FinancialSense interview with Louis-Vincent Gave

Even though I have no access to their publications, based on what little I hear from them, I'm a big fan of GaveKal. Jim Puplava at Financialsense conducted an interview with Louis-Vincent Gave recently and I urge you to check it out (interview is the first half of the show; mp3 link here; streaming windows media link here).

Readers may recall that GaveKal was bullish last year and that turned out to be incorrect. Since I don't have access to their publications, I'm not sure if they changed their mind along the way. Based on limited tidbits on their public forum, I believe they were bullish going into the crash. However, Ahmad Abdallah, their oil expert, made a spectacular bearish call on oil. If you want to know some of the reasons why high oil prices seem unlikely, you might want to read through this post.

Based on this interview, GaveKal seems bullish. I personally am more bearish and disagree with some of their views. I do share their positive views of Japan and Asia (but my bullishness of Asia is for the long-term--I want to see if China can manage through this crisis without a collapse of their government.)



  • Cites 3 phases to every crisis...first, asset prices decline... 2nd, banking crisis... 3rd, crooks are revealed [lol :) ]... he implies that we are in the final stage... [I think this seems a bit too simplistic for my liking]
  • Does not like the fact that strong hands seem to be absent... says that, historically the strong hands were pension funds, endowments, etc, that buy for the long term. These guys used to have a simple allocation between bonds and stocks, and when stocks decline, they sell bonds and buy more stocks. Right now, these guys are not buying. He suggest that this may be because these investors changed their asset allocation in the last decade to include hedge fund holdings, private equity holdings, commodities, and so on. These alternative assets have collapsed, require further commitment, and/or are hard to sell, so the strong hands are kind of stuck. [Interesting view]
  • Thinks Treasuries will sell off later this year as the economy picks up from central banks' easing [I don't share this view and think there is a high probability of yields staying the same or even declining, a la Japan... I don't think the economy will post strong growth (better than now but not great) and the market is unlikely to rally permanently]
  • Still sticking with the widening of select European soverign bonds... bearish on Italy and Greece... Nearly all countries collapse due to debt issued in foreign currency. Italy has debt of something like 120% of GDP and issues new debt in Euros. Italy needs to roll over debt of almost 30% of GDP and it won't be able to. Since it can't print Euros (in the past it printed liras to pay) it will turn to ECB. The ECB will do one of two things. ECB either print Euros to help Italy, in which case Euro declines... or ECB refuses and Italy faces a bust, hence the debt falls.
  • Thinks US consumer will recover due to a number of stimuli, including hundreads of billions in govt spending, hundreads of billions saved from oil price declines, etc.
  • Best currencies to own over the next 5 years are the Asian currencies [I am not sold on this right now. Difficult to make an intermediate or long term call but I still prefer the US$ or Yen for the forseeable future]
  • At worst, recommends being neutral... but recommends overweight equities...
  • Bullish on China... [I think this is a risky move. I personally am very concerned about China, and actually think there is a high chance of it imploding. Louis-Vincent Gave, as well as the market, seems to ignore the massive overcapacity in manufacturing and the likely bad loans in the banking system]
  • Bullish on US stocks [similar views as me]
  • Bullish on Asia in general
  • Bullish on Japanese stocks... prices back to 1982 level... very attractive... for example, cites the case of 500 companies with positive cash flow trading below cash on books... [my concern, as I have repeated many times, is that Japan is not shareholder-friendly. Companies are not run for shareholders and hence can trade at depressed valuations for a long time. Having said this, if global investors feel that USA is a mess and they want to shift money elsewhere, I can see them putting more into Japan]
  • Bearish on Europe... valuations attractive but doesn't like the lack of government policies to tackle the crisis
  • Thinks USA and Asia have attractive valuations and undervalued currencies... a nice double combo...
  • Bearish on government bonds... corporate bonds somewhat attractive
  • Overall, he expects a tepid first half with a strong second half... [this is very close to the consensus. The Street has a somewhat similar view with many calling for a strong rally in the 2nd half.]

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