US equities are priced for perfection, Mexico for destruction. Should any of Mr. Trump's new policies affect corporate America adversely, equity markets would react badly. That's exactly what we think will happen if border taxes become the dominant policy tool. Mexico, on the other hand, is priced for destruction already, has options and could see a better structural story play out.
Five structural reversals will make sure that the next decade is nothing like the last one. Demographics and political dominance, the transition from secular to structural stagnation, China's hard landing, EM structural change and breaking the myth of the 'middle income trap' will all play a role. Along with our themes, we explain our focus and the way we do things here at Talking Heads Macro.
Demonetization is a misleading term for what has happened in India thus far. Rather, it is what Mr. Modi hopes to achieve in the future. The re-denomination has happened has created a liquidity shock (which is already reversing) and three opportunities that lie ahead: a political one, one for a better policy mix, and a clear opportunity in markets which makes India our best buy in EM.
Is he fighting the cause or the effect, Mr. Summers's secular stagnation or what we call 'structural stagnation', today's problems or tomorrow's challenges? At the heart of each of these, we argue, lies productivity. If so, then why do we argue that a corporate revival is the key, but (i) helicopter financed infrastructure is a disaster-in-waiting, (ii) personal income tax cuts could well be deflationary, and (iii) protectionism will have a far lower impact than most believe.
Can EM deal with higher US yields? We argue some can. Doesn't the Taper Tantrum tell us EM will crash? It does, but our Triple Unwind framework shows its the wrong playbook to use. Where have EM economies done their homework? The Good, the not-so-Bad, the still-Bad where Malaysia is heading towards a crisis