As for any economic indicator, monetary polices can be viewed from two interdependent yet different angles:

A major “price” signal took place two years ago, announcing the debasement of major fiat currencies and the awakening of gold. Since then, gold has spiked 40%. A “volume” signal took place just one week ago, announcing a second wave of world liquidity in USD intimately correlated with the second wave of the COVID pandemic.

The consequences of the “volume” signal on asset allocation (if it lasts) could be as significant as the one on “price” some two years ago.

« 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?

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?

We cannot fill our car tanks with letters of credit, and we can’t have banknotes for dinner. This is because ‘Wealth’, and ‘Money’, are fundamentally different. This is an issue we have considered in many of our papers, defining asset value and wealth out of free energy, not money. Today, we argue that cash rates set at artificially low levels by major Central Banks for too long deeply affect developed economies’ wealth creation.

One of the notable financial events of 2019 was the switch by major central banks to a ‘Keynesian-type’ global monetary policy. Keynesian polices target the ‘euthanasia of the rentier’, so we know quite well who is likely to suffer from them. The question is, however: who benefits from the crime?

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.

In relative terms, the USA isn’t losing momentum on risk, but it may well be the case on the currency side. A weaker USD, at least against Asian currencies, would normalize a situation that had never yet occurred in the past 40 years. The anomaly was the dominance of a single region on both competitive fronts, cash and risk, over a full year.

What is excess weight in an equity book? It’s the few poorly performing exposures that continuously drag down global performance. TrackMacro is celebrating its 4th year of existence by offering an extended, 2.0 version. The AI, equity-risk application now benefits from additional software, tracking likely dead weight in long-only equity books. TrackMacro 2.0 is not a black box, but a real-time competition tracker to eliminate unfavorable bets. Its “cleaning process” can save up to 10% negative alpha per year on such positions.

A new version of TrackMacro will be launched in the coming weeks. The extended version includes a cash and equity tracker to dynamically select the best remunerating economic zones. For the first time since launch on June 30, 2015, TrackMacro is now able to provide full equity/bond model portfolios with dynamic allocations across countries and between equities and bonds. All risk parameters are at the discretion of the user to run extended simulations.

Monetary zones compete to attract and safeguard excess savings denominated in their own currency. From an investor’s standpoint, the attractiveness of a currency resides in the total remuneration proposed by its monetary zone, i.e. the interest payments on cash deposits and the appreciation or depreciation of the currency vis-à-vis other competitors. We analyse below this competition over time and show that currency remunerations, or ranking across zones, reveal the ‘Best of Breed’. A simple rule to allocate cash, based on trusting currency leaders over currency losers, generates significant alpha over time.

There exists a theoretical trade-off between two types of remuneration: cash and risk. An economic and monetary zone cannot simultaneously favour both ‘the rentier’ and ‘the entrepreneur’. However, we believe that a flexible investor can in fact benefit from such a situation. By investing their cash into the best cash-remunerating zone and their risk into the best risk-remunerating zone, the investor can do what has rarely been done before; reap the benefits of both. The presentation of our model is split into three parts: (I) Arbitrage Principle, (II) Cash Remuneration, (III) Risk Remuneration. Through our new method of analysing global investment portfolios, our model devises a simple rule that leads to the generation of significant long-term alpha