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Louis-Vincent Gave
Coauthor
The End is Not Nigh
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 Today’s
global financial system is characterized by a curious mixture of freedom
and manipulations. Between the two main currencies of the world, the US$
and the Euro, we have a free float. But between the dollar and a lot of
other currencies, especially in Asia, we have a dirty float, or fixed
exchange rates, the goal being to maintain the exchange rate at an
abnormally low parity to the dollar.
To
make matter worse, a lot of those countries (especially China and India)
have decided to make their currency inconvertible. This would not matter
if these currencies were small and irrelevant, but they are increasingly
less so by the day. This state of affairs leads to profound price, and
volume, distortions, some well understood (i.e.: the RMB is undervalued
and can only go up) and some not as well understood. It also triggers a
number of important questions. Namely:
- What
distortions does the intervention of non-market players in the Asian
foreign exchange markets engender?
- Are
the distortions abating? Or accelerating?
- How
long can those distortions last?
- If/when
the adjustment comes, what assets will be most at risk?
Of
all these questions, the last one is probably the most important. As we
never tire of writing, money management is often more about avoiding the
assets that implode, and diversifying amongst the rest, than about
picking outsized winners.
While
it may be tempting to adopt a very defensive posture in the face of such
blatant distortion, there are many reasons to believe that the current
overall positive growth environment will continue over the coming years.
In The End is Not Nigh, we push some of the themes developed in Our
Brave New World a little further and review the reasons that have led
us, in recent years, to shy away from prophecies of doom and why we
remain positive on global financial markets.
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The GaveKal
Main Office is in Hong Kong:
Suite 801
1-13 Hollywood Road
Central, HK
Tel: 852.2869.8363
Fax: 852.2869.8131
www.GaveKal.com |
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