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    Gavekal Research

    Riding Europe’s Second Wave

    The latest Covid figures from Europe make sobering reading, with countries including France, Spain and others seeing pronounced second waves of new cases. Equity markets, however, have reserved judgment. Yes, the rebound that started in mid-March has been stalled for the last two months as infections have mounted. However, European markets have not sold off significantly, despite this month’s US volatility. And an examination of the opposing...

    2
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    Gavekal Research

    The Challenge Of Valuing Gold

    Gold ranks as the ultimate “scarcity asset”, as its value is dictated not by its utility but because it is rare. Valuing such assets is tough as there is no “underlying value” to reference and prices are driven by the immediate supply and demand situation. Yet, in periods when both government budget deficits and monetary aggregates have rapidly grown, gold has historically outperformed—and it is doing so now.

    0
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    Gavekal Research

    When Export Strength Is A Sign Of Weakness

    China’s manufacturers are back to normal, and then some. Exports and manufacturing output are running faster than their pre-pandemic trend in 2019, even as global trade is contracting. In this piece, Andrew and Thomas explain what’s driving those strong numbers, and why they are actually a sign of continued weakness in the global economy.

    2
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    Gavekal Research

    Death, Taxes And Covid-19: Things That Cannot Be Avoided

    Six months after the first western countries went into lockdown, data suggest that unless imposed very early on, lockdowns did little to avert excess deaths. With weekly death rates in many western countries now running close to decade lows, Louis argues that this leaves politicians in an awkward spot, with one of three possible policy paths.

    33
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    Gavekal Research

    A British Mad Man

    The world’s worst performing major currency, stock market and economy have all been located in Britain since Boris Johnson was reelected last December. This is not surprising. With hindsight, his decision to outlaw any possible extension of the Brexit transition period as soon as he was reelected fully justified the switch from bullish to bearish on sterling assets that I recommended immediately after this announcement.

    2
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    Gavekal Research

    The Trouble With Covid Testing

    Last week, professional rugby started up again in France. The authorities have decreed that if any team finds that three or more of its players test positive for Covid-19, its games must be played at a later date. This ruling is being rigidly enforced even though in reality a player who tests positive has less than a 50% probability of actually having the disease.

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    Gavekal Research

    Of Gold And Gold Miners

    In recent weeks, attention has focused on the surge, and subsequent correction, in US technology stocks. Yet an asset class that has greatly outperformed the Nasdaq 100 this year is gold-mining equities. In this piece, Charles seeks to develop firmer investment rules for managing gold and gold-mining stocks within a portfolio.

    3
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    Gavekal Research

    Webinar: From Bearish To (Conditionally) Bullish

    Anatole and Will presented their views on the efficacy of US fiscal and monetary policy in response to the Covid crisis, and outlined the prospects for the economy and asset markets.

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable (in French), Sept 2020

    In a turbulent economic environment, Louis sought to identify assets with “anti-fragile” qualities; Cedric deciphered the message from European markets; Didier Darcet refreshed refresh an old Gavekal framework with “Four Quadrants 2.0” and Charles moderated the discussion.

    0
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    Gavekal Research

    Better Days For Europe’s Domestic Plays

    It is hardly surprising that euro strength is generally bad for European exporter stocks and good for domestically-focused firms; or that exporter-heavy markets, like Germany, tend to lag at such moments. We saw this in 2017, when the euro rose almost 12% against the dollar between April and August, spurring a -2.4% fall in the DAX and a 0.7% gain in the broad Eurostoxx. So how to explain this year’s topsy-turvy markets, where the sprightly DAX...

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    Gavekal Research

    Desperately Seeking Anti-Fragility (Part II): In The Eye Of The Beholder

    Last month, Louis outlined the four asset classes that investors appear to regard as anti-fragile, now that US treasuries no longer fit the bill. With each of these four asset classes enjoying a roaring bull-run, today Louis examines the typical life cycle that lifts an asset class from unloved hell to anti-fragile heaven, and asks what could plunge the present favorites back down into the depths again.

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    Gavekal Research

    Webinar: Global Investment Roundtable, September 2020

    Charles Gave, Louis Gave and Will Denyer joined Arthur Kroeber at the global investment roundtable to discuss what's going on in the global economy. Charles identified three big trends that will affect the investment environment in the long term, Will gave an in-dept update on the US economy, and Louis examined where to find assets with “anti-fragile” properties.

    0
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    Gavekal Research

    Why I Was Right To Turn Bullish

    Two weeks ago, I wrote an article that tried to explain why I had abandoned the bearish view on equities. We will not know for a long time whether any of my explanations make sense, but Jerome Powell’s speech about the Federal Reserve’s new operating philosophy last week made me more confident about my assertion of a once-in-a-generation economic regime change.

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    Gavekal Research

    Strategy Monthly: Eight Questions, 11 Answers

    With US equities once again at record highs and the Fed promising to keep rates nailed to the floor, it is time to ask hard questions of the bull market that won’t die. That interrogation is conducted by Charles and Louis Gave. In these strange times, the case for owning anti-fragile assets has rarely been stronger, they contend. Four stand out for having weathered the pandemic and should be treated seriously.

    0
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    Gavekal Research

    A Bottom In Sight For European Banks

    No sector has been so beaten down as eurozone banks. But although bad loan ratios are rising, and further big writedowns are on the cards, this bad news is in the price. What is less adequately priced in is the change in policy from the European Union which means there will be no early return to austerity. Eurozone banks may be better placed than investors believe to generate earnings.

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    Gavekal Research

    The Euro's Solid Ground

    After a breakneck 10% rally against the US dollar since mid-May, the euro faces headwinds as rising Covid-19 cases means that European nations must re-instigate social distancing measures. Still, Europe’s newly-agreed common purpose in facing such travails makes any sell-off in the single currency a buying opportunity as the unit looks set on a path of structural appreciation.

    1
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    Gavekal Research

    Making Biarritz Great Again (Part II)

    A few years back Charles and Louis bought into the storied Biarritz Olympique Rugby Club in order to save it from a looming bankruptcy. The ups and downs of this Basque region club during Covid is a microcosm of the French economy’s travails, as the state seeks to protect all players on the field of commerce from both crunching tackles and a spell in the sin bin.

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    Gavekal Research

    Europe’s Job-Protection Choices

    Between February and April, some 22mn Americans lost their jobs. The rate of unemployment soared to nearly 15%—four percentage points above its last record high in 1982—but across the pond in Europe joblessness barely budged, inching up to 7.8%, from 7.2% in March. Taking the lead from Germany, governments across Europe decided it was better to keep people in jobs than to fire and rehire them later. As Europe again faces a worsening Covid-19...

    0
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    Gavekal Research

    Building A New System

    On Monday, Charles argued that developed economies’ moves to nationalize both the creation of money and the distribution of credit would degrade the unit-of-account function played by fiat currencies in many markets. Today, he outlines new monetary mechanisms that are likely to replace, or at least live alongside, fiat currencies.

    3
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    Gavekal Research

    Europe's Covid-19 Loan Drag

    In response to the Covid-19 crisis, central banks in Europe have shoveled money to banks in a bid to have them deliver liquidity to stressed companies. A worry is that this new debt binge will weigh down corporate balance sheets for years to come, and limit growth. These concerns are probably overdone.

    0
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    Gavekal Research

    The Destruction Of The Monetary System

    A basic assumption for Charles has long been that the creation of money was not under the control of governments but loosely related to value being added in the private sector of the economy. However, with governments now willfully upending this relationship, he thinks the capitalist system faces its biggest upheaval since 1917.

    5
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    Gavekal Research

    How To Pay For Sin In The Future?

    Just as success has many fathers, there are many possible explanations for the upside breakout in gold prices. Obvious explanations include a rapid rise in monetary aggregates across the OECD, the fall in the US dollar and growing US-China tensions. An overlooked explanation is the demise of physical cash as a liquid and easily transportable asset.

    2
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    Gavekal Research

    Why It Won't Be Hamiltonian

    A number of Gavekal writers, in addition to a good share of investors in eurozone assets, saw last month's embrace of mutualized lending to hard-hit European economies as a game changer. Charles is far from convinced that this move has expunged the original sin of the euro, since the single currency area remains riddled with competitiveness problems.

    14
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    Gavekal Research

    Europe Stares Down A Second Wave

    Europe beat back the Covid-19 outbreak in March and April with decisive responses and reaped the benefit by reopening its economy in the early summer. Now, however, the price of fun in the sun has come due, with a rising case count that has led Britain’s prime minister, Boris Johnson, to label it Europe’s “second wave”. In response to rising infections in Spain, the UK has reimposed quarantine rules on returning travelers from the country, while...

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable, July 2020

    In our monthly Global Investment Roundtable, US analyst Tan Kai Xian analyzed the latest US data and assessed the risk that the present economic stall-out turns into a double-dip recession. Arthur Kroeber explained why the Trump Administration has amped up its Cold War rhetoric on China. Anatole Kaletsky tied it all together and tried to explain the recent movements in global markets.

    0
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    Gavekal Research

    Managing Money In A Keynesian Environment

    When Charles looks at US monetary policy, he gets nostalgic for glam rock and big hair, as he is reminded of 1973. However, rather than go on gut, in this piece he sets out to verify that the Federal Reserve is indeed acting as a “Keynesian” central bank. He does this by considering the relationship between US T-bills and the price of gold.

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    Gavekal Research

    The EU And The Bond Markets

    The European Union’s decision last week to issue an additional €750bn of debt in its own name has profound implications for the euro-denominated bond markets. Firstly, the decision will mark the emergence of the EU (or more specifically the European Commission) as a major—and relatively attractive—issuer, on a par with sizable European sovereigns. Secondly, EU supranational issuance will be a stabilizing force in the market, reducing the risk...

    0
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    Gavekal Research

    In Defense Of Marxists And Communism

    Charles has often appeared on television shows in France as the token right-wing guy asked to debate a socialist or communist on the proper role of the state. He misses those days, for both he and his adversary usually agreed that the objective was improving the welfare of the average Frenchman—even if they disagreed profoundly on how to achieve this.

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    Gavekal Research

    Do Bubbles Predict Or Project?

    With the second quarter data season now in full swing, the rebound in equity prices that followed the Covid-19 panic seems to have stalled. So, what happens now? In this piece, Anatole follows up on Louis’s recent efforts to define reasons for the surge in equity values and proposes a fresh explanation centered on the nature of bubbles.

    5
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    Gavekal Research

    Webinar: The Direction For Europe

    Anatole Kaletsky, Cedric Gemehl and Nick Andrews joined Louis Gave to talk about what lies in store for the European Union in light of Tuesdays agreement on a €750 billion Covid-19 recovery fund.

    0
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    Gavekal Research

    Europe's Deal

    Most of the attention paid to the European Union’s recovery fund deal, secured in the early hours of Tuesday morning, focused on how much of the agreed €750bn would be distributed as grants and how much as loans. That’s understandable. Haggling over this balance was one of the main reasons the talks dragged on into their fifth day. But as far as investors are concerned, the relative size of grants and loans is among the least significant aspects...

    1
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    Gavekal Research

    The Consequences Of ‘Worthless Cash’

    In the second quarter of this year, global equity markets registered their best quarterly performance in two decades. In this, the third paper of a series about the record-breaking rebound, I will consider the possibility that the present growth in monetary aggregates is leading investors to conclude that they have no alternative.

    5
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    Gavekal Research

    Unpicking The Tourism Effect

    Despite a worsening Covid-19 situation in many big developing economies and concerns over central banks’ monetization responses, emerging market investors continue to climb the wall of worry, betting that a putative “second wave” does not stymie the recoveries of developed economies and China. But another challenge for EM economies is a collapse in foreign tourism.

    0
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    Gavekal Research

    From Temporary To Permanent

    “Nothing,” Milton Friedman famously declared, “is so permanent as a temporary government program.” He was right, which is one reason Wednesday saw the euro climb to its highest against the US dollar since the first days of the international Covid outbreak in early March, while 10-year Italian government bond yields fell to their lowest. Investors are betting that the European Union’s €750bn “Next Generation EU,” proposed as a temporary facility...

    0
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    Gavekal Research

    A Simmering War Over Digital Taxes

    The US and Europe are in a standoff over how to tax digital companies. The US Trade Representative on Friday announced tariffs on French cosmetics and handbags, to take effect next year unless France drops plans to tax American tech giants. The worry is that such a dispute spirals, causing a further degradation of the global trade architecture.

    0
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    Gavekal Research

    Pick Your Side

    The British government’s decision to block Huawei from the UK’s 5G mobile network, confirmed yesterday, is further evidence that the post-Covid world is splitting into two opposing security blocs. International distrust of China is hardening along ideological lines, spurring liberal nations to prioritize national security over economic growth.

    0
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    Gavekal Research

    Buy Europe, Sell The UK

    In past crises the UK has emerged more quickly than the eurozone. In 2008-09, it restructured its banks, slashed interest rates and embraced quantitative easing before European policymakers had eaten breakfast. As a result, UK domestically-focused stocks outperformed those in the eurozone. Don’t count on a rerun in the aftermath of the Covid-19 crisis.

    0
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    Gavekal Research

    Have Equities Become A Bubble?

    Two weeks ago, Louis proposed three possible explanations for the exceptional performance of equity markets in the second quarter, one of which was that investors have taken leave of their senses. In this, the second paper of a three-part series, Louis asks if equity markets are in a bubble. And if so—crucially—what sort of bubble is it?

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    Gavekal Research

    Video: What To Make Of Britain’s £30bn Stimulus

    This week UK Chancellor of the Exchequer “Dishy” Rishi Sunak lived up to his media nickname, dishing out an additional £30bn in fiscal support and stimulus measures. In this short video interview, Nick assesses their likely impact.

    0
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    Gavekal Research

    Germany's Moment

    Could this be Germany’s moment? The prospect of a disgruntled Italy walking away from the European Union spurred a German move towards new burden-sharing arrangements, but the conditions have been brewing within Germany for a few years as it became clear that its old export-led development model was cooked. Such existential fears are driving a newly creative approach to Europe at a time when the EU’s biggest economy may be set to benefit from...

    0
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    Gavekal Research

    Webinar: A New European Dawn?

    Yesterday Nick and Cedric presented on the topic of their latest Strategy Monthly: A New European Dawn. In this they argue that Europe is finally embracing fundamental reform that should change the investment environment. Anatole offered his take on why the European Union is heading in a “Hamiltonian” direction.

    0
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    Gavekal Research

    An Upgrade For The Jeep Portfolio

    In the Covid-19 crisis, Charles’s “Jeep” portfolio, introduced at the end of 2017 and expounded on in mid-2019, has amply demonstrated its worth, outperforming a pure equity portfolio, but with much lower volatility. In this paper, Charles reviews the Jeep portfolio once again, upgrading its components to navigate a post-Covid world.

    0
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    Gavekal Research

    Strategy Monthly: A New European Dawn?

    European nations have managed to lay the ground for a putative fiscal union. In a change of tack, Germany has changed tack by embracing demand management policies. Its new approach should drive a more balanced and domestically-focused recovery that may lift the eurozone-wide return on invested capital. Nick and Cedric argue that this changed dynamic is likely to attract foreign capital and lift the euro against the US dollar.

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable, June 2020

    Yesterday Louis Gave, Will Denyer and Andrew Batson joined Arthur Kroeber at the Global Investment Roundtable. They discussed the economic growth and market situation in the US, the state of the Chinese recovery, and what a post-Covid-19 world might look like.

    0
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    Gavekal Research

    Towards More Of The Same?

    Investors looking at the impressive rally in global equities since mid-March have been forced to come to one of three conclusions: (i) the Covid-19-induced halt to our economies will soon fade away like a bad dream, (ii) equity investors are crazy, or (iii) a growing number of investors think the cash they hold is bound to become worthless.

    13
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    Gavekal Research

    Please May I Have €10bn Too?

    Indulge me for a moment in a flight of fancy. Last week, the European Central Bank lent out €1.31trn to eurozone banks at a negative interest rate of -1%. Now, I am not a bank, but it is diverting to imagine that I might qualify for a small crumb of this funding, say a modest €10bn—because I know exactly what I would do with the money.

    16
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    Gavekal Research

    Webinar: Global Update (French), June 2020

    In yesterday's webinar for our Francophone audience, Charles and Louis Gave, Cedric Gemehl and Didier Darcet updated viewers on their views of asset markets and government responses to the economic calamity caused by Covid-19.

    0
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    Gavekal Research

    The Club Med’s Cruel Summer

    France, Italy and Spain suffered the deepest contractions in their economic activity in the first quarter and through April. Yet government programs have successfully supported both business cash flows and household incomes. Beyond the immediate bounce-back from lockdown, however, their economic trajectories are set to diverge.

    0
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    Gavekal Research

    From A Tax To A Subsidy

    There will be some hard bargaining ahead when the European Union’s 27 heads of government meet by video conference Friday in an attempt to thrash out details of the bloc’s proposed €750bn recovery fund. German chancellor Angela Merkel is urging a quick deal. But with the “frugal four” countries led by Dutch premier Mark Rutte holding out for strict conditions, a final agreement could yet take several months, with the fund unlikely to start...

    3
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    Gavekal Research

    The Market’s Perception Of Scarcity

    It is a long-running trope of Gavekal’s research that assets can have value either as tools or as jewels. Tools have efficiency value and jewels have scarcity value. The rule that seemed to govern the relative performance of these over the last 50 or so years appears to have broken down. Louis wonders if this is because investors have reversed their perceptions of what is "scarce" and what is "abundant".

    5
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    Gavekal Research

    A Dismal Best Case

    The crowds that Monday swarmed British shops, allowed to open for the first time in 12 weeks, at first sight bodes well for a V-shaped recovery. Yet despite plentiful accumulated savings and considerable pent-up demand, the UK’s consumption-driven economy faces formidable post-lockdown headwinds, with consequences for equities and sterling.

    1
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    Gavekal Research

    The Froth Comes Off

    Recent weeks saw telltale signs of markets getting silly: firms with no sales reaching U$26bn valuations; airline-focused exchange traded funds jumping from US$50mn in size in January to US$1.5bn, and bankrupt firms becoming five and 10 baggers. This kind of activity may lead to one of three conclusions.

    4
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    Gavekal Research

    The Derating Of The Dollar

    In the last four weeks as market participants have reassessed relative risk premiums, they have found it increasingly easy to identify currencies which at the margin are looking more attractive than the US dollar. As a result, the dollar has weakened both against developed world and emerging market currencies. This weakness is acquiring momentum, and may have further to run.

    0
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    Gavekal Research

    Accelerating Into Inflation

    Long-time readers will be familiar with Gavekal’s Four Quadrants framework, which describes how the economy alternates between periods of inflation and deflation, and cycles from boom and bust and back again, and which we use to illustrate which asset classes investors should favor and when. Although this is one of Gavekal’s oldest frameworks, it provides an extremely useful way to think about how the macroeconomic environment is set to evolve...

    6
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    Gavekal Research

    Europe’s Big Guns

    If the worry was that European Central Bank activism was threatened by German judicial chastisement, Christine Lagarde yesterday showed no sign of being cowed. The Pandemic Emergency Purchase Program was topped up to an almost bazooka-qualifying €1.35trn from €750bn and extended a further six months to June 2021. The move added fuel to the rally in euro assets. Rightly so.

    0
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    Gavekal Research

    Europe Flexes Its Fiscal Muscles

    Another day, another big fiscal expansion from Germany. Yesterday, Berlin outlined a €130bn stimulus package, representing 3.8% of GDP. If there was any doubt, Europe has clearly ditched its decade-long infatuation with austerity and is back in the Keynesian camp. This situation is bullish for eurozone stocks and in time could yet spur a long-forgotten problem—inflation.

    0
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    Gavekal Research

    The Case For Commodities

    For most of the last decade, we have been in a period of low investment in the commodity sector. Yet, over the next 20 years the global population will grow by almost 2bn—a 25% increase. Migration into cities will continue, with the world’s urban population growing by almost 50%, creating enormous demand for infrastructure.

    2
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    Gavekal Research

    Strategy Monthly: Recovery And Its Risks

    As economies have begun to emerge from their coronavirus lockdowns, there remain two big near-term macro risks that could derail a recovery. On one hand, solid demand on top of massive central bank monetary expansion could fuel rising inflation. On the other, a big round of permanent job losses could dent demand and slow the economic recovery.

    0
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    Gavekal Research

    As The World Reopens

    A few weeks ago, I outlined three scenarios that could unfold as the world reopened for business. Since then, it looks like the market is starting to tentatively position scenario #3 in which the world economy rips and inflation rises due to pent-up demand, budget deficits, low oil prices and money printing. This makes sense, but the rotation may soon face a number of challenges.

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable, May 2020

    Yesterday Louis Gave, Charles Gave and Anatole Kaletsky joined Arthur Kroeber at the Global Investment Roundtable. They discussed different scenarios for how and when the world’s major economies can exit the Covid-19 crisis and what it means for investors.

    0
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    Gavekal Research

    Video: Will The Bank Of England Go Negative?

    Having long resisted the lure of negative interest rates, policymakers at the Bank of England have recently admitted that they are considering a cut in the UK’s main bank rate to below zero.Nick examines the pros and cons of negative interest rates, and weighs the probability that the Bank of England will indeed enter negative rate territory for the first time.

    0
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    Gavekal Research

    It’s Looking Hamiltonian

    It wasn’t quite the dawn of a new epoch, but the European Commission’s plan to boost its seven-year budget with €750bn of borrowing certainly ranks as a moment for the European Union. The plan needs unanimous backing from all member states and is far from a done deal. Yet it is likely to pass and in so doing it will change the nature of financial risk in Europe.

    2
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    Gavekal Research

    The Kitsune Market (Part IV)

    Over recent weeks, Louis has examined in detail nine “Kitsune” tail risks which could blindside financial markets in the wake of the Covid-19 crisis. But in contemplating these tail risks, Louis has been forced to wonder if he has missed the forest for the trees, overlooking perhaps the greatest risk of all for investors: that the 40-year inverse correlation between equities and bonds may be breaking down.

    4
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    Gavekal Research

    Webinar: The Future Of Hong Kong

    Louis Gave, Simon Pritchard and Vincent Tsui joined Arthur Kroeber to talk about the national security law which China's National People's Congress announced it will implement in Hong Kong, and what this could mean for Hong Kong's future as a global financial center.

    0
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    Gavekal Research

    Hong Kong And The Ethic Of Responsibility

    German sociologist Max Weber made the distinction between the ethic of conviction, based on the philosophy of Immanuel Kant, and the ethic of responsibility, based on consequentialist philosophy, a grandchild of Aristotelian logic. The distinction between the two may help investors to determine their response to developments in Hong Kong.

    10
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    Gavekal Research

    Boris Will Pile Pelion On Ossa

    No country has matched Britain’s dismal combination of currency and equity losses so far this year. Making matters worse for Britain than other DMs is Boris Johnson's refusal to extend the post-Brexit transition period beyond December, precisely the time when the Covid-19 recession might otherwise be expected to start lifting.

    14
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    Gavekal Research

    Video: Pressure Points In Emerging Markets

    Emerging markets have broadly weathered the liquidity squeeze that threatened to engulf them in March, however Udith is not convinced they are out of the woods. Growth shocks associated with the Covid-19 crisis mean that many smaller markets on the frontier are at risk of debt defaults, which could end up spurring forced selling by foreign investors.

    0
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    Gavekal Research

    Webinar: Europe Update (May 2020)

    In yesterday's webinar, Anatole Kaletsky, Cedric Gemehl and Nick Andrews joined Louis Gave to assess policy measures to deal with Covid-19 in Europe and discuss the significance of a €500bn coronavirus Recovery Fund.

    0
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    Gavekal Research

    Europe’s Hamiltonian Moment

    If there was a rational explanation for Monday’s global risk-on rally, it would be the genuinely exciting news from Europe. It is possible—just possible—that the Franco-German proposal for a €500bn coronavirus Recovery Fund announced yesterday will turn out to be the most important historic consequence of the coronavirus.

    14
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    Gavekal Research

    Phase Two Beckons

    Europeans have spent big to freeze their economies as if held in suspended animation since mid-March. On the whole, this plan is working quite well but EU member states must now agree to a post-pandemic plan for demand stimulus if they are to avoid an all-too-predictable double-dip downturn. They will get a shot next week, when the blueprint for a “recovery fund” is unveiled.

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    Webinar: China And The US Race Toward The Precipice

    The rivalry between the US and China has taken a turn for the worse during the Covid-19 pandemic. In yesterday’s webinar, Tom Miller talked about how China has attempted to use the pandemic in its global influence strategy. Dan Wang updated viewers on the technology rivalry. And Arthur Kroeber outlined how the US-China relationship got to this point.

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    The World Has Changed, Quick! Buy More Of The Same

    As countries around the world, and some US states, are starting to emerge from their enforced Covid-19 hibernation, investors have to choose between one of three potential outcomes. Either the virus re-emerges and causes new lockdowns, the post-Covid-19 world is not growth friendly, or pent-up demand and supportive policies leads to global growth ripping.

    2
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    Webinar: The Kitsune Market — Tail Risks In An Unnatural Time

    Most of the world’s big economies have been shut down in response to a pandemic disease—a truly unprecedented event. This led to extreme market moves and also generated an unusually large array of tail risks. Louis likens these to the nine tails of the magical kitsune or fox of Japanese mythology. In yesterday's webinar he elaborated on this idea.

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    The Kitsune Market (Part III)

    In this third part of a series assessing risks thrown up by massive government interventions to stop Covid-19 lockdowns turning into an economic depression, Louis turns his sights on efforts to prevent bankruptcies at all costs. He also considers the rapidly fraying US-China relationship and existential choices faced by Saudi Arabia as it decides how to handle a collapse in oil prices.

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    Sovereignty And That German Court Ruling

    Tuesday’s ruling by Germany’s constitutional court on the legitimacy of asset purchases by the European Central Bank hits at the heart of a political project whose ultimate aim has been usurp the sovereignty of historical states in favor of a new super state. I am no lawyer but I have studied political science and the issue now in play is of a fundamental nature.

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    The Threat From Turkey

    Turkey increasingly looks like a basket case that may spark a broader move out of emerging markets. Despite its efforts to squeeze short-sellers by stopping banks from swapping currency with foreign counterparties, the lira is hitting new lows against the US dollar. Efforts to sustain the lira with foreign currency borrowed from Turkey's dollarized banking system can't go on indefinitely.

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    Webinar: China And Emerging Markets Update

    China has started to reopen its economy, but it is proving hard to get Chinese consumers and small businesses up and running again. He Wei and Andrew Batson provided the latest updates on policy efforts to revive China’s economy. Udith Sikand reviewed the broader outlook for emerging markets.

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    ‘No Limits’ Now ‘No, Limits’

    Markets have largely taken in their stride Tuesday’s decision by the German Constitutional Court that the European Central Bank exceeded its mandate by launching quantitative easing in 2015. The euro's move against the US dollar and the 10bp uptick in Italian 10-year yields were modest by the standards of recent volatility. This may be overly complacent.

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    Webinar: What Does Covid-19 Mean For Emerging Markets?

    So far the Covid-19 pandemic seems to have been a less significant health event in most emerging markets. Yet EMs are bound to suffer a lot of economic damage not only from their own lockdowns but also from the demand collapse in Europe and the US. Udith Sikand and Vincent Tsui analyzed where the investment opportunities lie, and Tom Miller offered the prognosis for India.

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    Strategy Monthly: Emerging Markets Under Pressure

    Aside from China, emerging markets have not been hit as hard as rich countries by Covid-19, but their asset markets have been hammered. An optimistic view holds that undervalued EM assets can now bounce back. Udith and Vincent are more cautious: a dollar-squeeze could yet hurt markets that have otherwise decent fundamentals and attractive valuations.

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    Webinar: Global Investment Roundtable, April 2020

    Markets are showing both signs of dislocation (in negative oil prices) and impressive stability (the S&P 500 is only down -4.1% over the previous 12 months). Is this stability a Federal Reserve-induced illusion? Are there more shocks to come? If so, where? In our monthly investment roundtable, Louis, Charles and Anatole discussed market scenarios for the months ahead.

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    The Truth About Banks And Bonds

    As I elucidated last week Knut Wicksell’s key idea was that in any market economy there are not one, but two key interest rates, whose relative position drives the cycle. The theory makes good sense, but computing the two rates is tricky. My insight is that I don’t need to compute these two rates but instead measure the structural performance of bank equities in each market.

    10
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    Webinar: Modeling Projections For The Covid-19 Epidemic

    Gavekal Intelligence Software is collaborating with ETH Zurich and Shenzhen's Southern University of Science & Technology to track the spread of Covid-19. GIS principal Didier Darcet presented the findings in a conversation with Louis Gave

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    Italy’s Debt Sustainability Question

    In the short term, Italy’s sovereign spreads are unlikely to be greatly troubled by the decision late Tuesday from Fitch to downgrade the country’s debt rating. In the longer term, however, in the absence of some form of eurozone fiscal union, Italy will remain caught in a vicious debt trap, which must call its continued membership of the single currency into question.

    2
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    The Kitsune Market (Part II)

    Last week, Louis introduced the Kitsune, Japan’s mythical nine-tailed fox, and outlined four tail risks which could upend investment after Covid-19. Today he examines two more important tail risks: that the pandemic might not prove deflationary but inflationary, and the risk that the market’s “don’t fight the Fed” mentality could collapse under the weight of its own contradictions.

    10
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    The Short, Medium And Long Term Outlook

    At the end of March, just after the collapse of global stock markets and non-dollar currencies had reached its climax, I argued that it was too early to buy equities but probably a good time to sell US dollars. The first of these ideas turned out to be wrong, the second irrelevant. But far from admitting defeat, I think it is worth doubling down on both these recommendations.

    4
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    The Trouble With Eurozone Banks

    European leaders trod a fine line on Thursday, opening the way for a hefty “recovery refund”, but not committing to one and not saying how the money may be spent. Eurozone capital markets—except for bank stocks—have been fairly calm, and so do not need a hasty bailout. That exception, however, is a problem that may end up consuming a big part of any rescue fund.

    2
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    The Kitsune Market

    The Kitsune, the mythical Japanese fox which portends a change of fortune, has nine tails. Inspired by the unnatural conditions in markets, Louis has identified nine tail risks which could upend the investment world over the short to medium term. In the first installment of a two-part series, he outlines four tail risks that investors should consider hedging against.

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    Webinar: Investing In A Time Of Covid-19 (French)

    Charles Gave Louis Gave, and Cedric Gemehl, along with principal of Gavekal Intelligence Software Didier Darcet, participated in a French-speaking webinar. They discussed the global investment outlook in light of the latest Covid-19 tracking data, and how to invest in a world dominated by central banks.

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    Webinar: Outlook For China Consumption, Labor Markets And Supply Chains

    In Thursday's webinar, Michael Clendenin, principal of Gavekal RedTech, presented the findings of RedTech's consumer surveys in China. Gavekal Dragonomics's Ernan Cui outlined the status of China's labor markets and how they relate to consumption, and Dan Wang spoke on what the Covid-19 crisis is doing to supply chains both in China and globally.

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    On The Next Banking Crisis

    For Charles, the last 100 years has seen three standout banking crises; the 1930s depression in the US, Japan’s post-1990 bust and the slow-motion implosion of the eurozone, which has yet to see a denouement. In this piece, he dusts off one of his favorite frameworks for assessing economic cycles and asks what can be learned from these episodes.

    2
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    Video: North Korea's Succession Question

    North Korean leader Kim Jong-un failed to show up to last week’s celebration of the birthday of his grandfather, North Korea’s founder Kim Il-sung, sparking vivid speculation about his health and the chain of succession in the isolated country. In this video interview Yanmei breaks down what could happen in a power vacuum left by the supreme leader.

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    Some Details On The Shape Of Things To Come

    On Monday, Arthur laid out the core scenario for the exit from social lockdowns in both Europe and the US: a gradual relaxation of the most severe restrictions between now and mid-June, followed by several months or more of significant, but less onerous, restrictions. In this piece he offers more detail on how things might play out in individual countries and states.

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    Webinar: Outlook For The US Economy And Global Markets

    In Tuesday's webinar, Will Denyer reviewed the economic situation in the US and suggested how investors should position their portfolios, and Louis Gave presented his global macroeconomic view, taking into account the remarkable developments in the oil market.

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    A Modest Proposal For Europe

    A month ago, with the world economy just beginning its lockdown, I presented a modest proposal which seemed impossibly far-fetched to the point of madness. Four days later, the British government announced almost exactly those policies. This week a different crisis is looming: an intensified rerun of the 2012 euro crisis. So here is another modest proposal.

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    The Shape Of Things To Come

    As the US and Europe prepare to enter their second month of lockdown, the good news is that social controls, where they are imposed, are working. The less good news is that the exit from lockdowns is going to be long and arduous. It is likely that in most major Western nations, economic activity will remain at levels significantly below normal until well into the fall.

    2
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    Webinar: Markets Outlook For The World And China

    In Thursday’s webinar, Thomas Gatley explained why China’s corporate sector is weathering the country’s downturn with relative ease and Louis Gave offered a global strategy view for investing in a Post Covid-19 world.

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    Video: Europe's Unfinished Business

    Eurozone finance ministers attempted to put a positive spin on the no strings €500bn Covid-19 relief package they agreed last week. But everyone is unhappy with the deal. With Italy’s debt to GDP ratio set to soar, Rome is calling for the mutualization of debt among eurozone economies; something Berlin and the Hague have ruled out.

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    Heading In The Right Direction, Slowly

    The Covid-19 epidemic now seems firmly under control in most major economies, and the direction of the disease data is consistently positive. From an infection-control perspective, the outlook is much more positive than when we did our last major review. The path to economic recovery, however, still looks slow and rocky.

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    Webinar: Will Covid-19 Tear Europe Apart?

    Anatole Kaletsky, Cedric Gemehl and Nick Andrews discussed the Covid-19 outbreak in Europe and the unprecedented poilcy responses taken both to combat its spread and help the economy.

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