Written by Louis-Vincent Gave
Edition: GaveKal Books


When Lord Salisbury was asked by Queen Victoria to consider a reform, he famously replied: "Change? Your majesty, aren't things bad enough as they are?"

Of course, it is in the nature of conservatives to look askance at change. But sometimes, change is thrust upon us; and in that regard, turn of the century periods tend to be particularly traumatic. Think of a man who fell asleep for 30 years in 1790. Our sloth would have woken up to a very different world in 1820 (France was no longer the dominant European power, Britain was rapidly expanding her global reach, Spain had become a has-been, the United States was experimenting with a new form of government…). The same is even truer for the man who fell asleep in 1890 and rose in 1920 to witness the end of the Austro-Hungarian, Chinese, Russian and Ottoman empires, the establishment of the USSR, the rise of Japan, the dominance of the United States. And the same is true today: someone who fell asleep in 1990 would likely be surprised to hear that Pentagon officials are now more worried about China than the Soviet Union (which of course no longer exists); that Europe is going cap in hand to ask for loans from China, India and Brazil; that Iran may, after all, end up exercising ultimate political control over large parts of the Middle-East. In short, beginning of centuries tend to be 'revolutionary periods', with societies, political systems, and established values all undergoing deep and profound changes. Now contrary to what Lord Salisbury implied, not all change needs to be negative; and today, there are four important changes that investors need to incorporate into their thinking if they are to invest profitably:

  • The first is the rapid rise of robotics and the impact that growing automation will have on the economies, and social harmony, of Western and developing countries
  • The second is the continued collapse in the velocity of money
  • The third is the shale gas revolution and the growing reality of widening energy costs around the world
  • The fourth is the internationalization of the RMB and the impact this will have on emerging market trade

This short book is an attempt to tie together these four important themes which, in recent years, have formed the backbone of the GaveKal research effort.

Comments Comments
Ross says:

very good

Posted on 22-Apr-2014 13:58

Fred says:

great guy

Posted on 22-Apr-2014 03:33

Mike Lee says:

Reading because of curiosity

Posted on 14-Apr-2014 03:18

terry says:


Posted on 02-Apr-2014 09:38

Tania Goncalves says:

Thank you for your presentation.

Posted on 10-Mar-2014 23:19

p. lemyre says:


Posted on 28-Feb-2014 00:43

Robert Larson says:


Posted on 27-Feb-2014 23:33

cs gan says:


Posted on 27-Feb-2014 16:50

Jimmi Vogt says:

Thank You!

Posted on 27-Feb-2014 16:17

Penny Diehl says:

Thank you for providing this book.

Posted on 27-Feb-2014 13:02

dan lynch says:

Thank you. Dan

Posted on 27-Feb-2014 12:31

john says:


Posted on 23-Feb-2014 01:42

Louis-Vincent Gave says:

Dear John, Good to hear from you and thank you very much for reaching out Let me dig straight into your questions 1. The "robolution" means increasing labor productivity, i.e. fewer workers will be needed for any given level of output. Not all of the unemployed will be able to qualify for the remaining jobs requiring specialized skills. Won't a large pool of low-skilled unemployed keep wages low? A: Logically yes. Unless, of course, governments mandate that wages be kept at a certain high level (witness the debate on minimum wage in the US, in Germany, etc...), in which case the likely longer term consequence will be high unemployment rates and the creation of a permanent 'under-class' living off government handouts (a la UK, as portrayed in the series Benefits Street) with the issue rapidly becoming that the gap between living off benefits and earning minimum wage is not big enough to be worth the effort.... 2. The benefits of the improved labor productivity yielded by robolution will therefore accrue to the owners of the robots. Will these recipients of higher incomes save or spend their higher incomes? Will they account for sufficient consumption spending to absorb the enhanced output of manufactures? A: That's a tough one. Perhaps they will as conspicuous consumption does seem to be in vogue, whether it be the purchase of LVMH handbags, football clubs etc... Having said that, it seems to me that the answer may be the same kind of pattern that we had in the 19th century/early 20th century when rich people employed dozens of people to take care of their lifestyles: gardeners, cooks, valets, nannies, butlers etc.... of course, the issue nowdays is that no-one (outside of the third world) does that because a) it is no longer socially acceptable and b) hiring and firing people is much tougher. Thus, nowdays, rich people in the west do not spend money on 'people', as they did a century ago, but on 'goods', which are costing ever less to produce. It seems unlikely that unemployed individuals or low-wage earners will be able to pay for much consumption spending. A: Yes-indeed. Unless, of course, you witness massive redistribution from governments; either through taxation or by simply leveraging up. One important issue here is that our welfare system, as they are presently constructed, are mostly based on redistribution through a) taxation of LABOUR and b) increases in debt (bill it to the grand-kids!). These options might have worked post WW2 (for economic and demographic reasons), but they no longer work today! This is why i argue in the book that we need to upend our taxation system and move towards taxing capital more and labour a lot less. 3. With only slow global consumption spending growth, won't GDP growth rates decelerate, and returns on investment also diminish? What, then, will be a driver of economic growth? A: we have written a number of papers on how GDP growth, although the holy grail for policy makers, is actually a complete nonsense. Adding consumption, investemnt, net trade and government spending doesn't really tell you how your economy is doing. What if all the growth came from a massive deterioration in the balance sheet of governments (or even consumers)? Is that something to be celebrated. The way we should instead look at growth is that growth is the result of productivity gains on labour + productivity gains on capital + annual increases in labor force (demographics). On this front, it does look like growth will be challenged for a while. After all, the productivity of labour will likely be strong, but that will likely be somewhat negated by shrinking labor forces (for demographic and technological reasons). As for capital, if our welfare state are going to survive, it will need to be taxed more... Q: The future you are describing seems to be one of ever widening income gaps between those who own capital and those who don't, Yes in fact, i go a step further in the book. i also talk about the growing disparities between the countries who have already 'made it', and those whose cheap labour force are no longer the comparative advanatage they once were. Q: but also one of insufficient consumption spending to drive economic growth. Not sure about that one. Firstly, it is not consumption that drives growth but productivity gains. and perhaps we are sitting at the start of massive productivity gains? q: It sounds like an unsustainable future over the long run. A: again, not sure. it just sounds like a phase of accelerated creative destruction to me. Capitalism on steroids. However, what does seem unsustainable to me is our present welfare state. They will have to evolve. But they have done so in the past. and that is, after all, the beauty of democracies: they do tend to make the changes they need to - maybe not WHEN they need to, but EVENTUALLY! Yours truly Louis

Posted on 08-Feb-2014 11:36

John G says:

Dear Louis, You and I have crossed paths at several of the "Luxembourg Investment Forum" seminars, most recently in Vienna last November. In your presentation in November, and in your book "Too Different for Comfort", you highlighted the implications of an accelerating "robolution". I am trying to understand these implications. 1. The "robolution" means increasing labor productivity, i.e. fewer workers will be needed for any given level of output. Not all of the unemployed will be able to qualify for the remaining jobs requiring specialized skills. Won't a large pool of low-skilled unemployed keep wages low? 2. The benefits of the improved labor productivity yielded by robolution will therefore accrue to the owners of the robots. Will these recipients of higher incomes save or spend their higher incomes? Will they account for sufficient consumption spending to absorb the enhanced output of manufactures? It seems unlikely that unemployed individuals or low-wage earners will be able to pay for much consumption spending. 3. With only slow global consumption spending growth, won't GDP growth rates decelerate, and returns on investment also diminish? What, then, will be a driver of economic growth? The future you are describing seems to be one of ever widening income gaps between those who own capital and those who don't, but also one of insufficient consumption spending to drive economic growth. It sounds like an unsustainable future over the long run. What am I missing in your story? Best regards, John

Posted on 07-Feb-2014 18:21

Louis-Vincent Gave says:

Dear Sir Thank you very much for reaching out and for your kind words. I think one needs to live outside of the US, and especially in emerging markets, to fully appreciate how dependent the world is on the US exporting US$500bn or so every year through the current account deficit. This is the grease that makes the machinery of global trade work. And without it, global trade grinds to a halt. and whenever world trade shrinks, we typically have a recession as it makes for a fall in productivity gains (David Ricardo and all that). So yes: i fully agree with you that the US exporting US$200bn+ less per year is a very big deal. It means that someone, somewhere, isnt getting their US$ to keep the show on the road. In 2011-12, it was Southern Europe. In 2013-14, it seems to be Argentina and Venezuela, again (those two are always good candidates for a US$ squeeze!!!), as well as South Africa (a new entry which has done too little during the commodity boom to properly shelter its economy from such shocks), Turkey (also a fairly regular candidate), as well as perhaps Russia (another usual suspect). But staying with this idea, I think one of the possibly very important development that may be unfolding, and which we discussed in our own morning meeting a few weeks ago, is whether the "rich folks" in emerging markets are starting to feel shaky about their currencies. Indeed, the world is always about stocks and flows. And in the 2000s, not only did the US export a lot of US$ (a flow) but it also felt that a lot of individuals in emerging markets transformed what had historically been US$ savings (a stock) into assets priced in domestic currencies. Basically, the story of the past decade was that the Brazilians started trusting the BRL, the Thais started trusting the THB, the Koreans believed in the KRW etc... All of a sudden, the necessity to save in US$ was no longer a given (it was not true everywhere-for example, in India, most Indians still do not believe that saving in INR makes sense and instead pile their money into gold. In China, they also buy gold but usually tend to prefer real estate, stacking up apartments like others stack up gold bars or T-bills!). As individuals started to liquidate their US$ savings, local central banks took the other side of the trade and accumulated US$ reserves like never before. The question for today is whether this trend is now going into reverse: are the rich in the emerging markets preferring US$ to local currencies. if thats the case, that's bad news for emerging markets as it can lead to an implosion of domestic money supply growth with bank deposits shifting from local currencies to US$, central bank reserves falling and bank loans contracting. Such a move would be highly deflationary. Especially if, at the same time, the Fed starts to shrink its balance sheet (of course, it is not doing that yet-simply growing it less fast) AND the US consumer starts to push less money abroad. The best hedge against such a highly deflationary environment is, I believe, to own some long-dated UST, or good quality corporate bonds denominated in US$ Yours truly Louis

Posted on 07-Feb-2014 10:30

Bruce L says:

Mr. Gave, I have followed and enjoyed your writings for years, at least, when I had access to them. Recently I obtained "Too Different For Comfort" through a web site (Zero Hedge if I remember). I can only say excellent. So as not to take too much of your time I would address one particular topic you covered that I believe is extremely important. That topic is the removal of dollar flow external to the US as a result of the domestic energy boom. Until last spring I was a strategist focusing on global macro and for at least 2 years I had been pointing out that a major geopolitical change was going to occur as a result of some 2 to 3 hundred billion dollars a year the US was not going to be pouring into the external global economy. The major change in cash flow to the energy countries was certain to yield some new realities. All I got was blank stares. People understood that America was better off but some how could not see the obverse. I spoke to some pretty high powered people about this and the uniform response was response was " well I haven't looked at it that way, I have to think about that." (this included one on one conversations with people from Band Credit Analyst, Ned Davis, Merill Lynch etc. Smart people.) Clearly I did not express the problem well and with enough econo speak. But you get it and explained it so much better than I ever could have. Thank you. I am referring people to your work daily. I feel so vindicated to have such a prominent thinker raise the issue. I believe it is much more important than QE taper. Thank you again Bruce L

Posted on 07-Feb-2014 06:51

Frank King says:

Thanks -look forward to this read. Will make a donation. Dave expressed a concern about the rapid depletion of shale oil & gas reserves in the US and elsewhere. The nature of productive shale formations may be suitable for recompletion of the shale -- to extend the productive life and the reserves after the initial production rate of a well has reached the economic limit given the well head price. He was in my opinion, spot on, about rising cost curtailing future new development for both well and production cost.

Posted on 07-Feb-2014 05:04

Alison Braks says:

Thank you! Will definetly make a donation.

Posted on 28-Jan-2014 23:50

Geoff Wood says:

Thanks - looks a great read.

Posted on 28-Jan-2014 12:44

Jason says:

Thank you.

Posted on 25-Jan-2014 01:33

robert daly says:

Thank you

Posted on 13-Jan-2014 18:42

gibson chiang says:

nice to read this !

Posted on 13-Jan-2014 16:46

Louis-Vincent Gave says:

Dear Dave thank you so much for taking the time to pen the most kind, and generous, note below. On your two points on gold, and shale, i would say the following: 1) On gold The points you make below are well taken. In fact, for years, we have argued in our research that everyone who was looking towards the Fed in their bids to buy/sell gold were looking the wrong way. In today's world, the marginal buyer/seller of gold is in CHINA and in INDIA. It is what the Chinese/Indians do that determines the gold price. Not what the Fed does. So obviously, these guys were BIG buyers between 2003 and 2011 and have been less so since then. Why? Is this change structural or cyclical? For India, I very much believe that it is cyclical. It is linked to the government's restrictions on imports. For china, however, it may well be structural and linked to many factors, including a) the gradual opening of capital accounts, b) the anti-corruption drive and c) the overall contraction (or at least end of expansion) of balance sheets and d) ageing of population 2) On shale I think we have a race going on. On the one hand, we have possible faster depletion in the US/Canada. On the other, we have new shale gas exploration/exploitation coming on stream globally (UK, China, Brazil, Poland, Bulgaria...), all of which points to higher supplies in the near term Yours truly Louis

Posted on 13-Jan-2014 09:20

Tom says:

Half way through the read... and very very interesting

Posted on 12-Jan-2014 23:26

Sheila Chesney says:

Thank you.

Posted on 07-Jan-2014 20:49

Dave says:

Dear Louis-Vincent, I have just read your book and to be honest I was prompted to write to you after completing reading it and and then re-reading your preface. You do yourself a serious disservice, an almost unforgivable denigration of what you yourself have achieved in writing this book, and to me should be compulsory reading in every class and school and college throughout the world. Although I doubt very much that any elites would ever allow such a thing to happen. I understand that everything is fluid, but I struggles very very hard to come across a single major salient point reference the whole theme of the book that was not covered. Surely this book is the starting point, the basis that all people can take a start a way to begin to understand the complexities of the world we live in, and hopefully college and university people who have some morals, some basic human feelings and start to address these very complex matters from a different perspective and get involved. Probably wishing for the moon. I hope you do not mind me making another couple of comments and would be extremely interested in your take on this too One specifically is to do with China, having first visited China in 2000 and then in 2001 and in 2003 setting companies in both Shanghai and then Wuhan. I visit every year and lived there for a time before moving permanently to the Philippines and have friends in every part of China from Daqing in the far North to Kunming in the west. It is a place I just cannot stay away from and sorely miss it even after just 3 months away. Last September I was in Kunming, and I met with a friend of mine, one of the most generous and kind people I have met not just in China, but in my life. He is now the Heard of the Yunnan Province Tourism Bureau and I am sure you know that in China the top Bureau is always the Culture Bureau, but not in Kunming, that's the exception. We chatted, I was there for his birthday party, , about family the way l;ives all around are changing in China and what it all means for the younger generation, well his own kids actually, he has two. One of the things I did ask about was China's new found predilection for gold, and what he said to me seems to make perfect sense. We buy gold he said, because when the time comes as it has done throughout history, and it will come, when gold is once again the only thing that can carry value and back a currency. In our case it will back the bonds we issue, it will severely test western corruption in their currencies, and it will cause the world to value what we have done for the world. Unlike almost any western country, China will have the ability to back its paper with a real asset even it is ten years from now or it never happens China will still be free from interference in its trade. The other thing I would mention as I am not 100 % fully aware of all facts, but I am sure you too are aware of the discrepancy's between shale and shale oil and the reserves reported and the rapidly dwindling reserves and rapidly escalating costs to produce. It does seem to me that this is a one of the biggest dynamics that could play real havoc on the world if shale producers find they cannot afford to produce anymore. Does this in your view if this came to pass materially alter your conclusions of other dynamics at play, particularly with regard to say Venezuela and the Middle East Otherwise, a fantastic read. Thank you Dave

Posted on 07-Jan-2014 05:04

Rob says:

thk u

Posted on 06-Jan-2014 22:23

philip says:


Posted on 03-Jan-2014 22:41

Bruce Glass says:


Posted on 21-Dec-2013 02:15

mark says:

Thank you!

Posted on 18-Dec-2013 23:28

vanessa vettier says:

I am sure it's a good one...

Posted on 16-Dec-2013 16:47

Curt Fintel says:

Sounds like a great set of thematic topics. I'm eager to read! Thanks!

Posted on 10-Dec-2013 07:51

Ulrik Thornit says:


Posted on 09-Dec-2013 18:45

Nancy Concepcion says:

Sounds like a very interesting read.

Posted on 07-Dec-2013 00:13

Kraig McFarland says:

I look forward to reading this book and believe the "take aways" will be many. I also highly recommend 'Jesus, the Unknown Economist' by Charles Gave

Posted on 06-Dec-2013 23:49

ahmed husain says:


Posted on 06-Dec-2013 22:26

Juan Bosch says:

Looking fwd To read

Posted on 06-Dec-2013 21:18

Choi says:

Very impatient to read your book!

Posted on 06-Dec-2013 16:57

Hansjoerg B says:

Having read through the book, allow me to follow up on the interesting topic of the “robolution”. What are your thoughts on the following? a) “Education” is the wonder weapon which politicians love to preach about. Nobody during the German election campaigns bothered to discuss education in the context of an economic vision, e.g. how to make the German economy (or the EU) more competitive. They rather use the world “education” like “world peace”. Everybody must agree to it unless he/she is heartless but nobody needs to be concrete about it. I remember to have read one Gavekal article about the impact of the abolition of conscription in France where less privileged men had at least the chance to build up some additional human capital (e.g. as a cook or a driver etc)in the army before – apart from becoming a French citizen. Do you have some ideas how education could be translated into a more applicable plan to support category 4 workers (and other categories, too) in the developed economies. As category 4 workers are usually immobile they will have to be dealt with in the respective country /economic zone. And this leads me to the next point. b) Assuming that every population has a “normal” distribution of skills (no idea what the true distribution looks like), how likely is it that we have a growing amount of people who will not adapt to the robolution by increasing their human capital because they cannot even if they were educated for decades. How will the society deal with it? Enters a scary thought: will developed countries end up with concepts like unconditional basic income (“bedingungsloses Grundeinkommen” ) per capita or negative income tax – not by choice but by force - to defuse the increasing social tensions in an ever more specialized society?

Posted on 04-Dec-2013 14:38

Louis-Vincent Gave says:

I agree with you that the risk is that the overall Western World moves towards the English model where you witness the emergence of a sort of 'under-class' that just lives on benefits and gradually loses all skills, or even will to work. And yes, social transfers will be organized in order to keep the social peace/win votes In fairness, in this overall framework, I think Germany is possibly the least worst of the modern welfare states in that the German educational system does not mind at all tapping kids on the shoulders to say "you're going to train as a carpenter, or a plumber etc...". The french system used to do that but Lionel Jospin twenty years ago decided that 80% of kids needed to pass their baccalaureat and go on to university. As a result of which we spend fortunes forming kids with 'second rate' skills for jobs that no longer exist and having to import plumbers (who can still make a very decent living) from Poland. I think that, in the Western World, we need to 'revalue' manual labor and demystify office work. The simple reality is that the next ten years may offer more "decent" manual workmen job then "decent" office work for the kids going to school today...

Posted on 04-Dec-2013 14:17

Hansjoerg B says:

Dear Louis Thanks for the response. To your point on the German model, I think that the Swiss model is much more stringent in this aspect. I think Germany is somewhere in between France (as you describe it) and Switzerland. For the kids to learn a profession is expressively the key ambition by the state although it is not denied that science and high tech engineering are important elements to secure the position of the Swiss economy. There is, for example, an annual maximum quota per canton how many pupils are allowed to enter the gymnasium. I think in Zurich it is 20% per year. The annual rate of students passing the matura (equivalent to A-levels/ baccalaureat/ Abitur) lies between 12 and 29% across cantons. The system looks permissible so that a talented person can make his/her way up to the university even if he/she did not go for the gymnasium straightway. Nevertheless, populism rules here as well. As Switzerland imports so many academics, there is the public debate to raise the matura quota to substitute the imports. Also, there is a debate about the different quota rules across cantons plus differing standards per canton. Actually, there were cases where parents moved in another canton to increase the chances that their kids could attend and also successfully finish the gymnasium. I think the Swiss approach has definitely its merits re the low unemployment rate. They also used to control the access to the labor market by foreign/non-resident job seekers pretty tightly. Only the bilateral agreements with the EU liberalized the approach. For more expert information on this topic and in case of deeper interest, I would recommend to talk to Professor George Sheldon from the University of Basel as he is a specialist (theory and practice) regarding the economics around labor. His link is: http://wwz.unibas.ch/en/people/profile/person/sheldon/ Back to the trivia: The Swiss used to have contingencies per profession. If I remember correctly, there was a small scandal in Zurich many years ago as the contingency for “artists” was exhausted in one year and the Opera could not hire foreign singers anymore. The problem was that the label “artist” subsumed all sort of professions associated with art including people working in the red light sector, i.e. “dancers”, who were faster to get permits. So, nobody is perfect. Have a nice weekend Hansjoerg

Posted on 03-Dec-2013 23:12

Michael T says:

Fantastic Book! I'm about 2/3rds of the way through it and much of what you write about makes intuitive sense to me given that I have been thinking along similar lines. However, I have a number of questions and rather than save them all until the end (but also risk asking something that is answered later in the book), I'm going to just start the dialogue now. In your and Charles's thesis on the Wicksellian spread as the key variable to watch for whether an economy generally engages in malinvestment (when the cost of capital it too low relative to the real potential GDP growth rate) or collapses in on itself (as a consequence of that malinvestment), I question the use of Aggregate GDP. Shouldn't it be private sector GDP? I think the interesting phenomenon in the US occurring today is the divergence between private sector and public sector GDP which Will dent has pointed out. If one used private sector GDP, we would be a long way from Charles "tipping point," which you seem to be less concerned about given the technological revolution taking place in the oil and gas sector in the US. In this we agree. And given the technological revolution, which is moving along the Kurzweilian singularity path, I wonder if we have to start thinking about how the typical equation that measures the trade off between capital and labor is changing. One of the observations that has been made recently is that the typical reinvestment cycle that follows a recession seems to be off track (subpar recovery). And this goes hand in hand with a sub par recovery in re-employment. The standard explanation is that because we are in a deleveraging phase, this makes sense. But what if something else is going on? You hint at it in your book. In this 3rd revolution, there is an accelerating replacement of labor with capital (robotics, AI). But what if the need for the typical capital spend, even in this human/robotic replacement cycle, is dramatically lower because of an accelerating efficiency of capital? If we don't need to build large plants to make stuff anymore (3D printers) and the stuff that goes into the things we make is getting squeezed into smaller and smaller sizes (hones replacing PCs, nano-tech, molecular manufacturing), returns on capital in industries focused on these endeavors should be exploding (because the denominator is evaporating). Of course old line industry returns will suffer because they are working off the old industrial model and margins will wither and aggregate returns in the economy will decline until the bulk of the economy has shifted away from the old way of making stuff... So the struggle we are witnessing in the developed world to return to the heyday of 2+% GDP growth is not so much a deleveraging story but a massive Schumpterian destruction story...

Posted on 21-Nov-2013 21:07