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E.g., 20-09-2020
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    Gavekal Research

    Money, Value And The Markets

    Above all, economics is the study of why goods and services have value and why these values are constantly changing. This study is greatly complicated by the fact that there are two different sources of value. In Gavekal-speak, we call these “scarcity” value (think jewels) and “efficiency” value (think tools). So the key question becomes not only “why do things have value?” but also “why do the relative values of scarcity and efficiency change...

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    Gavekal Research

    A Bad Prognosis

    The US and Europe are moving towards Hubei-style societal lockdowns. Arthur sifts through the latest epidemiological research, and concludes that while the worst case public health scenarios will be avoided, the coming lockdowns will be severe and last long enough to have an economic impact possibly more damaging than in China.

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    Gavekal Research

    Fiscal Intubation

    “This is not a time for ideology or orthodoxy,” said UK chancellor Rishi Sunak on Tuesday. Policymakers across Europe and in the US agree. They have now thrown orthodoxy out of the window in an all-out attempt to support economies hammered by Covid-19 countermeasures. In the US, the administration announced fiscal support worth as much as US$1.2trn, or 6% of GDP, complete with the immediate mail-out of a US$1,000 check to each and every member...

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    Gavekal Research

    Solvency Crisis Or Liquidity Crisis?

    Collapsing equity markets, rising bond yields, widening spreads, falling gold—in recent days, there have been few places to hide. When markets act so sick, it usually pays to take a deep breath (in a socially distant manner) and ponder whether we are facing a solvency crisis, or a liquidity crisis.

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    Gavekal Research

    Video: Time For A Fiscal Union?

    The coronavirus pandemic, with its calls for a coordinated European Union-wide fiscal stimulus to counter the inevitable economic ill-effects, would appear to be the ideal opportunity to press forward with the next big step towards European integration by forging a eurozone fiscal union. But things are not so simple.

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    Gavekal Research

    A Modest Proposal To Avert Economic Catastrophe

    Contrary to initial expectations, the spread of the coronavirus around the world is not following the relatively benign trajectories experienced in China outside of Hubei, and in Korea, Singapore and the rest of Asia. Instead, across Europe—and likely in the US—the spread increasingly resembles the path it took in Hubei. This threatens both medical and economic disasters.

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    Gavekal Research

    What I Know

    In fraught times, Charles has decided to keep it simple and focus only on what he knows. In this piece, he considers changing relationships between oil prices, long-bond rates, US equities and the dollar and offers various approaches that could help investors survive the bear market.

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    Gavekal Research

    The Conditions Needed For A Bottom

    Financial markets are now in full-blown panic mode. For investors, the key question is: What will it take for markets to form a bottom, and when will this happen? No one can answer with any precision. However, it is possible to discern the broad conditions needed to allow the markets to find a bottom. We are nowhere near them yet.

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    Gavekal Research

    Europe In The Eye Of The Storm

    After the US slapped a 30-day travel ban on visitors from Continental Europe the world’s three biggest economic areas are now effectively cut off from most human contact. As China sees its infection rate level off, the growth dynamic of this pandemic has shifted to Europe. Economic effects will depend on government responses.

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    Gavekal Research

    Six Degrees Of Uncertainty

    World markets are in full-on panic mode, thanks to a cloud of unknowing that has settled over two topics of broad importance: the spread and economic impact of the coronavirus, and the outcome of the oil-price war between Saudi Arabia and Russia. The topics are related, and so we are grappling with the problem of pricing epidemic-related uncertainty.

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    Gavekal Research

    What Goes Around Comes Around

    Amid the Covid-19 outbreak and the Saudi-Russia oil price war, markets are essentially priced for a scenario in which the US government does little in response, leaving the policy reaction to the Federal Reserve. While this may be the most plausible scenario, other possible US government actions, at home and abroad, have different implications for markets.

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    Gavekal Research

    A Hand Grenade In A Bloodbath

    If you ever wondered what would happen if someone lobbed a hand grenade into a bloodbath, now you know. Markets were always going to be shaky on Monday, as it became increasingly clear that the US is set to see a sharp rise in recorded coronavirus cases. Then, on Friday Russia walked out of the Opec+ oil producers’ cartel, initiating an all-out price war in the oil market.

    1
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    Gavekal Research

    The Bond Blow-Off Top

    The freakout in markets spurred by the coronavirus outbreak has seen US treasuries deliver one of their strongest two-week performances in the post-Cold War era. Louis argues that these moves leave investors with a stark choice to make: either we are seeing a “blow-off top”, or alternatively the world is facing an impending economic ice age.

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    Gavekal Research

    Audio & Transcript — Gavekal Research Call March 2020

    In Thursday’s conference call, Louis-Vincent Gave, Andrew Batson and Cedric Gemehl discussed the policy and market reactions to the Covid-19 outbreak.

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    Gavekal Research

    The Unfolding Rotation

    Last Friday, the markets rallied hard into the close as investors anticipated a coordinated policy move over the weekend. With policy responses in the rear view mirror, this weekend will likely prove different. Markets will continue to be choppy in the immediate future. Even so, amid all the volatility, some interesting developments are emerging.

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    Gavekal Research

    Video: What Can The ECB Do?

    This week the US federal Reserve cut interest rates to counter the effects of the coronavirus outbreak, and the European Central Bank promised to follow suit with “appropriate” measures of its own. But eurozone policy rates are already negative, which severely limits the scope for further cuts.

    0
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    Gavekal Research

    Exponential Optimization

    The bull market of the last few years has been built on the twin assumptions that globalization will continue, and that interest rates will remain low for years to come. These convictions have propelled an exponential wave of optimization. As the coronavirus calls key assumptions into question, the worry is that the giant bubble which sits at the heart of the system may be about to burst.

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    Gavekal Research

    When To Catch A Falling Knife

    Now that the Federal Reserve has hit the panic button, is it time to try to catch the falling knife on Wall Street? Technical analysis and investor sentiment suggest that equity prices may still have somewhat further to fall before they find a sustainable floor, even if the viral threat is probably overstated and stimulus by major governments will eventually outweigh the temporary economic collapse.

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    Gavekal Research

    Strategy Monthly: Global Virus, Local Reactions

    In the last week of February, global investors woke up to the massive effect of China’s coronavirus lockdown and the risks of a global pandemic. The resulting disruption to global supply chains will be widespread and long lasting. But not all is bleak. The Fed has promised to support the US economy, and many emerging markets have room both for expansionary fiscal policies and interest rate cuts.

    0
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    Gavekal Research

    The Last Shall Be First

    Just a week ago, the S&P 500, Nikkei 225 and Eurostoxx 50 were all looking healthy. But over the past week, every major market has fallen by anywhere from -6% to -12%. This is highly unusual. The S&P 500 has only fallen by -10% or more four times in its post-1945 history. Each of these drops ended up having hugely important investment ramifications.

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