Our Report on Louis-Vincent Gave - his recent thoughts on the economy, the financial markets and investment ideas
This week we offer a free complimentary report on Louis-Vincent Gave, one of our ten Most Admired Advisors (MAAs) from our MAA Report August 2024 Edition
This week we want to you give you a sample of our ‘Most Admired Advisors’ (MAA) - a monthly report featuring a global top-10 roster of financial advisors, fund and asset managers. We have short-listed who we think offer the best economics and financial markets analysis and investment ideas. We source and cite a distillation of their current, relevant sentiments on trends in the economy and financial markets as a reliable source of insights for our readers. We provide a consensus of the 10 MAAs at the end - synthesizing their best investment ideas and we provide our commentary on that. It’s like listening in to a board of advisors who we think have the best insights and investment ideas globally.
All taken from publicly linked sources across the open web, including our business partner at the FRA Roundtable Insight Podcast.
We do our best to assess, research and compile all the work as a service to you, peppering in our commentaries and TLDRs.
Here is August 2024’s CedarOwl MAA Roster:
Peter Boockvar
Michael Every
Dr. Marc Faber
Louis-Vincent Gave
Yra Harris
Larry McDonald
Russell Napier
Zoltan Pozsar
Rick Rule
Chris Wood
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Key Trends and Opportunities - Where economy, finance and environmentalism meet.
[MAAs] Most Admired Advisors - Top 10 thought leaders in the global finance and economist categories, their recent insights on the economy, the financial markets, investment ideas, as well as micro & macro trends.
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Let’s explore further now the views and perspective of Louis-Vincent Gave … free report below .. consider becoming a paid subscriber to get the full Report - the Most Admired Advisors (MAA) Report, which also includes our consensus summary that synthesizes the suggested investment ideas of all of the ten advisors altogether.
Louis-Vincent Gave
Louis co-founded Gavekal in 1999 with his father Charles and Anatole Kaletsky. Gavekal started as an independent research firm, which evolved in 2005 to include fund management and again in 2008 to include data analysis services. Since 2005, Louis has mostly focused on the money management side of the business. Before co-founding Gavekal, Louis worked for Paribas Capital Markets where he was an equity research analyst from 1997-1999. In 1996 & 1997, Louis served in the French Mountain Infantry Division as a Second Lieutenant. Louis studied Economics, History and Chinese at Duke University and Nanjing University.
Louis-Vincent Gave Recent Thoughts:
August 8, 2024
Louis comments on the recent selloff in the financial markets.
Thinks we are at the beginning of a bear market.
On the AI bubble, thinks many assessed the future cash flows from the AI companies as being much higher than realistically. A reality check is now happening in this space.
Says that people are now clamoring for a big rate cut from the Federal Reserve to bolster back up these AI investments. Even if the Fed does that, it is not likely these AI investments will become more productive and come back in value.
Thinks it makes sense now to move assets into scarcity-based assets.
Explains how a Fed cycle of depreciating the USD with rate cuts may result in investors moving into hard assets and emerging market equities. In other words, massive rate cuts may be detrimental to the U.S. and to U.S. based assets - so more likely the Fed cuts less and in smaller amounts but spread over a longer timeframe.
Explains how the likely course of action is for indebted western world countries to rely on inflation to address the burden of the unsustainable debt and deficits.
“Okay, yes, we have a slowdown in the US, perhaps a mild recession, perhaps not. But thanks to the weaker dollar, rest of the world, hums along, you get a big rotation. And you know, the world doesn't fall apart. And in that environment, weak dollar, EM is doing better, most likely that helps boost commodity prices higher. You get higher oil, you get higher metals, you get higher food prices, and all this together with that backdrop, it's hard to see inflation falling very much.”
Louis is bullish on gold - says gold is really a play on emerging markets, and he remains very bullish on emerging markets.
“This must be the first risk off event in the past five years or so, where the Renminbi rose instead of a fall. It's also a big risk off event where Chinese stocks broadly did nothing, even as the Nikkei imploded and even as the KOSPI imploded and then the NASDAQ imploded, Chinese stocks, basically, they hummed along.”
On the geo-political risks between the U.S. and China, points out one of the great quotes that's often cited of the Little Red Book is, when the enemy attacks, we retreat. When the enemy rests, we harass. When the enemy retreats, we pursue. - says gold may be being bought by China based on this approach.
On copper: “You do have an emerging market boom unfolding in Indonesia and across the Middle East, if you think of all these things, then you have to see the current dip as a buying opportunity.”
On uranium: “It's the spot price of uranium goes up, but production of it pretty challenging, and it takes a long time to get the mine up and running. And finding geologists, as you and I have discussed in the past, is now impossible. Finding people who want to go work in northern Canada, or work in Kazakhstan is pretty tough in a tight labor market when people would rather be in Austin, Texas or in New York City.” .. Explains the safety of nuclear power relative to other forms of energy.
On oil: Provides the math of how a million and a half barrels a day demand for oil is increasing every year - this demand is not from the U.S. but from emerging markets. “we have had been used to growth in oil demand being a million, a million and a half barrels per day coming up over emerging markets. And this was when everybody in Indonesia, everybody in India, everybody in Colombia was going around either on a bicycle or, at most, a moped. And what's happening is that all those guys who were driving mopeds are now buying cars. Not only that, they're buying cars and then next year, their cousins buying a car, and the following year, their niece is buying a car. So are we going to stay in a world in which China is now exporting millions of vehicles every month around the world?? Are we going to stay at a steady million, million and a half growth in demand, or could we conceptually move to two, two and a half million in demand?”
CedarOwl Commentary: Louis gives fascinating perspective on the global economy and financial markets, bolstered with historical analogies and literature references. He explains in this podcast the big transition from the tech stocks to value-based emerging market equities and to investments of scarcity like gold and hard assets. This aligns with our investment approach based on the principles of the Austrian School of Economics. A very important fact Louis mentions is how emerging markets are growing - it is not just a China story anymore - this has enormous implications for investing and which assets and companies makes sense - an emphasis in this discussion on Chinese equities, uranium, oil, copper, gold, and equities of infrastructure companies.
Source - MacroVoices - Louis-Vincent Gave - What Just Happened?
July 13, 2024
John Mauldin interviews Louis-Vincent Gave in this great insightful discussion.
Louis presents slides on Investing in an Inflationary Boom. This is the top right scenario of the below slide - translating to buying price-sensitive growth, contrarian, cash. Louis goes into more detail this scenario.
Louis sees the upper right quadrant as a new paradigm now beginning now. Points out the drivers of this change like the geo-political risks and the Covid era fallout, but points out other factors that are more structural that is likely being underappreciated today - a structural shift in the western labor force, the rise of the gig economy, and the pandemic of drug abuse. Also other factors - see below.
Louis emphasizes avoiding assets that do not have a probability of outperforming based on the chart below and emphasizing assets that do.
Here is a chart Louis brings up as a big trend - emerging markets are beginning on a new boom. Louis says lot of this is being driven by the trend of Russia, due to geo-political risks and developments, doing business with many emerging markets directly without involving the use of the USD as payment.
Louis emphasizes there is massive growth in emerging market - to - emerging market business activity .. there is much less of the developed world involvement.
Louis thinks the idea of using bonds to hedge out equity portfolios should now be using energy to hedge out equity portfolios - “the new anti-fragile asset of choice.”
Louis likes showing this table below, which still applies:
Louis brings it all together in this slide below for what he likes for portfolio construction. Emphasizes precious metals, China equities, energy equities, emerging market staples and LATAM debt (positive real rates with conservative central bank policies). Suggests hedging with deep out-of-the-money call options on the Japanese Yen currency.
CedarOwl Commentary - This interview discussion is essentially a presentation by Louis as he presents several slides as discussion points with John Mauldin. Overall the message is clear:
A new bi-polar world is emerging, one being the indebted mostly G7-based western world and the other being the newly emerging BRICS++ world, led by China and Russia.
This BRICS++ world is migrating away from USD-denominated payments for trade between their member countries, avoiding any trade and settlement having to do with the USD. Although this is not really the USD status as a reserve currency status given the depth and breadth of currency holdings by central banks globally, it is making a fostering greater independence geo-politically and economically from the United States, promoting their new payment systems and strengthening their currencies.
Less global demand for G7 government bonds together with trends resulting from mitigations of geo-political risks is causing interest rates and inflation to rise especially in the indebted G7 western world.
China is providing development leadership to Emerging Markets to help develop emerging market economies, now experiencing a great infrastructure boom.
Energy commodities and energy equities are the new substitute formerly “risk free asset” U.S. Treasury bonds.
Precious metals are increasingly being favored as stores of value globally.
Emerging Markets are outperforming Developed World markets.
Source - Mauldin Economics - Investing in an Inflationary Boom
June 12, 2024
Louis-Vincent came into 2024 with strong bullish views on commodities and emerging markets.
Admits in recent weeks that these views have been difficult and not well aligned with the behavior of the financial markets.
Sees weakening economic data coming out of the U.S., perhaps indicating a “soft patch” (“for the next five months”) led by rising costs of living by especially the low-end consumers - a big concern for Louis-Vincent.
Emphasizes the world is seeing more geo-political risks, especially growing trends of protectionism in the western world against China’s exports.
Thinks western central banks are looking for opportunities for lowering interest rates. Initially the reaction by financial markets would be bullish, but then followed by lacklustre financial markets. The USD will likely roll over - which is bullish on cyclicals, emerging markets - bullish for Hong Kong, Saudi Arabia, UAE especially with pegged currencies to the USD.
With tariffs being imposed on China’s exports, sees higher prices of consumer products to the importing countries.
Overall sees a long-term structural environment of rising inflation in the western world.
Sees two big trends in China now - 1. continued unfolding balance sheet recession, 2. lending to accelerate efficiencies in industries - like a car that can travel with 3 litres of gas for 100km (translating to lower emissions) but at a very low price-point. China is moving up on the value supply chain - means not much inflation for China. Wages in China going higher and affordability by the growing middle class is going higher. “Much better cars for half the cost.” The western world is waking up by instituting tariffs on China’s exports.
Explains how China is concerned about Japan’s currency being weak, as China’s focus on industrial competitiveness becomes threatened. U.S., China, and Japan policymakers want the Japanese Yen to be stronger now.
“Investing is not a sprint, it is a marathon.”
Source - WTFinance - Weak Data Suggesting Economy is Rolling Over with Louis-Vincent Gave
May 30, 2024
Louis-Vincent emphasizes how and why the U.S. needs a weaker U.S. Dollar to revitalize industry and reshoring in the U.S..
Explains how U.S. tariffs on Chinese products as the tariffs cause higher prices for consumers. This is effectively penalizing 70% of the U.S. economy (being consumer focused). However, it could be that U.S. tariffs are strategically intended for the U.S. to re-industrialize.
Emphasizes that the U.S. and China are in the midst of a protectionist trade war.
Discusses de-dollarization trends and China’s gold buying - suggests some of the trade payments could offer an option of getting gold off the Shanghai gold exchange. China’s long term goal is to do trade with other countries directly without using the U.S. Dollar.
Sees the Middle East as likely to remain U.S. Dollar based due to geo-political alliances and protections like with the Saudi ruling family etc.
Explains how Russia is outpacing NATO on industrialized activities including the military. Points out it is difficult for the U.S. to remain a “hegemon” without an industrialized base. The U.S. needs a weaker U.S. Dollar - sees a devaluation therefore in the future for the U.S. Dollar. Thinks it is likely that if the U.S. puts in say a 50% tariff in place, China will likely put in a big devaluation to offset the tariff. China will also retaliate in an asymmetric fashion against the U.S..
Identifies emerging market debt as an investment idea he has liked for quite some time - over the past four years.
CedarOwl Commentary - According to Louis-Vincent’s most likely scenario - looking like a trend towards a strengthening Japanese Yen (and a relatively weakening Chinese Yuan) and a weakening U.S. Dollar, which means the decision tree (see below) that Louis-Vincent shares in his article (see below) will be the upper flow - China will now experience an epic deflationary boom, buy Chinese equities and commodities, and sell the U.S. Dollar and U.S. Treasuries.
Sees gold as a play on emerging markets with a call option on the loss of faith in institutions and government in the western world. If the call option is exercised, gold will likely go up 5x. Overall 2x if the world stays stable and 5x if the world goes into chaos.
Identifies the top 10 fastest growing cities - 7 are in Asia and 3 are in Africa. People joining the global consumer class - 120,000,000 over the next 3 years, with 100,000,000 in Asia. 69 of the top 100 cities in the world are in Asia - this is where many of the new consumers will come from.
Explains the concept of “Acceleration Phenomena” - levels of consumer purchases, emphasizes this process is non-linear. All of this translates to commodities demand - Sees demand on commodities from emerging markets to skyrocket.
Thinks value investments are already performing better than growth investments, notwithstanding the performance of one equity - Nvidia. Points out many companies are working to eliminate Nvidia out of their supply chain.
On energy, remains disappointed with energy investments this year to date.
Thinks the most important trend is a move from a disinflationary environment to an inflationary environment.
Portfolio positioning - he is staying away from OECD bonds .. emerging markets exposure - equity and fixed income .. biggest concern is oil going from $80 to $150 .. 25% of his portfolio is in energy names - “energy is the new bonds” .. suggests selling bonds and buying energy names.
May 21, 2024
May 14, 2024
Louis-Vincent presents a global view of the economy and the financial markets. In this podcast he:
Sees the economic expansion of China as now happening globally to other countries in Asia, the Middle East, Europe, Africa and LATAM; points out the U.S. is concerned about this development as it appears that China is becoming an empire, competing and even taking over this recent historical role of the U.S..
Explains how the U.S. has been de-industrializing and China industrializing; as such, the U.S. now placing tariffs and becoming more protectionist even though this is long-term negative for the U.S. industrial base, whatever is left of it, as it makes U.S. industry less globally competitive.
Points out the U.S. budget deficit will likely stay high and unsustainable, regardless of political changes.
Highlights Japan’s insanity - the Yen currency he estimates is 40% undervalued, with the Yen over Yen150 to the $U.S. is making the $U.S. relatively stronger.
Source - Hidden Forces - China & the American Imperial Economy | Louis-Vincent Gave
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