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

Cross Asset Strategy

Like his hero Andrew Jackson in 1824-28, Trump wants to begin running again for president four years hence. The second impeachment will slow those plans (but not derail them except in the unlikely event of 17 GOP Senators voting to convict him). Ironically Biden and the Republican leadership are united in wanting to shift the focus away from Trump in the next few months. A big stimulus will be market-positive, but sentiment is likely to change once Biden (enabled by control of the Senate) proposes the big hike in corporate tax rates in his Budget next month. Near-term positive for over-stretched markets, until fiscal/debt realities are reckoned with.  The final step in the US election process was completed on 6th January 2021, but not with the peaceful transition that is normal. Instead, a violent mob invaded the US Capitol at outgoing President Trump's instigation (alongside more incendiary calls from his surrogates such as Rudy Giuliani, who demanded "trial by combat"), resulting in 5 deaths and untold destruction of national property and tradition. Vice President Pence announced Biden's election as president in the early hours of 7th January (after Congress had certified the Electoral College count), and called the National Guard into action to counter the mob of Trump supporters. On 8th January, President Trump too formally denounced the violence, having acknowledged the previous night that a new administration would take office, and he would cooperate in the transition.  The violence on Capitol Hill was not an unprecedented response to a US election: in 1861, several states seceded before Lincoln's inauguration and a 4-year Civil War ensued. In 1824, Andrew Jackson denounced the outcome of the election (decided in the House because the Electoral College outcome wasn't decisive), and he began running for president almost immediately for the 1828 election. But this time, a sitting President was inciting the mob. This is different from 1824, since Andrew Jackson was not the incumbent; this time, the incumbent president is likely to face indictments and prosecution for inciting murder, and possibly disqualification from future public office. Although Trumpism is likely to live on, it has been wounded, and the Republican party is likely to spend the next few months confronting an internal struggle between the Trump and anti-Trump wings. The latter was almost non-existent in 2020, but has re-emerged since 6 Jan 2021.  From the perspective of politics in 2021, the more significant outcome on 6 January was that the Democrats won both the run-off races for the US Senate from Georgia, Raphael Warnock becoming the first Black and Jon Ossoff the first Jewish person elected to the US Senate from Georgia (Warnock is also only the 10th Black ever elected to the Senate). This ensures that the Democrats will have 50 of the 100 Senate seats, plus Vice President-elect Kamala Harris having the casting vote. So, in effect, there was a mild Blue Wave in the 2020 election, and the Democrats will control the White House, Senate (by a casting vote) and the House (by a narrow majority, with 222 of the 435 seats, reduced to 219 seats after Biden nominated three House members to his Cabinet). President-elect Biden has already nominated a centrist Cabinet, and is likely to retain his focus on a centrist agenda, eschewing the ideas of the left-wing of his party. The narrowness of the  Democratic majority in Congress makes it impossible to pursue a more radical program.  Despite clear evidence of Trump's incitement to the crowd on 6 January, only 10 House Republicans voted to impeach him a second time. The US still remains polarized, and Biden's centrist Cabinet is likely to aim primarily at reconciliation.

Like his hero Andrew Jackson in 1824-28, Trump wants to begin running again for president four years hence. The second impeachment will slow those plans (but not derail them except in the unlikely event of 17 GOP Senators voting to convict him). Ironically Biden and the Republican leadership are united in wanting to shift the focus away from Trump in the next few months. A big stimulus will be market-positive, but sentiment is likely to change once Biden (enabled by control of the Senate) proposes the big hike in corporate tax rates in his Budget next month. Near-term positive for over-stretched markets, until fiscal/debt realities are reckoned with.  The final step in the US election process was completed on 6th January 2021, but not with the peaceful transition that is normal. Instead, a violent mob invaded the US Capitol at outgoing President Trump's instigation (alongside more incendiary calls from his surrogates such as Rudy Giuliani, who demanded "trial by combat"), resulting in 5 deaths and untold destruction of national property and tradition. Vice President Pence announced Biden's election as president in the early hours of 7th January (after Congress had certified the Electoral College count), and called the National Guard into action to counter the mob of Trump supporters. On 8th January, President Trump too formally denounced the violence, having acknowledged the previous night that a new administration would take office, and he would cooperate in the transition.  The violence on Capitol Hill was not an unprecedented response to a US election: in 1861, several states seceded before Lincoln's inauguration and a 4-year Civil War ensued. In 1824, Andrew Jackson denounced the outcome of the election (decided in the House because the Electoral College outcome wasn't decisive), and he began running for president almost immediately for the 1828 election. But this time, a sitting President was inciting the mob. This is different from 1824, since Andrew Jackson was not the incumbent; this time, the incumbent president is likely to face indictments and prosecution for inciting murder, and possibly disqualification from future public office. Although Trumpism is likely to live on, it has been wounded, and the Republican party is likely to spend the next few months confronting an internal struggle between the Trump and anti-Trump wings. The latter was almost non-existent in 2020, but has re-emerged since 6 Jan 2021.  From the perspective of politics in 2021, the more significant outcome on 6 January was that the Democrats won both the run-off races for the US Senate from Georgia, Raphael Warnock becoming the first Black and Jon Ossoff the first Jewish person elected to the US Senate from Georgia (Warnock is also only the 10th Black ever elected to the Senate). This ensures that the Democrats will have 50 of the 100 Senate seats, plus Vice President-elect Kamala Harris having the casting vote. So, in effect, there was a mild Blue Wave in the 2020 election, and the Democrats will control the White House, Senate (by a casting vote) and the House (by a narrow majority, with 222 of the 435 seats, reduced to 219 seats after Biden nominated three House members to his Cabinet). President-elect Biden has already nominated a centrist Cabinet, and is likely to retain his focus on a centrist agenda, eschewing the ideas of the left-wing of his party. The narrowness of the  Democratic majority in Congress makes it impossible to pursue a more radical program.  Despite clear evidence of Trump's incitement to the crowd on 6 January, only 10 House Republicans voted to impeach him a second time. The US still remains polarized, and Biden's centrist Cabinet is likely to aim primarily at reconciliation. 

The Spectre of 1824 (Not Quite 1860), but Georgia & Impeachment Aid Centrist Biden

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

<ul>
<li>Our text-mining sees a +3x STDEV surge in mentions of Fed tapering or withdrawal of accommodation, largest since 2018</li>
<li>This follows a notable spike in the 10-year yield, and comments from regional Fed presidents Harker, Bostic, Kaplan &amp; Evans last week alluding to some tapering as early as this year or "sooner than people expect"</li>
<li>Some in the financial media (i.e. <a href="https://www.bloombergquint.com/opinion/fed-s-taper-talk-directed-at-bitcoin-and-tesla" target="_blank" rel="noopener">Bloomberg</a>) have linked this development to "pervasive talk of asset bubbles" centering on Tesla and Bitcoin</li>
<li>In the aftermath of significant TIPS breakeven widening, we see notably larger magnitude and higher velocity in inflationary/reflationary expressions  (+1.5x STDEV) vs. relatively muted increase in expressions related to asset bubbles &amp; market exuberance (&lt;1x STDEV)  </li>
<li>In addition, our data shows that reporting on the Georgia Democratic Sweep was primarily focused on inflation, compared with coverage around the November elections which discussed a potential Democratic Sweep primarily in the context of increased regulation and higher taxes</li>
<li>As the evolving inflationary mindset is likely far more sticky than localized notions of an asset bubble in certain equities or cryptos, upside to yields may be underestimated along with USD support </li>
</ul><div class="content-highlight">TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. </div>


Our text-mining sees a +3x STDEV surge in mentions of Fed tapering or withdrawal of accommodation, largest since 2018
This follows a notable spike in the 10-year yield, and comments from regional Fed presidents Harker, Bostic, Kaplan &amp; Evans last week alluding to some tapering as early as this year or "sooner than people expect"
Some in the financial media (i.e. Bloomberg) have linked this development to "pervasive talk of asset bubbles" centering on Tesla and Bitcoin
In the aftermath of significant TIPS breakeven widening, we see notably larger magnitude and higher velocity in inflationary/reflationary expressions  (+1.5x STDEV) vs. relatively muted increase in expressions related to asset bubbles &amp; market exuberance (&lt;1x STDEV)  
In addition, our data shows that reporting on the Georgia Democratic Sweep was primarily focused on inflation, compared with coverage around the November elections which discussed a potential Democratic Sweep primarily in the context of increased regulation and higher taxes
As the evolving inflationary mindset is likely far more sticky than localized notions of an asset bubble in certain equities or cryptos, upside to yields may be underestimated along with USD support 
TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. 

TMI Snapshot: Fed Tapering Talk Surge - Our Data Says This Is More About Inflation Vs. Asset Bubbles

Last week's official abandonment by the Fed of a rigid inflation target was preceded by a surprisingly large US$450 billion reduction in the monetary base between May and July 2020. This demonstrates a degree of tactical flexibility in monetary management that is a medium-term positive for markets, although adding a degree of uncertainty to the evolution of the yield curve.  
Last week, the FOMC adopted an altered framework for monetary policy -- effectively abandoning the rigid 2% inflation target that has been the basis for central bank policy over the past quarter-century. Instead, the Fed's target will henceforth be "2% average inflation" over time (providing leeway for inflation to stay above 2% to offset long periods that it is below 2%). This has correctly been interpreted as allowing the economy to be "hotter for longer" before the policy-rate rises, solidifying a policy that was becoming increasingly clear in recent FOMC policy statements. 
Given its apparent determination to aggressively boost liquidity amid the wide output gap that has opened up because of Covid, the Fed has surprisingly shrunk its monetary base by nearly US$450 billion between May and July 2020--and M2 (broad money supply) also shrank MoM in July 2020. Perhaps the FOMC has quietly adopted an M2-growth target of 20-24% YoY as a sort of ceiling (although unannounced) in an implicit nod to the Quantity Theory of Money: excessively rapid increases in money supply (in the absence of declining velocity) are likely to cause inflation, especially when real GDP is stagnant or declining.  
The yield curve duly flattened in June-July, while the monetary base and M2 were being reined in, but has resumed steepening after last week's statement (at the annual Jackson Hole meetings) about the Fed's longer-term approach to monetary policy. The Fed's demonstrated tactical flexibility suggests that it is "managing" the yield curve actively -- not allowing it to steepen too rapidly, but to gradually lift it along with inflation expectations. Such tactical flexibility is a medium-term positive for markets (especially when inflation begins to rise durably in 2021), although it makes the evolution of the yield curve unpredictable. The Fed's flexible approach to implementing monetary policy reduces the likelihood of a policy error in 2021.

Last week's official abandonment by the Fed of a rigid inflation target was preceded by a surprisingly large US$450 billion reduction in the monetary base between May and July 2020. This demonstrates a degree of tactical flexibility in monetary management that is a medium-term positive for markets, although adding a degree of uncertainty to the evolution of the yield curve.  
Last week, the FOMC adopted an altered framework for monetary policy -- effectively abandoning the rigid 2% inflation target that has been the basis for central bank policy over the past quarter-century. Instead, the Fed's target will henceforth be "2% average inflation" over time (providing leeway for inflation to stay above 2% to offset long periods that it is below 2%). This has correctly been interpreted as allowing the economy to be "hotter for longer" before the policy-rate rises, solidifying a policy that was becoming increasingly clear in recent FOMC policy statements. 
Given its apparent determination to aggressively boost liquidity amid the wide output gap that has opened up because of Covid, the Fed has surprisingly shrunk its monetary base by nearly US$450 billion between May and July 2020--and M2 (broad money supply) also shrank MoM in July 2020. Perhaps the FOMC has quietly adopted an M2-growth target of 20-24% YoY as a sort of ceiling (although unannounced) in an implicit nod to the Quantity Theory of Money: excessively rapid increases in money supply (in the absence of declining velocity) are likely to cause inflation, especially when real GDP is stagnant or declining.  
The yield curve duly flattened in June-July, while the monetary base and M2 were being reined in, but has resumed steepening after last week's statement (at the annual Jackson Hole meetings) about the Fed's longer-term approach to monetary policy. The Fed's demonstrated tactical flexibility suggests that it is "managing" the yield curve actively -- not allowing it to steepen too rapidly, but to gradually lift it along with inflation expectations. Such tactical flexibility is a medium-term positive for markets (especially when inflation begins to rise durably in 2021), although it makes the evolution of the yield curve unpredictable. The Fed's flexible approach to implementing monetary policy reduces the likelihood of a policy error in 2021.  

Fed Pragmatism: Abandoning Inflation Targets but Actually Shrinking Base Money

Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


<ul>
<li>V-shaped rebound confirmed. Global Liquidity Index (GLI) rises again to 85.1 (‘normal’ range 0-100). In US$ terms Global Liquidity could soar by 30-40% in 2020 to some US$190 trillion</li>
<li>
US Fed Liquidity Index hits 90.3 and Balance Sheet likely to test US$10 trillion in 2020</li>
<li>This will push the equity/ liquidity ratio down to near historic lows at 0.37 times. It shows how skewed portfolios are towards ‘safety’ and by corollary by how much investors’ mood is depressed</li>
<li>
Yield curves have further to steepen. US curve could add 150bp of steepening
</li>
<li>
Capital flows into US dollar show clear signs of rolling over. Gold/ Euro attractive</li>
</ul>


V-shaped rebound confirmed. Global Liquidity Index (GLI) rises again to 85.1 (‘normal’ range 0-100). In US$ terms Global Liquidity could soar by 30-40% in 2020 to some US$190 trillion

US Fed Liquidity Index hits 90.3 and Balance Sheet likely to test US$10 trillion in 2020
This will push the equity/ liquidity ratio down to near historic lows at 0.37 times. It shows how skewed portfolios are towards ‘safety’ and by corollary by how much investors’ mood is depressed

Yield curves have further to steepen. US curve could add 150bp of steepening


Capital flows into US dollar show clear signs of rolling over. Gold/ Euro attractive


Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

Sri Lanka Government International Bond / Credit

In a series of two reports, we initiate our coverage of <a href="https://www.smartkarma.com/entities/sri-lanka-government-international-bond" target="_blank" data-smartkarma-citation="entities:28349:1" rel="noopener">Sri Lanka Government International Bond (SRILAN GOVT)</a> as a high-yield sovereign credit. In this report, we review a number of factors on macroeconomic, political, and institutional fronts against the country’s Asian closest peers ( Mongolia's <a href="https://www.smartkarma.com/entities/mongolia-government-international-bond" target="_blank" data-smartkarma-citation="entities:28351:1" rel="noopener">Mongolia Government International Bond (MOGOL GOVT)</a> Papua New Guinea, Tajikistan, Pakistan's <a href="https://www.smartkarma.com/entities/pakistan-government-international-bond" target="_blank" data-smartkarma-citation="entities:28350:1" rel="noopener">Pakistan Government International Bond (PKSTAN GOVT)</a>, and Iraq), in our judgment; to point out problems the country is facing, assess the likelihood of the government defaulting on its external debt obligations, and the possibility of the major rating agencies downgrading the country’s ratings. We will follow up with a subsequent report on the country’s USD bond relative value comparison and recommendation in due course.
We find that it is unlikely for Sri Lanka to default on its debt obligations this year given several options available to the country, although the cost to financing and to the wider economy is rising. Sri Lanka’s debt is undoubtedly unsustainable, in our view, if necessary reforms are not in place to cure all the severe imbalances in its economy. Beginning in March, the COVID-19 pandemic jitters hit Sri Lanka’s SRILAN bonds hard, with prices falling by 30%-40%. On 1-April, Sri Lanka’s Treasury Secretary Sajith Attygalle said the country would honor all debt commitments.
Moody’s, on 17-April, placed Sri Lanka's B2 sovereign ratings under a downgrade review. On 24-April, Fitch downgraded Sri Lanka to 'B-' with Negative outlook. We believe it will take some more time, at least until October this year, for the agencies s to decide whether or not to downgrade Sri Lanka’s ratings. We expect a downgrade if some or more of the factors are in play, including whether the pandemic will prolong, the difficulty for the government to secure funding especially for the October USD1bn debt instalment, whether the government succeeds in appealing for debt moratorium, and whether the government carries out ill-designed policy reform measures.
Most of Sri Lanka’s major macroeconomic indicators show signs of severe deterioration in economic performance and sustainability even before the COVID-19 pandemic. The pandemic has exacerbated the country’s default risk  on external debt due to continued falling revenue, rising debt, constrained foreign reserves, and increasing cost of external financing. This happens at the time that both fiscal and monetary policies are of little help in reviving the economy while maintaining macroeconomic stability. At the same time, we believe political uncertainty makes it more difficult for Sri Lanka to access funding from multilateral organizations such as IMF though any news of securing the debt package from IMF will be spread positive for the country’s USD bonds.

In a series of two reports, we initiate our coverage of Sri Lanka Government International Bond (SRILAN GOVT) as a high-yield sovereign credit. In this report, we review a number of factors on macroeconomic, political, and institutional fronts against the country’s Asian closest peers ( Mongolia's Mongolia Government International Bond (MOGOL GOVT) Papua New Guinea, Tajikistan, Pakistan's Pakistan Government International Bond (PKSTAN GOVT), and Iraq), in our judgment; to point out problems the country is facing, assess the likelihood of the government defaulting on its external debt obligations, and the possibility of the major rating agencies downgrading the country’s ratings. We will follow up with a subsequent report on the country’s USD bond relative value comparison and recommendation in due course.
We find that it is unlikely for Sri Lanka to default on its debt obligations this year given several options available to the country, although the cost to financing and to the wider economy is rising. Sri Lanka’s debt is undoubtedly unsustainable, in our view, if necessary reforms are not in place to cure all the severe imbalances in its economy. Beginning in March, the COVID-19 pandemic jitters hit Sri Lanka’s SRILAN bonds hard, with prices falling by 30%-40%. On 1-April, Sri Lanka’s Treasury Secretary Sajith Attygalle said the country would honor all debt commitments.
Moody’s, on 17-April, placed Sri Lanka's B2 sovereign ratings under a downgrade review. On 24-April, Fitch downgraded Sri Lanka to 'B-' with Negative outlook. We believe it will take some more time, at least until October this year, for the agencies s to decide whether or not to downgrade Sri Lanka’s ratings. We expect a downgrade if some or more of the factors are in play, including whether the pandemic will prolong, the difficulty for the government to secure funding especially for the October USD1bn debt instalment, whether the government succeeds in appealing for debt moratorium, and whether the government carries out ill-designed policy reform measures.
Most of Sri Lanka’s major macroeconomic indicators show signs of severe deterioration in economic performance and sustainability even before the COVID-19 pandemic. The pandemic has exacerbated the country’s default risk  on external debt due to continued falling revenue, rising debt, constrained foreign reserves, and increasing cost of external financing. This happens at the time that both fiscal and monetary policies are of little help in reviving the economy while maintaining macroeconomic stability. At the same time, we believe political uncertainty makes it more difficult for Sri Lanka to access funding from multilateral organizations such as IMF though any news of securing the debt package from IMF will be spread positive for the country’s USD bonds.

United States

iShares 20+ Year Treasury Bond ETF is an exchange-traded fund incorporated in the USA.  The ETF seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years. 

iShares 20+ Year Treasury Bond ETF (TLT US)

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iShares 20+ Year Treasury Bond ETF (TLT US)

The Spectre of 1824 (Not Quite 1860), but Georgia & Impeachment Aid Centrist Biden

Biden's centrist agenda needs modest GOP support given thin Congressional majorities. Trump trial will take back seat, & focus will be on stimulus...

Prasenjit K. Basu

TMI Snapshot: Fed Tapering Talk Surge - Our Data Says This Is More About Inflation Vs. Asset Bubbles

Talk of Fed tapering or withdrawal of accommodation has surged 3x STDEVs, the most since 2018. Our data suggests this has more to do with the...

Elan Gore

Fed Pragmatism: Abandoning Inflation Targets but Actually Shrinking Base Money

Last week's official abandonment by the Fed of a rigid inflation target was preceded by a surprisingly large US$450 billion reduction in the...

Prasenjit K. Basu

It’s A Big, Beautiful ‘V’

V-shaped rebound confirmed. Global Liquidity Index (GLI) rises again to 85.1 (‘normal’ range 0-100). In US$ terms Global Liquidity could soar by...

Michael J. Howell

SRI LANKA: No Default This Year

In a series of two reports, we initiate our coverage of Sri Lanka Government International Bond (SRILAN GOVT) as a high-yield sovereign credit. In...

Bondcritic

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