimilitude has helped drive Wall Street to new highs. And yet even as equity investors have scaled the wall of worry, the dollar has remained uninspired. The unit arguably started a structural upswing in 2008 but the recent performance has been lackluster with the DXY index at the bottom of its trading range.

    4
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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

    Five Corners (16 April 2014)

    In the latest bi-weekly review of global economics and investment, Charles Gave explains why it still pays to run a balanced portfolio, despite the market’s rotation. Will Denyer argues that outlook for US consumption remains favorable, even though consumer cyclicals have taken a beating. François-Xavier Chauchat examines the reasons behind the euro’s persistent strength. Andrew Batson looks at Beijing’s new focus on jobs and finds the...

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