Avoiding the Punch: Investing in Uncertain Times

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Written by Louis-Vincent Gave
Edition: Gavekal Books

The aim of this book, published in the summer of 2021, is to review 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 for most assets over the next decade.

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Book Synopsis

Crises often end up acting as accelerants to underlying trends.

For example, the 2008 US mortgage crisis triggered an acceleration in the globalization trend that had been unleashed in 2001 when China joined the World Trade Organization. After all, in the wake of that financial crisis, the policy responses to a collapse in global growth were:

  • The creation of the G20: a forum that gathered all the world’s major economic powers into a bloc that reaffirmed its commitment to free trade and its desire to avoid the protectionist trappings that helped push the world into the 1930s’ depression.
  • The commitment by China, the leading global manufacturer, not to devalue its currency even though global trade—on which Chinese growth depended—had collapsed.
  • Gargantuan infrastructure spending by China, the immediate consequence of which was the integration of hundreds of millions of Chinese “inland” workers into the global supply chain—thereby keeping labor costs in check everywhere.

Today, just as the mortgage crisis amplified the trends that predated it, the same is true of the current Covid-19 crisis. These trends include:

  • Growing disillusionment with policymakers in Western democracies.
  • Globalization giving way to a world breaking up into three separate economic zones (the Americas, Europe and Asia), each with their own trading currency (the US dollar, euro and renminbi), bond market of reference (treasuries, bunds, Chinese government bonds) and supply chains.
  • A breakdown in the China-US relationship.
  • An acceleration in the expansion of government debt across the Western world, funded through unprecedented monetary policies.
  • Growing uncertainties as to the ability of the US dollar to remain the anchor of the world’s financial architecture.
  • Stretched valuations on most asset prices, such as government bonds, equities and real estate, at least relative to their own history.

Deploying capital in an efficient way against this backdrop is a true challenge.

The aim of this book is to address this challenge.