Just a few days Bloomberg's macro commentator Richard Breslow once again capitulated to this market which just refuses to post even the smallest downtick as it enters its blow off top phase, saying it is a bubble, but you have no choice but to buy it, it is now that other ex-Lehman trader and Bloomberg macro voice, Marc Cudmore's turn to capitulate on his aggressive bearish bets on Emerging Markets, and to ask, Hollywoodishly, "Dude, where's my emerging market contagion.
" To be sure, Cudmore's bearish EM forecasts featured prominently on these pages in recent weeks and months, with a sampling of his articles below:- One Trader Thinks The Turkish Crash Will Lead To EM Contagion
- "Emerging Markets May Be Suddenly Hit On Multiple Fronts At Once", Trader Warns
- Why One Trader Thinks Emerging Markets Are About To Get Slammed
- Cudmore Calls It: "The Correction Has Started"
And so on. Unfortunately for Cudmore, not only have emerging markets not been hit on "multiple fronts all at once", even when they are hit on a single front, as in the case of Turkey last week, they quickly adjust to the "hit" and the dip is immediately bought, resulting to near record highs in EM risk assets as well as the tightest EM bond spreads since the financial crisis...
... and leading to a lot of head scartching among the macro commentator community, as well as the following mea culpa Macro View, published overnight from the former Lehman trader.
Dude, Where’s My Emerging-Market Contagion?
I’m a structural emerging-market bull who forecast a material tactical correction several times in the last few months. It hasn’t happened. So it’s time to re-evaluate the macro framework and review the roadmap.
Successful trading depends on a delicate balancing act between confidence and fear. If you stray off the path, it’s best to take a few minutes to get your bearings before rushing headlong again.
What is the macro environment for EM? Global growth is solid, led by Asia and China in particular. Liquidity is abundant, and financial conditions are easy. Few global equity markets appear cheap, but the bullish framework remains in place.
Emerging markets are resilient overall and far more fundamentally secure and independent than any previous cycle. This makes contagion from an idiosyncratic story much less likely. For the sector to experience a broader and larger correction, it’s likely to require a fundamental shift in key macro assets. But what could that be?
Technology, demographics and excess energy supply provide structural long-term disinflationary pressures. As a result, investors are extremely reluctant to buy into the concept of an extended Fed hiking cycle. Trump won’t want one either, which plays into the debate around the new Fed chair. And it’s not like other major central banks such as the ECB or BOJ are in a rush to withdraw liquidity.
An oil shock, maybe? Beyond a short-term spike, that seems unlikely. Energy supply is much more diversified and there are too many producers keen and able to step into the breach as soon as prices rise.
A steep pullback in the U.S. equity-market could have painful knock-on effects in the short term. But investors will soon realize that, on a relative basis, most EM stock markets provide far superior long-term stories
And most bonds in EM offer higher real yields, backed by better growth rates and also lower debt ratios.
When put like this, why try to be too clever? Overall, the outlook remains extremely constructive for most emerging markets. There may be periods to rein in enthusiasm, but that doesn’t justify a bearish stance.
And just like that one more bear capitulates.
Of course, it is only when the last EM bear has finally thrown in the towel, that then and only then can the "contagious" EM crash finally take place.
