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E.g., 27-10-2021
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    Gavekal Research

    This Time Really Is Different

    Let’s go back to a time before 2015. Imagine a country running a big trade surplus with the US. Typically, the exporters who create this surplus bear domestic costs and so need to change their US dollar revenues into the local currency. From here, one of two things can happen:

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    Gavekal Research

    When Correlations Reverse

    For decades, portfolio managers have held US treasuries as a hedge for their equity exposure on the grounds that over periods of 12 months or so, treasuries tend to be inversely correlated with the US stock market. For the most part this strategy has worked. But few investors seem to appreciate that the relative performance of US treasuries and stocks depends heavily on the type of inflation the US economy experiences. If inflation is demand-led...

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    Gavekal Research

    Back On The Road Again

    In the last couple of weeks Louis has been on the road, meeting clients face-to-face for the first time in 18 months. In this report, he distills some of the spirit of those conversations, addressing hot button topics from the sharp run-up in energy and commodity prices, through China’s economic slowdown, to the increase in tensions across the Taiwan Strait.

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    Gavekal Research

    Webinar: What To Expect As The Fed Tapers

    The Federal Reserve is planning to wind down its creation of artificial savings just as the US net national savings rate has ticked lower and the Treasury is preparing to rebuild its depleted cash balances. Will and KX set out what these all these shifts—as well as rising inflation, tightening labor markets and deteriorating housing affordability—mean for US stock and bond markets.

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    Gavekal Research

    Ghost Trains And The Chinese Debt Mountain

    Fears about a debt crisis erupting in the world’s most financially vulnerable nations have receded, but there is still uncertainty over how developing economies will manage their debt repayments. The biggest lender to low- and middle-income countries is China, and a new study estimates that debt owed to China has been severely underreported.

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    Gavekal Research

    Drawing Conclusions From A Sample Size Of One

    We are all the fruits of our own experiences, which create biases to project our experiences into the future. Such personal experience can even be transformed into iron rules. Today, the narrative is that Federal Reserve tapering results in lower bond yields. Louis challenges this view, pointing out that as the Fed has started talk of tapering, yields have been rising.

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    Gavekal Research

    The US Production Problem

    US manufacturing production data for September released on Monday was a double disappointment. The -0.7% month-on-month decline, down from growth of 0.2% in August, not only fell short of consensus expectations for 0.1% growth. It also dampened hopes that manufacturing is set to emerge as a significant driver of US economic growth. This raises questions over the future strength of the US expansion.

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    Gavekal Research

    The Source Of Discoordination And Inflation

    Today, the global economy lacks its usual order. Each month brings a new shortage that is disrupting supply chains and driving up prices. In short, the right goods are not being delivered at the right time and place. Will examines the drivers of spacial and temporal "discoordination" to determine how investors should allocate assets in this challenging environment.

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    Gavekal Research

    The Troubling Signal In US Savings

    In recent months, the US net national savings rate—the share of income unconsumed—has ticked lower. It may seem a small concern as the Federal Reserve prepares to taper, but if the rate of genuine savings continues to fall over coming quarters, it will be a danger signal both for asset markets and for US economic growth.

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    Gavekal Research

    Webinar: China’s Policy Trajectory

    China’s leaders capitalized on the country’s post-Covid boom by pursuing reforms that further Xi Jinping’s political goals. This has resulted in hits to both economic growth and financial markets. Andrew unpicks these developments and explains why he thinks no overt U-turn in the broad policy approach is likely, but addressed possible regulatory softening moves.

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    Gavekal Research

    Building The Bubble-O-Meter

    Charles is somewhat tired of reading general descriptions of US equities being in a bubble, with little serious empirical backing to support the assertion. In this piece, he sets out to build an objective tool to answer the bubble, or not, question. Spoiler alert: he thinks investors would do well to re-assess their hedges.

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    Gavekal Research

    Persistent Inflation Takes Over

    Some may hope that supply bottlenecks quickly ease and the price-hike scare of 2021 soon fades, but that is not the story of the latest US inflation reading. In short, US inflation is now persistent and the Federal Reserve will soon have to address this reality head-on.

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    Gavekal Research

    Four Quadrants For Emerging Markets

    Last week, Charles Gave updated his Four Quadrants view. Udith takes it a step further, combining the quadrants with another two-by-two framework by Michael Power of Ninety One to gleam insight into what the changing macroeconomic environment means for emerging markets, and who will be the winners and losers.

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    Gavekal Research

    Video: Musical Chairs At The Fed

    After the resignation of two regional Federal Reserve branch presidents over potential conflicts of interest, the knives are out in Washington for Jay Powell. In this video interview, Will assesses what personnel changes at the Fed may mean for the trajectory of US monetary policy and for the Fed’s role as US banking supervisor.

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    Gavekal Research

    Energy And The Euro’s Exchange Rate

    It will come as news to no one that energy prices and exchange rates are intimately connected. Historically, over the last 20 years, the euro has tended to be positively correlated with the price of oil, while the broad US dollar exchange rate has tended to be inversely correlated. So, over the first half of 2008 as the price of oil surged to a record high, the euro hit its all-time high against the US dollar. And in 2014 as the oil price...

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    Gavekal Research

    Labor And The Age Of Shortages

    The leader of the British Labour Party, Keir Starmer, missed a political trick at his party conference in late September when he failed to quote Labour’s late deputy leader, Aneurin Bevan, who told the party’s 1945 conference, “This island is made mainly of coal and surrounded by fish. Only an organizing genius could produce a shortage of coal and fish at the same time.”

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    Gavekal Research

    London Seminar — September 2021

    In our recent London seminar, Thomas Gatley addressed China's changed business environment and Tom Miller unpicked US-China geopolitical tensions. Charles Gave and Anatole resumed their dialogue about the future of the world economy in their first in-person sparring session since the pandemic started.

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    Gavekal Research

    A Temporary Respite

    Going into 4Q21, a worry for Will had been that asset prices faced the prospect of two tightening moves to US liquidity. Yet, with Congress now punting a debt-ceiling reckoning to December, this could, in turn, delay the Fed’s taper announcement to December, or even January. Thus, yesterday’s deal on Capitol Hill could allow temporary relief on the liquidity front.

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    Gavekal Research

    Webinar: Global Investment Roundtable, October 2021

    In Thursday's Global Investment Roundtable, Louis argued that shortages of everything from microchips to natural gas are structural in nature and augur a radical change in the investing environment. Anatole, in contrast, said that current supply disruptions are likely transitory and the inflation panic should pass relatively soon.

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    Gavekal Research

    What, Me Worry?

    There is a growing drumbeat of commentary arguing that today’s shortages of everything from microchips to natural gas must end in an inflationary blowout and a return to the lascivious 1970s. Anatole thinks that today’s shortages are likely to correct relatively quickly, and for investors the coming period is more likely to resemble the 1950s.

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