CoreMacro

Special Report

In this special report, we discuss whether the economic conditions necessary for a stronger yen (and higher JGB yields) will materialize over the next 12-to-18 months.

Special Report

Commentators often use notions like debt deflation, balance sheet recession, and liquidity trap interchangeably. Yet, these are different concepts. This report develops a framework and provides a diagnosis of China’s economic malaise. A follow-up report will deal with what kind of treatment is needed for a recovery. As a trade, we recommend shorting the EM equity index.

European real GDP growth is stabilizing, so why would European equities continue to trade sideways for the remainder of the year? The answer lies with nominal growth and its impact on earnings.

Inspired by a client’s questions, we examine the rationale behind the implementation of the trailing stop governing our near-term asset allocation recommendations.

Special Report

Investors should think probabilistically about the economy and financial markets. In the face of non-linear effects, the range of possible outcomes can be very large. A systematic application of Bayes’ rule can help improve decision-making.

Numerous divergences have opened up between global risk assets and global business cycle variables. These gaps are unsustainable, and odds are that the recoupling will occur to the downside with risk assets selling off.

In absolute terms, Mexican markets may correct given their impressive rally and an impending EM risk-off move. Relative to EM however, Mexico will continue to outperform given its unique cyclical and structural macro fundamentals, as well as attractive valuations.

China has generated 41 percent of the world’s economic growth through the past ten years, al-most double the 22 percent contribution from the US. Now that the Chinese growth engine is failing, we explain why it is arithmetically impossible for world growth to maintain the altitude of the past few decades. And we discuss an important investment implication.

Although the RMB has cheapened, macro conditions are not yet favorable for the Chinese currency. We expect the RMB to decline by at least another 5% in the next six months. A weak currency and subdued economic growth lead us to maintain a cautious stance on Chinese equities.

August offers an opportunity to review our key views. European growth is turning the corner and inflation is improving, but does it guarantee an imminent breakout in European stocks?