Tom welcomes Louis-Vincent Gave to the show. Louis is Founding Partner & CEO of Gavekal Group, and he discusses his unique perspective on global economics, drawing from his extensive experience in Asia, particularly China. Gave argues that China has shifted from being a deflationary force to a reflationary one, a change driven by China’s strategic de-westernization of its supply chains, which initially led to a real estate bust and reduced domestic consumption. However, China’s newfound competitiveness in high-value industries has positioned it as a significant global economic force. Gave highlights that China’s policy shift towards stimulating domestic consumption and reducing reliance on exports will have global implications, potentially forcing Western policymakers to reassess their fiscal and monetary policies.
Gave also delves into the complexities of China’s internal issues, such as youth unemployment, stagnant wage growth, and the impact of real estate market fluctuations on consumer confidence. He emphasizes that China’s challenges are not merely economic but also psychological, with confidence being a critical factor in reviving the economy. The discussion touches on the role of precious metals in China, noting that Asian investors, particularly from China, Japan, and South Korea, have been significant buyers of gold and silver, viewing them as a hedge against low interest rates rather than just inflation. The conversation also explores the potential geopolitical shifts, particularly the mending of relationships between China, India, and Russia. Gave speculates that this trilateral cooperation could lead to a significant economic boom, driven by the complementary strengths of these nations. He compares this potential shift to historical reconciliations, such as the rapprochement between France and Germany after centuries of conflict.
Gave introduces the Gavekal asset allocation grid, which categorizes economic conditions into four quadrants: inflationary boom, inflationary bust, deflationary boom, and deflationary bust. He argues that the current global economic environment is characterized by an inflationary boom, driven by loose fiscal and monetary policies. This context makes bonds a less attractive asset class, while commodities and equities are more favorable. In conclusion, Gave shares his belief that China’s current economic situation mirrors the U.S. in 2009-2010, where weak growth and stimulus led to strong stock market performance. He suggests that this dynamic is often misunderstood, as many believe strong economic growth is necessary for a robust stock market. Gave’s insights provide a nuanced view of China’s economic trajectory and its global implications, offering valuable perspectives for investors and economists alike.
Timestamps:
00:00:00 – Introduction
00:01:14 – China’s Deflationary Impact
00:04:47 – Policy Shift to Reflation
00:06:44 – Real Estate and Local Debt
00:11:35 – A Confidence Crisis
00:15:42 – Youth Unemployment Challenges
00:19:08 – Precious Metals in Asia
00:22:43 – RMB Revaluation Opportunities
00:27:32 – China-India-Russia Synergy
00:36:15 – India’s Growth Potential
00:39:20 – Asset Allocation Grid
00:44:08 – Bonds & Commodities Outlook
00:47:22 – Commodities & Metals
00:51:25 – China’s Stimulus Parallels
00:54:31 – Concluding Thoughts
Guest Links:
X: https://x.com/gave_vincent
Website: https://web.gavekal.com/
After receiving his bachelor’s degree from Duke University and studying Mandarin at Nanjing University, Louis joined the French Army where he served as a second lieutenant in a mountain infantry battalion. After a couple of years, Louis left the army and joined Paribas where he worked as a financial analyst—first in Paris, then in Hong Kong.
Louis left Paribas in 1998 to launch Gavekal with his father Charles and Anatole Kaletsky. The idea at the time was that Asia was set to become an ever more important factor in global growth, and that consequently Gavekal needed to offer its clients more information, and more ideas, relating to Asia.
Louis has written seven books, the latest being Avoiding the Punch: Investing in Uncertain Times which reviews how to build a portfolio at a time of rising geostrategic strife, and when very low interest rates and stretched valuations on most assets announce constrained returns on most assets over the next decade.
Louis speaks English and French. He spent many hours studying Mandarin and Spanish, which he once spoke decently. He is married with two sons and two daughters.
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