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Gavekal Research
Cedric Gemehl, Nick Andrews
Nov 11th 2019
Europe's Political Paralysis
With the Spanish general election unlikely to produce a proper government, the country looks increasingly ungovernable. For an economy that weathered the financial crisis intact but has chronic productivity problems, this is a worry. However, the result of Europe’s fragmenting political landscape is long-term policy stasis rather than a near-term collapse of the single currency.
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Gavekal Research
Nick Andrews
Nov 08th 2019
It's Not 2017 Again In Europe
Yesterday saw a global risk-on move as investors cheered reports that a US-China trade deal may be in the offing. In Europe, this followed data releases that showed German factory orders picking up and PMIs stabilizing. On first blush, this looks reminiscent of 2017’s recovery. Alas, there are three key reasons to think a rerun may not materialize this time around.
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Gavekal Research
Nick Andrews
Nov 08th 2019
Video: In Search Of Policy Traction
New European Central Bank boss Christine Lagarde has called on European governments to do more on the fiscal front to support eurozone growth. Only Germany has wiggle room within the EU fiscal straitjacket to launch a significant stimulus program. However, political resistance in Berlin to opening the spending taps remains formidable, and may be insurmountable.
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Gavekal Research
Louis Gave
Nov 05th 2019
The Knowledge Revolution And Its Consequences
From Hong Kong to Santiago to Paris, this year has seen protestors rage against out-of-touch political elites. But does anything more than anger connect these apparently disparate movements? Louis argues that the upheavals posed by the ongoing “knowledge revolution” may explain the phenomenon, and offers investment advice on how to survive revolutionary times.
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Gavekal Research
Anatole Kaletsky
Nov 04th 2019
Behind The Risk-On
In recent months, economic data has improved or stabilized, and political risks have receded. But now that equity prices on Wall Street have hit new records and US treasury yields have rebounded from the bottom of their post-2011 trading range, it is worth asking if the move to risk-on conditions is a temporary mood swing, or one supported by economic fundamentals.
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Gavekal Research
Will Denyer, Tan Kai Xian
Nov 01st 2019
Strategy Monthly: Towards A Dollar Decline
The last five years have been an era of US dollar strength. That era may now be coming to an end. After the US Federal Reserve halted its balance sheet contraction and last month resumed buying T-bills at a rate of US$60bn a month, the Fed is now printing money faster than the other central banks. As a result, relative liquidity growth now favors US dollar weakness.
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Gavekal Research
Charles Gave
Nov 01st 2019
Gold Signals A System Failure
To make the point that gold is the only monetary asset that is not someone else’s liability, John Pierpont Morgan used to say that “gold is money, the rest is credit”. For simplicity’s sake, let’s assume that this quip corresponds to reality—the implication is that the relationship between the gold price and the credit system must be full of information.
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Gavekal Research
Nick Andrews
Oct 30th 2019
A Swedish Canary In The Coal Mine
Sweden’s Riksbank plans to raise its main policy rate to zero from -0.25%. A relieved governor, Stefan Ingves, said last week it would be a “bonus” to return to parity in December and warned against staying negative for too long. The Swedish recantation follows the European Central Bank’s controversial move last month to further cut rates to -0.5%. Investors should take note because the Swedish canary may be signaling a shift in attitudes to...
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Gavekal Research
Louis Gave
Oct 29th 2019
Where Will Growth Come From Now?
In the spring of 2003 Gavekal posited that China would become the new locomotive of world growth. But now, the days when China could be counted upon to gear up its balance sheet and pull global growth up by its bootstraps are coming to an end. And as global activity slows investors are asking “where will the growth come from"?
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Gavekal Research
Cedric Gemehl
Oct 24th 2019
Draghi's Potent Legacy
Mario Draghi threw the cat among the pigeons at last month’s fiery policy meeting of the European Central Bank by cutting interest rates and cranking up asset purchases. Today’s general council meeting and sign-off by the outgoing president should be quieter, but the circumstances of the baton-handing show how much the ECB’s reaction function changed under Draghi. That legacy poses a big challenge for his successor, Christine Lagarde, but he...
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Gavekal Research
Louis Gave
Oct 18th 2019
Video: The End Of The Trend?
For the past few years, US treasuries, the US dollar and the oil price have all broadly traded in a range. In fact, the only bankable trend for investors has been the outperformance of US equities, without which global stock indexes would still be trading at 2006 levels. However, there are signs that the investment environment is changing.
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Gavekal Research
Anatole Kaletsky, Cedric Gemehl
Oct 18th 2019
Europe's Brexit Booster
Boris Johnson has secured a revised Brexit deal and the stage is set for a key Saturday vote in the House of Commons. On balance, there is a 70% chance of the vote passing as Labour leader Jeremy Corbyn seems unable to control his Brexit-supporting rebels, while Johnson looks to have persuaded his Brexiteer wing that it could be now or never.
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Gavekal Research
Charles Gave
Oct 17th 2019
The Paris Project In A Keynesian Time
Some time ago, I had gathered a team in Paris to develop a new venture that would apply macro research analysis to portfolio construction in a systematic way. Things are progressing well and I wanted to update readers on the initiative. The common thread is a rejection of forecasting and a reliance on market prices and economic data.
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Gavekal Research
Louis Gave
Oct 16th 2019
The Age Of Range Trading
It is a Gavekal adage that 10-year treasury yields, crude oil prices and the US dollar exchange rate are “master prices” that have an outsized impact on economic activity and financial markets. Yet as Louis notes, in recent years, these three prices have shown little by way of a structural trend. In this piece, he seeks to understand the meaning from this range-trading phenomenon.
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Gavekal Research
Anatole Kaletsky
Oct 14th 2019
Sizing Up The Brexit Risks
The pound surged after Boris Johnson and Irish Prime Minister Leo Varadkar achieved a negotiating breakthrough on Thursday over arrangements for the Irish border. The question is: What next? Anatole argues that while these moves still point to a multi-pronged set of outcomes, at least there is now a measurable set of permutations.
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Gavekal Research
Vincent Tsui, Udith Sikand, Tom Miller, Arthur Kroeber
Oct 11th 2019
Audio & Transcript — Gavekal Research Call October 2019
Vincent outlined EM Asia's "great moderation", as inflation is diverging from other emerging markets, creating opportunities in bonds. Udith argued that Indian growth may be bottoming out but a bad banking picture means that equities may have more downside. Tom addressed the remaking of Asian supply chains in light of the US-China trade war.
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Gavekal Research
Charles Gave
Oct 11th 2019
Please, Your Majesty, Do Nothing
Western democracies in the early 1990s stood unchallenged in the battle of big ideas. Alas, everything that has gone wrong in western economies over the last decade or so stems from the lessons that the technocracy took from this victory. Charles considers the mistakes and examines the investment consequences that must now follow.
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Gavekal Research
Tom Holland
Oct 10th 2019
At Home In The Range
Almost a month after missile attacks on key Saudi Arabian oil production and processing facilities pushed benchmark global oil prices up by 20% overnight, the market has moved on. Saudi Arabia has defied industry expectations by continuing to supply oil to the market in abundant quantities. The current market pricing reflects that.
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Gavekal Research
Nick Andrews
Oct 04th 2019
The German Spillover
Perhaps the most remarkable thing about this year’s slump in manufacturing is how few negative spillover effects it has had on demand in the broader economy—until now. Services PMIs for both the eurozone as a whole and for Germany took a sharp turn south in September. In Germany, the deterioration is making a technical recession all but inevitable.
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Gavekal Research
Louis Gave
Oct 02nd 2019
The Greater Good Versus Individual Liberty
Yesterday Hong Kong's streets were again the stage for violent clashes between protesters and police. At the heart of the conflict is a showdown between the shared identity in Hong Kong shaped by the common law system inherited by the British and the common narrative in China emphasizing the "greater good" over individual liberties.
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