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Gavekal Research
Will Denyer
Oct 18th 2016
What Next For Libor Rates?
The Federal Reserve has not hiked rates this year, but that has not stopped funding cost for US companies and foreign banks from rising. While risk-free rates have barely budged, 3-month LIBOR is up 30bp YTD from 0.6% to 0.9%. This widening of short-term credit spread stems from (i) stress in Europe’s banking sector, and (ii) fund flows ahead of a regulatory overhaul of US “prime” money market funds, which took effect on Friday (see Ripples In...
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Gavekal Research
Tan Kai Xian, Will Denyer
Oct 12th 2016
The Rising Odds Of A US Recession
We are on recession watch after yesterday’s release of September’s NFIB small business optimism survey. It was not the headline number which got us worried—that ticked down from 94.4 to 94.1. Rather, it was the significant drop in the job openings component—from 30 to 24, or from a cyclical high to the lowest level in 15 months. This suggests that demand for US labor may be rolling over, which is concerning indeed.
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Gavekal Research
Will Denyer, Tan Kai Xian
Oct 06th 2016
Emerging From The Soft Patch
Three weeks ago we asked whether the uniform weakness in US data—across manufacturing, services and home construction—signaled the start of a recession or merely a summer soft patch. At the time we concluded that what we were seeing was yet another soft patch. Thankfully, the latest round of data releases appears to confirm that conclusion, with the US economy now emerging from its summer doldrums.
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Gavekal Research
Will Denyer, Tan Kai Xian
Sep 28th 2016
Wicksell's Guide To A Better Portfolio
With the recent US economic data worryingly soft, and with no convincing drivers of earnings growth to be seen, how should investors position their portfolios? Will and KX set out their methodology for structuring a dynamic Wicksellian portfolio to generate superior returns at reduced levels of volatility, and determine the optimum allocation mix for the current troubled environment.
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Gavekal Research
Will Denyer, Tan Kai Xian
Sep 16th 2016
Will & KX: Soft Growth And Volatile Markets
Will and KX present the quick view on the US economy and financial markets
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Gavekal Research
Will Denyer, Tan Kai Xian
Sep 16th 2016
Knowing Whether To Buy The Dip
With all the current focus on the Federal Reserve and markets, it’s easy to overlook the increasingly ugly state of the underlying US economy. Throughout the long post-2009 recovery, when any one driver of US growth showed signs of stalling, the others continued ticking over nicely, which meant overall growth averaged out around 2%. Recent data releases signal that has now changed. Although none of our key indicators has shown a dramatic...
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Gavekal Research
Will Denyer
May 31st 2016
Wicksell’s Portfolio
Will has spent much of the last year developing a return-on-capital theory of US economic cycles with a particular focus on recession turning points. The logical extension of this work is to apply it to the task of portfolio construction and more particularly to the current US market situation.
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Gavekal Research
Will Denyer, Tan Kai Xian
May 11th 2016
Risk On? Maybe Not
Equity and oil prices have rallied in true risk-on fashion since the February 11 market trough, and are now back near their highs of late last year. Given this apparent rebound in risk appetite, one might have expected US government bonds to sell off in equally dramatic fashion, with yields climbing back to the 2.2-2.3% levels seen at the end of last year. Instead, there has been no rebound at all. Today, 10-year treasuries yield 1.75%, much the...
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Gavekal Research
Tan Kai Xian, Will Denyer
May 04th 2016
US Homebuilders Hit A Speed Bump
Homebuilding has been a reliable contributor to US growth over recent years. Now tighter lending standards for new construction projects and commercial real estate loans are threatening a slowdown. But, as KX and Will argue, as long as mortgage rates remain low and demand robust, the sector should only hit a speed bump, not a wall.
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Gavekal Research
Will Denyer
Apr 19th 2016
Rebalance Away From US Equities
Yesterday the S&P 500 closed at a year-to-date high of 2,094, up 14.5% from its February 11 low. Now comes the real test of investor confidence. At its current level the index is just 1.7% below its all-time high, set on May 21 last year. Since then the market has tried and failed on four occasions to surpass that level, in June and July, and then following the summer’s sell-off, in November and December. With the market apparently poised...
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Gavekal Research
Will Denyer, Tan Kai Xian
Apr 15th 2016
Is US Manufacturing A Leading Indicator?
There is a commonly held belief that US manufacturing leads the rest of the economy, so it is surely a worry that factory output has been flat since late 2014. And yet the broad economy kept growing—with GDP up 2% YoY in 4Q15, consumption up 2.7% YoY, and home construction by almost 10%. One explanation for this apparent decoupling is the US’s shift to a more service-intensive “knowledge economy” which has rendered metal bashing and more...
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Gavekal Research
Will Denyer, Tan Kai Xian
Apr 06th 2016
Why US Imports Are Disappointing
Given the strength of the dollar, it is not surprising that 2015 generally saw US exports contracting, US imports growing, and the trade balance widening. What is more perplexing is that import growth has started to look shaky in the first part of this year. What gives?
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Gavekal Research
Louis Gave, Will Denyer, Nick Andrews, Cedric Gemehl, Andrew Batson
Apr 01st 2016
The Gavekal Monthly: The Dollar Weakens; Time To Buy Jewels?
The big change over the last month is that the US dollar is now falling on a year-on-year basis. This weakness reflects a more abundant international supply of dollars as the US trade balance, ex-China and ex-oil, has swung back into the red after six years in surplus. In this edition of The Gavekal Monthly, Louis outlines why, in such a plentiful-dollar environment, investors should consider prioritizing “jewels” over “tools”.
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Gavekal Research
Will Denyer
Mar 29th 2016
Returns On Capital Are Deteriorating
The rate of return on capital invested in the US has taken another step down. While not terribly surprising, this does bring the world’s largest economy one step closer to the next recession and a full-scale bear market. Nevertheless, the day of reckoning remains some way off; the current cycle is not about to reach the end of its road just yet.
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Gavekal Research
Will Denyer, Tan Kai Xian
Mar 24th 2016
US Housing: From Great To Good
The US housing recovery properly kickedoff in 2011 as a confluence of benign factors converged to favor the sector. Yet while housing continues to provide a much-needed positive contribution to US economic growth, recent data points to reduced momentum. After a weak January, homes sales for February, released yesterday, ticked a little higher. Yet over the last year, sales have been choppy and generally flat. The NAHB index also shows...
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Gavekal Research
Will Denyer, Tan Kai Xian
Mar 03rd 2016
Back To Climbing The Wall Of Worry
Just three weeks ago markets were in full-blown panic mode. The S&P 500 was down -10% YTD, 10-year treasury yields were down to just 1.6%, and credit spreads were close to their cyclical highs. Dark clouds seemed to be rolling in on every front—from China, Brazil, Europe, banks, and the energy sector, all compounded by fears the Federal Reserve had made a grievous policy error. Since then, the skies haven’t exactly cleared, yet the S&P...
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Gavekal Research
Will Denyer
Feb 24th 2016
No More Curve To Roll Down
Since the Bank of Japan introduced a negative deposit rate on January 30, Japanese bank shares have collapsed, falling -21% in yen terms and -15% in US dollars. The first question to ask is this: why were Japanese bank shares derated so dramatically after the policy change? Here are a few explanations, which are not mutually exclusive:
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Gavekal Research
Will Denyer
Feb 22nd 2016
Deflation Deferred
In the context of weak earnings, weak growth and weak inflation numbers, Beijing delivers another blow to confidence by devaluing its currency. Markets swiftly drive down the prices of equities, commodities and high-risk bonds. Anyone still expecting the US Federal Reserve to follow through with rate hikes must be completely out-of-touch with reality...
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Gavekal Research
Charles Gave, Anatole Kaletsky, Louis Gave, Tan Kai Xian, Will Denyer, Nick Andrews
Feb 01st 2016
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.
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Gavekal Research
Will Denyer
Jan 19th 2016
Keep Calm And Rebalance Into Equities
The investment environment has not fundamentally changed since December. Then as now, the situation neither justifies being “all in” nor “all out”. Since the economic situation is worsening, a balanced portfolio of some type makes sense—unless there's evidence of a looming US recession. In my view, that time has not yet come.