Gavekal Research

Louis Gave

Mar 18th 2019

The "yellow jackets” still protesting in France have so far received only tepid support from the country's usually vocal trade unions. Similarly, left-wing parties have also been very slow to take to the street. This begs the question of what the oracle of the French intelligentsia, Karl Marx, would have made of this protest movement.

Gavekal Research

Anatole Kaletsky

Mar 13th 2019

Political commentators and European leaders are bewailing Britain’s descent into ungovernability after the UK parliament again rejected the new and supposedly improved Brexit deal. But markets reacted calmly. In fact, for investors, the seemingly chaotic Brexit saga is unfolding roughly along the bullish lines suggested here since early January.

Gavekal Research

Nick Andrews

Mar 08th 2019

The first law of holes states: when you are in one, stop digging. It’s sound advice, which central bankers would do well to heed. Unfortunately for Mario Draghi and his colleagues at the European Central Bank, things are not so simple. It is one of the quirks of negative interest rates that the longer rates remain in negative territory, the less accommodative policy becomes.

Gavekal Research

Charles Gave

Mar 07th 2019

“In theory, there is no difference between theory and practice. In practice, there is,” Yogi Berra said. Take cutting interest rates as an example. According to Keynesian theory, reducing interest rates is a way to borrow from future demand in order to prevent a recession today.The theory is sound, but then comes the practice. And in Europe today, we are in practice up to our necks.

Gavekal Research

Louis Gave

Feb 20th 2019

Reserves held by foreign central banks at the Fed are shrinking, which implies there aren’t enough US dollars in the system. This would make sense: the Fed has been draining excess US dollars for the past couple of years. So with shrinking central bank reserves and a shrinking US monetary base, the US dollar should be going up, and most risk assets should be hurting. Oddly, this isn’t happening.

Gavekal Research

Cedric Gemehl, Nick Andrews

Feb 14th 2019

European politics is again heating up. Yesterday saw the Spanish government fail to pass its budget in a move likely to spur fresh elections. Populists in Italy and yellow vests in France are keeping up their campaign of disruption. Given that few of these issues directly threaten the structures of the EU, the question for investors is: Does any of this matter?

Gavekal Research

Cedric Gemehl

Feb 11th 2019

A spate of weak data releases last week confirmed Europe as the ugly duckling of key economic regions, and things may soon get worse. The worry is that a weakening external sector negatively impacts the domestic recovery through lower investment and job creation at a time when policymakers face both technical and political constraints.

Gavekal Research

Anatole Kaletsky

Feb 07th 2019

Given that the UK prime minister has apparently outfoxed her opponents, why has the pound fallen back below US$1.30? The obvious reason is that Theresa May’s unexpected wins in the UK parliament last week look to have increased the chances of a disorderly “no deal” rupture. In reality, however, the chances of “no deal” are no higher today than they were a week ago as the EU and UK opposition are yielding to May’s pressure.

Gavekal Research

Charles Gave

Feb 01st 2019

I am a rules-based investor, and over the years few financial relationships have been more useful to me in reading the economic cycle than the yield spread between long-dated US corporate bonds and 30-year US treasuries. Going back to the late 1970s, no US bear market has unfolded with key spread being below 200bp. It is now 210bp.