Deutsche Bank Downgrades The Economy After It Finally Realizes That The Japan Earthquake Will Not Boost Growth

Tyler Durden's picture

When we discussed yesterday's miss in April Industrial Production, and noted the plunge in the vehicle assembly rate, we merely said what anyone with half a brain would have seen as glaringly obvious ever since the Japan earthquake in March. "The immediate impact: the drop in the industrial production already
seen, but the bulk of it due to delayed aftereffects, will likely impact
the May number, as the follow through from the Japanese supply chain
halt starts ringing a loud alarm bell across Wall Street. Of course,
this is another thing that all those calling for a 4% H2 GDP could have
absolutely not foreseen (and in fact it was originally supposed to be
positive for the economy, eh Deutsche Bank?). Expect to see drastic
downward cuts to May Industrial Production and next, to Q2 GDP." Fast forward to today when we read in Reuters precisely what was predicted less than 24 hours ago: "here are fears auto production, which added 1.4
percentage points to growth in U.S. gross domestic product in the first
three months of the year, may now be a drag." And irony of ironies: "Some financial
institutions, including Deutsche Bank, are already trimming their second
quarter GDP estimates." But, but, wasn't it Deutsche Bank's very own Joe LaVorgna who first said that the disaster would actually be beneficial for world GDP, and subsequently that the world is "overreacting." Guess not: "Before Tuesday's industrial production data, Deutsche Bank had been expecting economic growth to accelerate to a 3.7 percent annual pace during this quarter after a sluggish 1.8 percent rate in the January-March period. "We lowered it by half-a-percentage point to 3.2 percent. We are going for a more conservative narrowing because other manufacturing activity is still expanding despite the supply disruptions in the auto sector."  And there you have that very dirty NC 17 three word phrase: "Wall Street Strategist."

More on why for the first time it will be Goldman chasing with an economic downgrade after Deutsche Bank instead of the other way around:

"This is slowing industrial production and is going to subtract anywhere from half-a-percentage point to three-quarters-of-a percentage from the current quarter estimate," said Carl Riccadonna, a senior U.S. economist at Deutsche Bank in New York.

The drop in auto production was the most tangible piece of evidence so far to suggest the impact of the devastating Japanese earthquake on the U.S. economy could be a bit larger than initially thought.

Federal Reserve Chairman Ben Bernanke last month saw a "moderate and temporary" effect on the economy. Economists believe the supply chain disruptions will continue through June, with the situation starting to ease at least by August.

The magnitude of the drop in vehicle production last month caught many by surprise, given the Institute for Supply Management's manufacturing survey for April had shown little evidence of supply chain disruptions.

And it gets even more ironic:

In addition, the government's employment report showed motor vehicle and parts payrolls increased 2,900 in April.

Auto plant shutdowns as companies scale back production to deal with the shortage of parts has been blamed for some of the recent spike in new claims for unemployment benefits.

And the supreme irony:

There is a risk that economists may be underestimating the impact of the Japanese earthquake on the economy.

"It's hard to get a firm read of what is happening here. The problem is we don't have a lot of similar periods to compare to, so have to go back to the Kobe earthquake in the mid-90s," said Deutsche Bank's Riccadonna.

Um, so we have one Deutsche Bank guy telling us the market is understimating the impact, back in March...

Following an earthquake and tsunami that has devastated Japan, fears of a nuclear crisis are now sending stocks lower. Economist Joe LaVorgna, however, thinks the markets are "overreacting."

At least they are consistently inconsistent - comparable to Goldman being both bullish and bearish on the EURUSD at the same time. But luckily we can all, even the Fed, certainly agree that whatever happens, it will all be the weather's fault.

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Gordon Freeman's picture

As Red Geithner might say: "No one could have seen this coming!"

What's the smilie for puking?

Ahmeexnal's picture

But Trav7777 said the Fukushima incident is completely contained and nothing to worry about!

duncecap rack's picture

Thomas Lee from JPM also sees rainbows and unicorns. I was just reading on Bloomberg he is calling for  a big recovery in housing just around the corner. Apparently building materials suppliers are a great buy. Oh yes we have seen the market bottom for the year as well!

Rainman's picture

The best time to talk up the housing book is when the kids are getting out of school. There's lots of inventory to dump...lots of sheep need to be sheered. If not, it means another cold winter in the housing warehouse .

Last year's NAR theme: "there's never been a better time to buy a home". 

jus_lite_reading's picture

BUT TYLER!!!! The Associated Press says "Japan is recovering"!!!! reprinted about a billion times in every newspaper around the world but the main source is Associated Propaganda... opps I mean Associated Press!!!

TSA gropee's picture

Huh, and these guys actually get paid for such pearls of wisdom and insight.

silberblick's picture

First Dominique-Strauss Kahn, now billionaire and silver bull Hugo Salinas Price is fearful that something will happen to him next:

cossack55's picture

I see further economic downgrade after the demise of the human race due to three "China Syndromes" occurring at the same time. I'll wait for a Wall Street Stategist to tell me to die before I expire. Gotta hedge that bet.


Rainman's picture

Took them a long time to see the light on Japan.....enough time to adjust positions.

camaro68ss's picture

The light of Japan? you mean the ever so growing green glow?

topcallingtroll's picture

Exactly. They are talking their book, the most recently updated one.

MiningJunkie's picture

Remember the huge "Japan Reconstruction Trade" trumpeted by CNBC's Bob Pisani and the ensuing rally? These CNBC clowns really piss me off...

TempFlashback's picture

Obviously, Pisani skipped Bastiat's parable of the broken window.

topcallingtroll's picture

With a smaller trade surplus can they buy treasurys in the quantities anticipated?

Might this be part of the reason Governmant Sachs aka the squid went bearish?

MiningJunkie's picture

And another thing....The Fed (barnank) are guaging the "economy" by watching the S&P - wealth effect, my ass.

Aquiloaster's picture

But I thought the apoacalyse was bullish for GDP!?! Everything will have to be re-built. Unemployment will be 0% after everyone is dead. Inflation will be transitory too, I suppose, as all of the worlds money comes home to the few things that weren't destroyed. 

Caviar Emptor's picture

Bullish for undertakers.  The mortuary sector will pull the economy out of recession

Caviar Emptor's picture

You mean that some things can be negative? Wow, man. 

A big component of a true Ponzi scheme aka the economy, is never ever admitting that you can have a bad day. The tell (as with Madoff and Ponzi himself) was always an unrealistic winning streak that became as predictable as the sun coming up in the morning. In a Ponzi economy based on growth of paper (money, credit, securities) rather than organic growth it becomes harder and harder to admit you could have a bad day for fear that the shaky edifice will come completely unhinged. 

Coke and Hookers's picture

The current economy is like my ex's outlook on life: Disregard reality at all cost and never ever waiver in your delusion. It's a recipe for great success and happy ending.

Loose-Tools's picture

Wasn't it also Joe LaFagna at Doosha Bank, starting a year + ago who kept calling for a 400k + Non-farms Payroll print "any month now"? The delusions of PermaBulls!

yipcarl's picture

The article title is priceless.  Why are people so fucking stupid?  I 100% believe Osama Bin Laden was killed and thrown to sea!  Any person believing that without question is nothing more than an asshole.  Same goes for believing 911 the day that buildings fall apart, planes disappeared, but passports were found in the rubble are found. 


My GOD. 

AldoHux_IV's picture

Is there any way we can label climate change/weather as a terrorist and wage a war on it? Fucking bastard is a threat to national and global security.

razorthin's picture

DoyBank still living in the easy fiat money yesteryear to ever think devastation leads to growth.  Not anymore, not before SAVING that is.

Rick Blaine's picture

I vividly remember throwing up in my mouth when I heard the first jackass claim that this catastrophe could in any way be a good thing for Japan.

Sure, a lot of stuff has to be rebuilt, etc...

...which creates jobs, maybe helps manufacturing, etc...

...which is great if you can actually pay for it...and/or aren't in too much debt already...


slewie the pi-rat's picture

it is healthier to focus on the green shoots.  for sheep.

and, i think the world has a bit more overreacting to japan to go;  after all, the zeroHeads were among the most alarmist on the planet;  why stop now? 

" But, but, wasn't it Deutsche Bank's very own Joe LaVorgna who first said that the disaster would actually be beneficial for world GDP, and subsequently that the world is "overreacting."

i think overreacting = bailing out douchebanksters.  so there!

Jovil's picture

Quarterly earnings in June and July will have bad news for the stock markets due to the supply chain disruption from Japan to the rest of the world. This is not only for automobiles, but for other industries as well. Economic collapse? Prepare yourself.

Sathington Willougby's picture

The Broken Window Fallacy fails to reboot the economy.  But it makes a great sales pitch to the IMF head, Cash for Spunkers!

Everyman's picture

Only these fucking economic savants would think that a major disaster is a net economic plus which creates a growth event.  That illustrates what is wrong with MMT, they are idiots in a cardboard box thinking they rule the world.

Insane is another description.

Madhouse's picture

Disaster or War = good for the economy

Borrow more and hide the issue - the social sec Ponzi scheme, military insanity - 3x 2002 levels

Disaster or War = good for the economy

Borrow more and hide the issue - the destruction of the middle class, the rape of health care by Washington, a few thousand greedy Doctors and HC execs

Disaster and War = good for the economy

ad nauseum...

Don't get it Joe, do you ?



Overpowered By Funk's picture

Joe BaLogna pulling down high 6g's for what? What is his value proposition? 

silberblick's picture

YouTube's Harisebon7777777 should be commended for his work on measuring the radiation levels in Tokyo. The device he uses costs about $1000, which I am sure he has paid out of his own pocket to provide us with the truth of what is really going on in Japan. It is eerie to watch his videos. Typically, his hand is shown holding a geiger counter in some public place with people walking all around him as if there was nothing of importance going on; while all along, the geiger counter in his hand reveals what is really happening. Harisebon is documenting the slow irradiation of the Japanese archipelago. A visual unfolding of a tragedy. While watching these videos. it is hard not to wonder how many of the folks one sees walking down the street will come down with cancer in 10, 20 or 30 years. Go to Harisebon's YouTube channel and give him a shout-out. He deserves it.