The economy and stock market’s profitabilities do not always walk hand-in-hand. In 2020, for instance, to the surprise of many observers, we saw the former collapsing and the latter booming. Is it possible 2021 might see the opposite?

A protest movement in France named the “Gilets Jaunes” (Yellow Jackets) began in October 2018 due to a tax increase on fuel. The movement was populist, widespread, and spontaneous, and only weakened in 2020 due to coronavirus lockdowns.

Was 2.6 cents per liter extra tax on gasoline such a big deal?

The answer is yes. Inflation on a household’s constrained expenditure can unleash the “Gilets Jaunes multiple,” and kill consumption and stock markets.

The risk has now crossed the Atlantic.

In a stable regime where finance and economy grow in parallel, cash and oil are two forms of free energy which, in theory, should be fungible. Since early 2020, however, the central banks from the US, Europe, and Japan, issued 40% excess cash on average out of the blue to fight the deflationary consequences of the pandemic.

Cash and oil are unlikely to remain fungible: you can print cash, but you can’t print oil.

A few months ago, with a mischievous look in his eyes, Charles Gave noticed the S&P 500 was paying one gram of gold per annum in dividends!

What kind of hidden information lies behind this coincidence? Scarcity, efficiency, and the competition between them in asset markets.

For the first time since the end of the subprime crisis in 2009, the S&P 500 book stopped growing on December 31st, 2020 over 12 rolling months. The US market momentum is therefore fully supported now by intangible value.

« All the things I could do, if I had a little money » chantait ABBA en 1976.

Aujourd’hui, ce n’est plus l’argent qui manque. Les grandes banques centrales des EtatsUnis, de l’Europe et du Japon, en ont imprimé entre 6 et 7 billions de dollar américains depuis le début de l’année 2020. Comment comprendre cette monnaie ? Est-elle surévaluée, sous-évaluée ?

« All the things I could do, if I had a little money » ABBA sang in 1976.

Today, there’s no shortage of money. Since the beginning of 2020, the major central banks of the United States, Europe and Japan have printed between six and seven trillion US dollars combined. How can we approach this currency? Is it overvalued or undervalued?

In recent weeks, attention has focused on the surge, and subsequent correction, in US technology stocks. Yet an asset class that has greatly outperformed the Nasdaq 100 this year is gold-mining equities. In this piece, Charles seeks to develop firmer investment rules for managing gold and gold-mining stocks within a portfolio.

In times of great market uncertainty, like today, investors should seek sanctuary in the stocks of companies that are cheap, enjoy positive cash flows, have plenty of cash on their books, and which are quoted in an undervalued currency. Today, Charles writes, the shares of non-financial companies in Japan fit the bill on all four counts.

As the year draws to a close, we have taken time to reflect on our Theory of Financial Fragility. As its track record develops day by day, it has highlighted certain lessons. In the new year, we recommend paying close attention to the two best-remunerating currencies of the past twenty years; Gold, and the Chinese Yuan. Their leadership will soon become particularly symbiotic.

Entering December, the Gavekal TrackMacro model turned positive on world trade from neutral. Is TrackMacro misreading international trade? If not, how can ‘trade’ be accelerating in an environment of rarefied liquidity?

Gold’s purchasing power has remained remarkably stable in the past 400 years, at least until the end of the Bretton Woods system in August 1971. The ensuing debasement of major currencies created a new competition between gold and currencies to attract world savings, and also between currencies themselves. This letter looks to describe the terms of the competition and identify the best moments to buy currencies rather than gold.