LCI Research
At LCI, we strive to ensure that our clients not only understand our investment process but also comprehend the factors driving it at any given time. This page highlights the key metrics shaping LCI’s current investment strategy.
Successful global investing requires a deep understanding of political, economic, and demographic trends in the world’s leading economies. In the political realm, we assess a country’s democratic status, corruption levels, and competitiveness. I have written a post about the correlation between democracy and economic and financial success, which you can find under the “Publications” section of the LCI webpage. Corruption is another critical factor—after all, economic success cannot be sustained if profits are siphoned off by politicians and business leaders.
On the economic side, we analyze a variety of factors, with particular focus on what we call “gravity factors.” In finance, two elements—profits and interest rates—are as fundamental as gravity is in physics. Corporate profits drive everything from shareholder returns to government taxes and bondholder payouts. We closely monitor profits, calculating growth rates, earnings yields, and equity risk premiums to assess the relative attractiveness of equities versus bonds.
Interest rates, equally critical, influence all asset valuations, including assets not directly tied to interest rates, such as gold and Bitcoin. Rates determine debt costs for governments, corporations, and consumers, and they significantly impact equity valuations and central bank policies. At LCI, we track both short-term and long-term interest rates, which can serve as a recession indicator, as well as real interest rates, to evaluate the appeal of different asset classes.
No multinational analysis is complete without considering exchange rates. While predicting currency movements is notoriously difficult, we know that exchange rates eventually revert to their Purchasing Power Parity (PPP)—the rate that equalizes the cost of goods and services between countries. We calculate PPP for all major currencies relative to the CHF, EUR, and USD to assess currency valuations.
The housing market also demands special attention, given that its dynamics have been at the heart of major economic crises, such as the Great Depression and the 2008 Financial Crisis. Housing prices and interest rates influence borrowing, spending, and overall economic health. At LCI, we monitor housing prices across economies, adjusting for inflation to better understand real value changes.
We view market efficiency as a valuable tool, though not a flawless one. Markets can overreact, and these moments can create opportunities. In the “Stress” section, you’ll find indicators that help us gauge the current market environment.
We hope you find this information both insightful and useful.
