Coming live to you from Tanjong Beach Club in Singapore TMM, described as "the Swedish House Mafia of macro - minus the musical talent or good looks" will be bringing their mix of emerging market breaks - mostly of the fixed income variety.
And breaks are what TMM are seeing out here. More "going Pete Tong" than TMM. The emerging markets selloff which started out all groovy and house music (you know, gradual normalization of policy, markets with bad fundamentals doing vastly worse than those with good fundamentals ) but has instead turned into something that sounds like a Skrillex set with a bunch of scratched records. In short order we've seen a lot of EMFX blowup from ZAR to IDR. Now some people have observed that this is partly due to some forced deleveraging by CTAs and the like which should, all things being said, be temporary. Swap spreads should not be blowing out if the problem is the local markets as opposed to banks as in 2008. The problem is that this selloff appears to be gathering pace and, with an acute lack of risk appetite at dealers, it is hard to say where things are going to clear if redemptions come.
In addition, we are seeing some truly daft behavior from central banks most notably Bank Indonesia which is engaging in QE in a market with 6% inflation, good growth and no incipient signs of a credit slowdown. If the recent price action is the best they can do with regards to stabilization it is tantamount to waving a red cape at the likes of Druckenmiller and Scott Bessent at Soros both who a) know this game and b) won it last time.
In that context TMM are finding things fairly hairy out here. The possible good news would be measures to slow credit growth in places like Thailand where it appears to be going into the condo market more than anything else or, perhaps some of that long awaited reform in India. Or, perhaps, some real SOE reform in China. Instead when TMM talk to strategists pushing us to cover shorts in this space we find ourselves glazing over, imaginging we are talking to Vladimir and Estragon and in all fairness the daydream is not far from reality.
To that end, TMM are pretty happy staying underweight to short particularly in yield proxy equities and yield sensitive names.
Now, there is something TMM need to consider here and that is the underlying assumption of this whole market - decoupling, which ended *Really* badly last time. TMM are looking at USTs and equities and wondering just whether the rest of the world has given much thought to how likely a taper is given the S&P 500s international earnings and what they might look like if things got ugly.
EM isn't a rounding error any more and with US tech services at risk from foreign reactions to FISA and the Patriot act the risk reward does seem to be changing fast.