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E.g., 08-07-2020
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    Gavekal Research

    Sweden's Property Bubble In Waiting

    A few months back Michael Wolf, the CEO of Swedbank, was the subject of a prominent newspaper profile that featured an arresting photograph of him surrounded by live wolves. Unbeknownst to Mr. Wolf, this was an extremely risky stunt— not long after, the same wolves turned on their handler and tragically killed her. Recently, Mr. Wolf has confronted another pack of potentially unfriendly beasts by suggesting that Swedish politicians should force...

    0
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    Gavekal Research

    Spain, Italy Are No California, Yet

    Mitt Romney warned last week that the US must put its fiscal house in order or end up like Greece, Italy and Spain—or even (and this was the controversial part) California. The comment ruffled feathers in the golden state where residents face tax rises and severe spending cuts. Mr. Romney made a clever polemical point, however his basic analysis was dead wrong. For while Californians face hard times, they are unlikely to suffer a southern...

    7
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    Gavekal Research

    Swiss Franc: Not A Peg For All Seasons

    The Swiss National Bank has constrained the appreciation of the franc, but incurred spill-over effects. The result of liquid funds pouring into safe-haven Switzerland has been rapid credit growth and a surge in property prices. But the question we increasingly hear asked is whether the SNB will stick with the de facto peg since the cost of doing so keeps increasing.

    3
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    Gavekal Research

    Is Germany Entering A Recession?

    5
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    Gavekal Research

    Dams, Earthquakes And Bond Markets

    While investors, or at least the financial media, continue to focus on non-events in Europe, US Treasury-bond futures yesterday fell another full point. This drop, coming on the back of recent pull-backs means that the US long bond has lost four points in less than two weeks. Technically, we are thus approaching interesting levels as a drop of another point will have the US long bond forming a nice “double-top”, thereby suggesting much lower...

    4
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    Gavekal Dragonomics

    China Property: Steady As She Goes

    China’s property sector is clearly on the mend, but the recovery is slow and steady rather than meteoric. Policy makers probably welcome the modest rebound in transactions and prices, which should lead an uptick in broader economic growth later this year. But they remain vigilant about containing sharp rises in house prices, which could spark social discontent. So Beijing’s property policy will almost certainly stay on its present course, with...

    1
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    Gavekal Research

    Where Is Draghi's Gran Torino Headed?

    On Monday we compared Mario Draghi to Clint Eastwood’s Dirty Harry when he boasted that he would do everything necessary to save the euro (see How Many Bullets in Draghi’s .44 Magnum?). Yesterday we learned that Draghi had stumbled into the wrong movie. Instead of Dirty Harry, which ends with Eastwood killing the villain with his last bullet, the ECB boss’s press conference replayed Gran Torino, where the gun apparently in Eastwood’s pocket...

    3
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    Gavekal Research

    How Many Bullets In Draghi's .44 Magnum?

    Mario Draghi’s combative remarks at the global investment conference in London last week are a must read—not because they change the European game, but for how they illustrate the tension between the ECB chief’s tough-guy talk and the limited armoury under his command.

    5
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    Gavekal Research

    The Euro Carry Trade

    6
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    Gavekal Research

    Say Goodbye To UK Austerity

    The -0.7% plunge in Britain’s quarterly GDP announced yesterday—the biggest decline in the British economy since 2009—was officially a “shock” to the markets, because consensus forecasts had predicted a decline of only -0.2%, according to Bloomberg. But the second quarter was bound to show a continuing deterioration in the British economy for two reasons we pointed out three months ago, when the downside “surprise” for the first quarter was...

    3
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    Gavekal Research

    Shadoks & Stock Markets

    5
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    Gavekal Research

    A Sweltering Summer For The Euro

    The euro crisis is taking another critical turn. Greece is under intense and probably unbearable pressure, while Spain faces sovereign yields near 7.5% which all but freezes it out from market financing. “Dr Draghi” is dispensing harsh medicine to the southern economies without outlining a treatment plan that may resuscitate the patient.

    6
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    Gavekal Research

    Russia's Reluctant Move To Abundance

    As Frederic Bastiat explained more than 150 years ago in his essay “Sophisms of the Protectionists” (read here), it is not easy to fight the arguments of the protectionists. This is mainly because “our adversaries in the discussion have a signal advantage over us. They can, in a few words, present an incomplete truth; which, for us to show that it is incomplete, renders necessary long and uninteresting dissertations”. Who then can be surprised...

    14
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    Gavekal Research

    Export Wars: Germany 1, Japan 0

    Japan and Germany both started the new millennium with dominant positions in the global export market and both had strong incentives to keep it that way. Japan’s domestic economy was still deflating from an epic asset bubble burst, while Germany was reeling from unification with the East’s wrecked and unproductive ex-communist economy.

    2
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    Gavekal Research

    ZIRP Goes To Europe

    Central banks have set the bar high for what is now considered “major monetary easing”. A bread-and-butter 25bp rate cut no longer qualifies, at least not usually. But last week the ECB not only cut the rate at which it lends to banks by 25bp to 0.75%, it also chopped the rate it pays on deposits by 25bp—to zero. The move focused attention on Mario Draghi’s assertive approach to policy, especially amid signs that deposits are fleeing the ECB....

    3
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    Gavekal Research

    The Coming French Depression

    5
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    Gavekal Research

    France, Tax Increases and Economic Recovery

    11
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    Gavekal Research

    What Is A Bund Worth?

    5
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    Gavekal Research

    The Euro Debate Returns

    The markets reacted very positively to the announcements that followed the 20th ‘save-the-euro’ summit. So, like 20th marriages, is this the triumph of hope over experience? Or perhaps a cynical “mark-up” exercise of risk assets in the last hours of trading before the quarter’s end? Or did we see the beginning of a solution to the crisis finally emerge? The general media was quick to portray the summit as a victory of a “united South” against a...

    7
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    Gavekal Research

    Solvency II: A Cardinal Sin

    Over the years, we have identified five “cardinal sins” of policymaking. These are: 1) Protectionism, 2) tax increases, 3) increases in regulation, 4) monetary policy mistakes and 5) wars. Because structural bear markets almost always occur when one or several of these cardinal sins have been committed, it is with this list in mind that we dive into the exciting world of insurance company regulation.

    8
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    Gavekal Research

    Germany Has To Stay: A Riposte

    In his Reuters column last week (see here), and his recent Daily (see It May Be Time To Say “Auf Wiedersehen”), Anatole argues that it may be more logical for Germany to leave the eurozone, rather than Spain or Italy. Germany is indeed the main outlier in economic terms; if it were removed, intra-euro zone economic dispersion would be much lower. However a scenario where Germany is the only country that exits is not just improbable—it is also...

    14
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    Gavekal Research

    The Euro Debate And The Wizard Of Oz

    Confucius is said to have remarked: “When words lose their meaning, kingdoms become ungovernable”. We often think of this when debating whether the euro can “work,” for this term can mean very different things to different people. Proponents will argue that with greater federalism, continent-wide bank guarantees and national parliaments giving up power to the European Union, the euro can be made to “work”. Opponents, meanwhile, argue that it...

    7
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    Gavekal Research

    It May Be Time To Say "Auf Wiedersehen"

    Now that the Greek election is over, with the pro-bailout parties gaining enough seats for a slim majority, Europe can return to the regular cycle of panic, relief, disappointment and renewed panic, that we have observed for the past two years. This time, however, the relief rally may be even shorter than usual, since the market’s attention will soon shift from Athens to Madrid, Paris and, above all, Berlin. Since Greece has no chance of...

    18
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    Gavekal Research

    Drowning-By-Numbers: A €10 Trillion Game

    What kind of mess would financial institutions wake up to the day after a break-up of the eurozone? A very large one. In the decade to 2008, euro area financial institutions accumulated growing cross-border positions within the currency area, spurred on by officials, financial regulators and a complacent attitude toward risk. Over the past few years, and especially since the euro crisis intensified in 2010, European financiers have learned to...

    2
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    Gavekal Research

    ECB Role Shift The Real Game Changer

    As the Euro crisis intensifies and yields on Spanish bonds reach new heights, the pressure on EMU policymakers has become intense. Markets are already looking through Sunday’s Greek election toward the EU leaders summit on June 28-29 to see if a grand bargain can be struck to forestall a Grexit and restore some confidence in GIPSI financial systems. From what we understand, Francois Hollande and Mario Monti have agreed to champion the following...

    5
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    Gavekal Research

    MULTIMEDIA - Louis Talks About Europe On Radio Show Streettalklive

    Louis was recently interviewed on the radio program streettalklive, where the talk unsurprisingly centered on the European crisis. Those who would like to listen to this lively discussion can download or stream the audio file, split into two parts:

    0
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    Gavekal Research

    Armistice Or Capitulation

    Why did the euro first come about? Some will explain that it was to favor pan-European trade, tourism and a more efficient allocation of capital; even if in the times of Visa/Mastercard/Amex cards, and of easy currency-risk hedges through forwards, options and the like, such an explanation appears naïve at best. Others will explain that the euro was created as a “political project” to ensure the political integration that Europe’s people did not...

    10
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    Gavekal Research

    Sweden Moves Against Repression

    On Thursday last week, the Swedish OMX jumped by +3.2%, the biggest gain in six months, while bond markets sold off heavily. Yields on the Swedish 10y leapt by +33bps to 1.47%, or a shocking 25% move, the biggest daily change on record. What prompted this violent reaction?

    6
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    Gavekal Research

    Federalism, Debt Traps And Competition

    14
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    Gavekal Research

    The Triumph of Hope Over Experience

    As we go through the few scant details of the bank bailout offered to Spain, we cannot help but shake an uneasy feeling of deja-vu all over again:

    1
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    Gavekal Research

    Euro End Game: Four Vital Questions

    The British writer AA Gill once noted that “Europe is an allegory for the ages of man. You are born Italian, relentlessly infantile and mother-obsessed. In childhood, you are English: chronically shy, tongue-tied clicky and only happy kicking balls or pulling the legs off things. Teenagers are French: pretentiously philosophical, embarrassingly vain, ridiculously romantic yet simultaneously insecure. During Middle-Age, we become either Irish and...

    21
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    Gavekal Research

    Quarterly Strategy Chart Book: How To Survive A Panic Attack

    1
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    Gavekal Research

    Please-No More Liquidity Fixes--by Will Denyer

    As we hear talk of a global central bank coordinated action to solve Europe’s market malaise, we have to ask, to what purpose? Large liquidity injections once served to keep Europe’s financial system alive until the continent’s economies sputtered back to life. The problem is, this never happened. Now the ECB’s substantial liquidity programs instead serve the purpose of providing leaders more stall time before acting. The monetary union is...

    4
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    Gavekal Research

    The Swiss Line In The Sand

    3
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    Gavekal Research

    The Unfolding Panic & The European Convergence Trade

    9
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    Gavekal Research

    Signposts For Euro Survival

    Like a game of whack-a-mole, European concerns have shifted yet again from the Irish referendum and Greek elections to Spanish banking problems, and we find ourselves in another crunch time for the euro crisis. While our internal debates on the euro crisis have been well documented, in recent days we have come to a surprising consensus on how this situation plays out—or at least on the milestones to determine whether the euro will survive (and...

    2
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    Gavekal Research

    Why Ireland Matters

    While the world is tuned into every rhetorical twist in Greece’s general election campaign, the more slowly evolving situation in Ireland is arguably just as significant. When Irish voters decide on Thursday (May 31) whether to accept the EU’s new “fiscal compact,” they will directly influence the outcome in Athens. But more importantly the economic experience of the troika’s model pupil means that lessons learnt in Dublin are likely to change...

    0
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    Gavekal Research

    The French OAT - French CDS Very Odd Divergence

    Here is a story of relevance to everyone who deals in markets; five monkeys are placed at the bottom of a set of stairs and bananas are left at the top. After one monkey attempts to climb the stairs, the whole group is sprayed with jets of cold water. A second monkey tries the ascent, but the group is again doused. Unsurprisingly, the monkeys desist from further attempts. Then one of the troop is removed and replaced with a new monkey—spotting...

    4
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    Gavekal Research

    Expect Another QE Dousing In The UK

    2
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    Gavekal Research

    Unsatisfactory Peace To Follow The War

    When Microsoft last month said it would pay AOL US$1bn for a patent portfolio, long-time readers started emailing to congratulate us on the vindication of our long-standing thesis that "knowledge is the world's most undervalued asset." What better proof than the outlandish prices which tech companies now pay to acquire intellectual property packages?(The Microsoft/AOL deal pales in comparison to last year's $4.5 billion...

    0
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    Gavekal Research

    The Swedish Krona, An Odd Victim

    It is puzzling that the Swedish krona should be so directly in the firing line as investors flee the chaos in southern Europe. The SEK has fallen for 15 of the last 16 days against the US$ (the longest losing streak since 1971) and is trading at a two-year low. It also has the dubious distinction of being the worst major OECD currency against the euro so far this month, losing nearly 3%.

    0
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    Gavekal Research

    Breakup Or Federalism: And When Will We Know?

    This week the Bank of Greece has written to the government to warn of an unfolding run on deposits at the country’s banks. More than anything, this highlights why hopes that southern Europe could deflate its way to competitiveness were misplaced. Southern Europe is not Hong Kong in 1997-2003, or Latvia in 2007-2010. There is no way for investors to hedge the potential risk of a euro exit and currency devaluation in Greece, Portugal or Spain....

    11
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    Gavekal Research

    The Rational Thing To Do In A Bank Run

    The first phase of the European crisis was about the sustainability of budget deficits; this triggered the creation of the EFSF and ESM. The second phase of the crisis was about bank liquidity; this triggered the creation of the LTROs. This third phase of the crisis, however, is about the political willingness of southern Europe to remain “nailed to a cross of euros.” Indeed, as our friend Michael Cembalest put it recently in a missive to his...

    15
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    Gavekal Research

    A New German Trade Revolution

    Amid the sturm and drang in Europe this week, sunny numbers from Germany have gone almost unnoticed. GDP rose +0.5% QoQ and +1.7% YoY during the first quarter, well above consensus expectations of +0.1% QoQ and +0.9% YoY. While this is a preliminary report and thus short on details, the German statistical office explained that the recovery was driven mainly by net trade. But how is this possible given the extreme weakness in Europe’s...

    8
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    Gavekal Research

    Euro Choices Are Getting Starker

    As has become painfully obvious, we have now moved to the next chapter of the euro crisis. Southern Europe’s vulnerable bond markets are again under pressure (Spanish 10y yields have risen to 6.2%, and the Italian counterparts are at 5.9%), European equity markets have sold off brutally and EMU bank stocks have now fallen to the lowest level since late 1987.

    10
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    Gavekal Research

    The Euro's Greek Election Test

    Nobody can answer for certain whether the euro will survive a likely second Greek election—not even Angela Merkel. The most useful approach at this stage, rather than trying to predict an unknowable future, is to understand the sequence of events that could lead to the euro’s disintegration or survival after the tumultuous events of the past week. These are the scenarios we consider below.

    12
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    Gavekal Research

    Euroland's Secondary Depression

    The US economy continues to throw off seemingly contradictory signals. Since the start of the year bond yields have fallen sharply even while equities have rallied convincingly and economic data points to a clear, if patchy, recovery. So why are US Treasuries priced for a lost economic decade? Earlier this week, Warwick argued that the market was irrational in its pricing of Treasuries (see The Sun Still Rises, We’re Still Bond Bears). But of...

    0
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    Gavekal Research

    Reluctant Reflation In Germany

    In the midst of increasingly weak numbers out of southern Europe, a strong German economy is very important. Indeed, the nation once known as the sick man of Europe has now become the economic anchor of the region. This is why April’s weak German PMI reading (a drop to 46.2, the weakest since the summer of 2009) and the surprising rise in unemployment was so concerning to many investors.

    9
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    Gavekal Research

    Will Merkolland Lead Europe To Thatcherite Keynesianism?

    My colleagues here expect that, with Francois Hollande’s victory, France will be the camel that breaks the euro’s back. The Socialist agenda will lead to growth-killing tax rises and ballooning deficits, sending Europe’s second-largest economy down the path recently trod by Spain and Italy. Thus far, however, the bond markets do not seem to share those exact same fears, with OAT yields falling ahead of Hollande’s widely expected victory...

    0
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    Gavekal Research

    The French Farce Has Just Started

    [CENTER]

    1
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