Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

December economic pause was followed by a US$900 billion stimulus that will largely be spent in 1Q 2021. The output gap (still 2.8% of potential GDP in 4Q 2020) will narrow sharply this quarter, making it impossible for the Fed to sustain US$120 billion of monthly QE. Whether Biden pushes through a US$1.9 trillion stimulus (without GOP votes) or a more modest US$1.5 trillion one with some GOP votes, it will prove inflationary by 3Q 2021. With the public debt soaring toward 120% of GDP, Biden's corporate tax hike from 21% to 28% will likely be announced (even if conditionally) at his 23 February 2021 speech to a joint session of Congress. We recommend being underweight equities, and long US$ on a 6-month view. The renewed surge in Coronavirus infections in the last two months, and related restrictions on economic activity, contributed both to the December decline in non-farm payrolls and a relatively weak print for real GDP growth in 4Q 2020 (+4%QoQsaar, -2.5% YoY). The output gap, which was 3.5% of potential GDP in 3Q 2020, only improved to 2.8% of potential GDP in 4Q 2020, delaying the onset of inflation risks, keeping both core inflation gauges at 1.5-1.6% YoY at end-2020. However, the US$900 billion fiscal stimulus was only enacted on 27 December 2020, and hence began to boost the economy only in 1Q 2021. If the full Biden stimulus of a further US$1.9 trillion is passed via a reconciliation process (without GOP support), the total of US$2.8 trillion will add 13.3% of GDP to the deficit for FY2021 (already estimated by the CBO at 9% of GDP before the two stimulus packages). That would be more than sufficient to close the output gap by mid-2021. Even a more modest stimulus (US$1.5 trillion) passed with some Republican support, would suffice to close the output gap by July 2021, pushing core CPI inflation above 2% YoY by 3Q 2021. M2 growth (which has plateaued around the 24% YoY handle over the past 8 months) will likely need to be reined-in by 2Q 2021, even if the FOMC is not immediately obliged to raise rates.Biden has already tightened environmental regulations, as promised, by rejoining the Paris Climate accord, imposing a moratorium on oil/gas drilling on federal land and water and revoking the Keystone XL pipeline permit. The two stimulus packages will boost EPS and economic growth. But with the public debt already above 100% of GDP, Biden will likely announce his promised hike in corporate taxes (to 28% from 21%) at his speech to the joint session of Congress on 23 February 2021. That too will slash EPS growth in FY2022 (Oct 2021 to Sep 2022). We recommend staying Underweight Equities, and de-risking portfolios. On a six-month view, we would be long US$.

December economic pause was followed by a US$900 billion stimulus that will largely be spent in 1Q 2021. The output gap (still 2.8% of potential GDP in 4Q 2020) will narrow sharply this quarter, making it impossible for the Fed to sustain US$120 billion of monthly QE. Whether Biden pushes through a US$1.9 trillion stimulus (without GOP votes) or a more modest US$1.5 trillion one with some GOP votes, it will prove inflationary by 3Q 2021. With the public debt soaring toward 120% of GDP, Biden's corporate tax hike from 21% to 28% will likely be announced (even if conditionally) at his 23 February 2021 speech to a joint session of Congress. We recommend being underweight equities, and long US$ on a 6-month view. The renewed surge in Coronavirus infections in the last two months, and related restrictions on economic activity, contributed both to the December decline in non-farm payrolls and a relatively weak print for real GDP growth in 4Q 2020 (+4%QoQsaar, -2.5% YoY). The output gap, which was 3.5% of potential GDP in 3Q 2020, only improved to 2.8% of potential GDP in 4Q 2020, delaying the onset of inflation risks, keeping both core inflation gauges at 1.5-1.6% YoY at end-2020. However, the US$900 billion fiscal stimulus was only enacted on 27 December 2020, and hence began to boost the economy only in 1Q 2021. If the full Biden stimulus of a further US$1.9 trillion is passed via a reconciliation process (without GOP support), the total of US$2.8 trillion will add 13.3% of GDP to the deficit for FY2021 (already estimated by the CBO at 9% of GDP before the two stimulus packages). That would be more than sufficient to close the output gap by mid-2021. Even a more modest stimulus (US$1.5 trillion) passed with some Republican support, would suffice to close the output gap by July 2021, pushing core CPI inflation above 2% YoY by 3Q 2021. M2 growth (which has plateaued around the 24% YoY handle over the past 8 months) will likely need to be reined-in by 2Q 2021, even if the FOMC is not immediately obliged to raise rates.Biden has already tightened environmental regulations, as promised, by rejoining the Paris Climate accord, imposing a moratorium on oil/gas drilling on federal land and water and revoking the Keystone XL pipeline permit. The two stimulus packages will boost EPS and economic growth. But with the public debt already above 100% of GDP, Biden will likely announce his promised hike in corporate taxes (to 28% from 21%) at his speech to the joint session of Congress on 23 February 2021. That too will slash EPS growth in FY2022 (Oct 2021 to Sep 2022). We recommend staying Underweight Equities, and de-risking portfolios. On a six-month view, we would be long US$.    

Delayed Inflation Risks to Be Re-Ignited by Biden Stimulus as Output Gap Closes

Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Cross Asset Strategy

Prior to the arrival of COVID-19, support for aggregate demand from fiscal policy had been extremely unreliable, thereby making it virtually impossible for the Fed to restore pre-Great Recession policy settings. Recent fiscal stimulus and the likelihood of further measures have, however, raised the spectre of the Fed having to respond to economic overheating risks sooner-than-expected.
Fed Chair Powell rules out the possibility of economic overheating in 2021 due to the absence of any semblance of broad-based economic strength currently embedded in data. In contrast to previous cycles, inflation will have to overshoot the 2% target before the federal funds rate is increased, but the Federal Open Market Committee (FOMC) is reluctant to embrace a rule-based approach in this particular realm due to their desire to retain flexibility.
Treasury Secretary Yellen respects the Fed's legal independence, but she may face political pressure from her new paymasters to ensure quantitative easing is not tapered too aggressively in order to facilitate further fiscal expansion. She will allow the FOMC to pursue their policy goals and she has pledged to allow market forces to determine the exchange rate. 
Fed Chair Powell is not worried about elevated equity valuations as a threat to  economic stability. Other monitored sources of financial stress are currently not indicating signs of strain, thereby allowing the FOMC to focus on their economic goals.

Prior to the arrival of COVID-19, support for aggregate demand from fiscal policy had been extremely unreliable, thereby making it virtually impossible for the Fed to restore pre-Great Recession policy settings. Recent fiscal stimulus and the likelihood of further measures have, however, raised the spectre of the Fed having to respond to economic overheating risks sooner-than-expected.
Fed Chair Powell rules out the possibility of economic overheating in 2021 due to the absence of any semblance of broad-based economic strength currently embedded in data. In contrast to previous cycles, inflation will have to overshoot the 2% target before the federal funds rate is increased, but the Federal Open Market Committee (FOMC) is reluctant to embrace a rule-based approach in this particular realm due to their desire to retain flexibility.
Treasury Secretary Yellen respects the Fed's legal independence, but she may face political pressure from her new paymasters to ensure quantitative easing is not tapered too aggressively in order to facilitate further fiscal expansion. She will allow the FOMC to pursue their policy goals and she has pledged to allow market forces to determine the exchange rate. 
Fed Chair Powell is not worried about elevated equity valuations as a threat to  economic stability. Other monitored sources of financial stress are currently not indicating signs of strain, thereby allowing the FOMC to focus on their economic goals.     

Fed Downplays Economic Overheating and Equity Market Risks: Focus on Unemployment and Low Inflation

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Earlier this month a note titled <a href="https://www.smartkarma.com/insights/the-pain-and-the-gain-in-equities-and-fx" target="_blank" data-smartkarma-citation="insights:47142" rel="noopener">The Pain and the Gain in Equities and FX</a> was shared on SmartKarma trying to highlight the short term risks in these markets. In that note it was concluded that one should “look out for opportunities to re-engage in equity markets anywhere between 5%-10% below current levels. Similarly expect signals to short the USD again over the weeks ahead.”
As we now appear to be in the middle of this correction down in many equity indices, the following note attempts to highlight key support zones for major indices around the world in preparation for re-engaging in markets for a longer lasting and more underlying bull trend.

Earlier this month a note titled The Pain and the Gain in Equities and FX was shared on SmartKarma trying to highlight the short term risks in these markets. In that note it was concluded that one should “look out for opportunities to re-engage in equity markets anywhere between 5%-10% below current levels. Similarly expect signals to short the USD again over the weeks ahead.”
As we now appear to be in the middle of this correction down in many equity indices, the following note attempts to highlight key support zones for major indices around the world in preparation for re-engaging in markets for a longer lasting and more underlying bull trend. 

Where to Prepare for the 'Gain' in Equities

Founder & CEO Bond Angle, LLC, Bond Angle, LLC

Vicki Bryan

Founder & CEO Bond Angle, LLC

Bond Angle, LLC

Insightful commentary and analysis on bond markets and market movers, including financial, economic, and industry catalysts and management shenanigans. 

High yield market investment research

Credit

<a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US</a> stock dropped in after-hours trading when it missed market expectations for the fourth quarter with just $270 million in net income (up 157%) on slightly better revenue of $10.7 billion, up 46% versus $7.4 billion last year.
For those playing at home, that’s not just a paltry margin at 2.5%, it’s a much smaller profit versus the $331 million reported in the third quarter on $8.7 billion in revenue—$2 billion less.
And as I expected, all of reported net income came from energy credit sales which masked a loss of at least $131 million, as has happened with each and every profit Tesla has reported since Q319 (as I discussed again on Monday in <a href="https://bondangle.substack.com/p/tesla-the-skys-the-limituntil" target="_blank" rel="noopener">Tesla: The Sky's The Limit...Until</a>). I expect to see additional boosts to revenue and profits Tesla typically adds like accounting maneuvers such as conveniently timed reserves adjustments and other unusual and nonoperating contributions when the 10-K is filed.
It seems even more consequential this quarter, with its market cap at more than $800 billion following another $5 billion sale of stock and the addition of its stock to the <a href="https://www.smartkarma.com/entities/s-p-500" target="_blank" data-smartkarma-citation="entities:22886:1" rel="noopener">S&amp;P 500 (SPX INDEX)</a>, that Tesla’s core operations still can’t generate unvarnished profit even on $10.7 billion in revenue.

Tesla Motors (TSLA US stock dropped in after-hours trading when it missed market expectations for the fourth quarter with just $270 million in net income (up 157%) on slightly better revenue of $10.7 billion, up 46% versus $7.4 billion last year.
For those playing at home, that’s not just a paltry margin at 2.5%, it’s a much smaller profit versus the $331 million reported in the third quarter on $8.7 billion in revenue—$2 billion less.
And as I expected, all of reported net income came from energy credit sales which masked a loss of at least $131 million, as has happened with each and every profit Tesla has reported since Q319 (as I discussed again on Monday in Tesla: The Sky's The Limit...Until). I expect to see additional boosts to revenue and profits Tesla typically adds like accounting maneuvers such as conveniently timed reserves adjustments and other unusual and nonoperating contributions when the 10-K is filed.
It seems even more consequential this quarter, with its market cap at more than $800 billion following another $5 billion sale of stock and the addition of its stock to the S&amp;P 500 (SPX INDEX), that Tesla’s core operations still can’t generate unvarnished profit even on $10.7 billion in revenue.

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

Dow Jones Industrial Average / Technical Analysis

Fresh sell resistance is the tactical focus after seeing the reversal from short levels and DJI cracking key support that was touted to trigger an SPX fall and now piercing the critical SPX wedge support that will open up the downside.<div>Short equity (sell risk and put on protection), long USD and lower yield call panning out. Equity shakeout on the back of divergence and a USD short squeeze in the making.</div>

Fresh sell resistance is the tactical focus after seeing the reversal from short levels and DJI cracking key support that was touted to trigger an SPX fall and now piercing the critical SPX wedge support that will open up the downside.Short equity (sell risk and put on protection), long USD and lower yield call panning out. Equity shakeout on the back of divergence and a USD short squeeze in the making.

United States

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

S&P 500 INDEX (SPX INDEX)

Delayed Inflation Risks to Be Re-Ignited by Biden Stimulus as Output Gap Closes

Covid hurt in Dec20, but the $900bn stimulus kicked in this month and will be concentrated in 1Q21. Biden stimulus will close output gap by mid...

Prasenjit K. Basu

Fed Downplays Economic Overheating and Equity Market Risks: Focus on Unemployment and Low Inflation

Fed Chair Powell is downplaying the risks of overheating due to looser fiscal policy, as well as the systemic threat from high US equity prices....

DeSaque Macro Research

Where to Prepare for the 'Gain' in Equities

As we correct down in many equity indices, this note attempts to identify levels where markets are likely to be supported

Shyam Devani

Tesla: Oh No You Didn’t

Tesla Disappoints With Skimpy Fourth Quarter "Profit" and Weaker Than Expected 2021 Guidance. Why leverage is more like 6x, or worse. And what's it...

Vicki Bryan

US Fresh Sell Levels for the Punch Lower

Short equity (sell risk and put on protection), long USD and lower yield call panning out. Equity shakeout on the back of divergence and a USD...

Thomas Schroeder