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E.g., 23-03-2019
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    Gavekal Research

    A New Era For European Banks

    European banking stocks have been battered for much of the last four years by negative interest rates and a Brussels plan to impose market discipline through shareholder bail-ins rather than public bail-outs. This approach is now in question as Germany embraces a new industrial strategy that will rely on strong state-backed banks taking political direction.

    2
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    Gavekal Dragonomics

    The End Of China's ODI Party

    Beijing’s decision to use foreign acquisitions as a tool of state industrial policy has badly backfired. With advanced economies stiffening their resistance to Chinese investment, China’s decade-long outward direct investment spree looks spent. In this piece, Tom explains how the boom ended and where funds will flow in the future.

    0
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    Gavekal Research

    A Marxist Take On The Gilets Jaunes

    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.

    10
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    Gavekal Research

    The Trouble With Champions

    When last Sunday, Angela Merkel’s heir-apparent published an opinion piece on the EU’s future, she left the door open to an EU industrial strategy and competition policy focused on creating European champions intended to compete in global markets. Such a policy may be attractive to politicians, but it is less appealing to investors.

    0
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    Gavekal Research

    The Brexit Impasse

    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.

    12
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    Gavekal Research

    The Locus Of Capital Destruction

    Germany is going through one of its periodic bouts of angst as its industrial economy faces up to cyclical headwinds, unwanted structural change and the threat of protectionism. I too have concerns about the fate of corporate Germany, but would approach the problem from the perspective of an equity investor.

    0
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    Gavekal Research

    When You're In A Hole, Stop Digging

    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.

    0
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    Gavekal Research

    Not Modern, Not About Money, And Not Really Much Of A Theory

    Charles has had enough of all the talk going round about Modern Monetary Theory. In this forceful polemic he lets fly with both barrels at the proponents of MMT, arguing that they have no knowledge of financial history, little understanding of the nature of money, and are clueless about what constitutes a theory.

    7
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    Gavekal Research

    Keynes Is Dead; This Is The Long Run

    “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.

    4
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    Gavekal Research

    A Potential Lifeline For Europe's Banks

    As the members of the European Central Bank’s governing council prepare to meet in Frankfurt this Thursday, they face the unsettling possibility that their policy settings may risk compounding, rather than alleviating, the eurozone’s economic weaknesses.Unfortunately for members of the council who may be inclined to dither, doing nothing is not a viable option.

    1
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    Gavekal Research

    Three Odd Things

    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.

    4
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    Gavekal Research

    The Biggest Investment Story Of 2019

    Now that stock markets around the world have recovered from the year-end panic of December 2018, it is worth returning to the question I posed here on the first trading day of 2019: was the disappointing performance of equities and other risk assets in 2018 the prelude to a deep and protracted bear market, or a contrarian opportunity to “buy the dip”?

    2
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    Gavekal Research

    What Europe’s Political Ructions Mean

    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?

    0
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    Gavekal Research

    The UK's Limits To Growth

    For the British economy, it has been a case of “mustn’t grumble” since the 2016 Brexit referendum. However, the effect of a weak fourth quarter GDP report was to debunk any illusion that Brexit uncertainty has been weathered. Such a reckoning was inevitable with or without Brexit, as the UK has in effect hit limits to its growth.

    0
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    Gavekal Research

    Not Such An Ugly Duckling

    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.

    1
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    Gavekal Research

    The Global Car Industry Catches Chinese Flu

    If the auto industry is a bellwether of global economic health, then much of the world is looking sick. The second half of 2018 was painful for carmakers in all the major auto markets, and 2019 is shaping up to be as bad. Is this just a passing malady that carmakers will soon shrug off, or a chronic condition they will have to manage for years to come?

    3
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    Gavekal Research

    Gaming Out Theresa May’s Gamble

    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.

    8
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    Gavekal Research

    Audio & Transcript — Gavekal Research Call February 2019

    In the call yesterday, Charles Gave and Cedric Gemehl presented their views on the economic and political situation in Europe. Cedric outlined key risks facing Europe’s economy. If the worst is avoided, he thinks Europe could get a soft landing. Charles took a different view, arguing that the eurozone was now an irretrievably diverging system.

    0
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    Gavekal Research

    A Vital Portfolio Construction Lesson

    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.

    2
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    Gavekal Research

    Strategy Monthly: Europe's Containable Risks

    As China slows and the US expansion limps into its dotage, a heavily export-dependent Europe looks vulnerable to another downturn. The latest growth numbers from Italy and Germany make for especially grim reading. Potential shocks loom in the shape of a hard Brexit, populist discontent in France and Italy and the threat of auto tariffs from the US.

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