We recently published a Thought Leader Interview with Louis-Vincent Gave of GaveKal, which we think is the premier economic and financial research firm out there. We encourage everyone to read the full interview (PDF) R2 Thought Leader Interview Louis Gave Jan 2011.
Here are some of my own reactions to the piece:
- Unlike the US where the lack of cooperation has created a “compromise” which incudes both tax cuts and spending increases instead of the other way around, the countries of Europe are finding some fiscal discipline. In Louis’ words some policy makers in Europe are finding their “inner Thatchers” and realizing that “There is no alternative.”
- The countries of Europe and the Euro are facing a showdown to answer the question of whether the rich countries like Germany will accept higher rates of inflation and the Southern countries abide negative growth for years to come. There is widespread disagreement about the eventual outcome; but, for my money, it feels like a situation where everyone muddles through and the Euro survives. (Although I’d love to see Greece sell some islands!)
- A point not directly related to this interview is whether or not the steps that are being taken vis a vis the Euro and the USD collectively further weaken the “paper currencies” in contrast to a growing sentiment that hard money (gold, silver) and liquid assets (oil) are the only good stores of value.
- China appears to be serious about containing inflation even if means it will crimp growth and even cause it to dip below their 8% “minimum.” New credit growth will decline from 19% in 2010 to 15% in 2011. The reserve ratio will increase from the current 18% to as high as 25%, depending on inflation, and more rate hikes are planned for this year. If growth moderates in China, commodities that are not supply constrained may go down sharply in price unless growth in other parts of the world can absorb that incremental capacity.
- Japan still has major issues including recent bank recapitalizations, a strong Yen, lack of leadership and an activist central bank. It all suggests that Japan (EWJ $11) will continue to be sideways for some time to come. Feels too early to speculate on any sustainable shifts to improved growth there.
There’s more covered in the full interview, including further thoughts on Chinese liquidity reforms and North Korea.
For more interviews please visit our Thought Leader page. There you can also nominate a Thought Leader for a future interview and we will evaluate and follow up (with your help if you can) to make it happen.
- Germany Vows Defense of Euro (online.wsj.com)
- Germany’s Merkel: Europe must strengthen the euro (ctv.ca)
- Germany Signals Support for Euro-Zone Members (nytimes.com)
- Is Germany to Blame for the Euro Crisis? (curiouscapitalist.blogs.time.com)