JPM Lowers Q2 GDP For Second Time In A Week, Warns Of A "Severe Downgrade" To Forecast In Case Of A Technical Default (No, Really)

Tyler Durden's picture

And to think they cut it from 3% to 2.5% just a week ago. Michael Feroli, take it away...

Revising down Q2 GDP, again

When we revised down our estimate of Q2 GDP growth last week to 2.5% we noted that the risks to this quarter were still to the downside. Given the hard activity data we've received since then -- particularly the auto sales and construction report -- it looks like those downside risks are being realized, and we are lowering our Q2 projection to 2.0%. Even with this revision we'd assess the risks as still a little to the downside. Most of our downward revision in Q2 is located in consumer spending, where we think growth this quarter is tracking close to 1.5%. If our new estimate for Q2 is realized, GDP growth relative to a year-ago would be only 2.4%, implying almost no closing of the output gap over the past year -- an abysmal performance given that the output gap is arguably greater than 5% of potential GDP, or less arguably, that there are still almost 14 million unemployed workers.
As always, the more important issue is what happens next quarter. We are leaving our Q3 GDP call at 3.0%. In last week's revision we noted some upside risk to the next quarter call, based in part on the potential for a bounceback in manufacturing and motor vehicle production as Japanese supply chains normalized. Risks are becoming more balanced. Guidance on Q3 auto production -- while still upbeat -- appears to be turning a little less bullish. More generally, we need to stay alert to whether weaker first half growth feeds into materially softer labor market activity -- the one area where first half economic performance was solid -- which could in turn propagate the current soft patch on into the second half. Barring that, our best guess remains that industrial activity rebounds and the second half picks up some after what has been an ill-fated first half.
Our forecast implicitly assumes the debt ceiling issue is resolved in a manner which does not see a technical default of the US Treasury. Of course if that assumption were not to hold all cards would be off the table and we almost certainly have to pencil in a much more severe downgrade to our growth forecast. Our Fed call is unchanged and continues to look for a first hike in 1Q13.

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Id fight Gandhi's picture

From the people who tell us 1500 by end of year

Black Forest's picture

1500 is after that technical default.

Hard1's picture

So what is their estimate of the size of QE3 for Q3? and QE4 for Q4 and so on.

Whizbang's picture

unless we increase the debt ceiling that number is going to drop by about 12%. The US/Global economy is now completely dependent on government deficit spending. Maybe it's always been that way.

Whizbang's picture

true, it's going to happen eventually, it's just a matter of when...

lolmao500's picture

More than that actually. You have to factor in the multiplier of $$. It would be more like 14-15%...

Henry Chinaski's picture

on the verge of great great soft patch

Cleanclog's picture

Debt saturation doesn't just get shrugged off.  Some elements are finally starting to "get it".

Debt is everywhere, no genuine strategies for reducing materially by TPTB, and nothing can save downward spiral now.  Look at housing, employment etc.

Debt does NOT = wealth.

Bazooka's picture

When Equities fall, Gold and Silver fall, when equities rise, gold and silver rise. How is this a safe haven? During Fukushima disaster, GOLD and SLV fell with the market...if it was a safe haven, shouldn't it have risen?

Today, shouldn't SLV have skyrocketed higher to beyond $50 if it was a safe haven? Instead, what happened? The exact opposite!

Challenge to Anyone: Can SOMEBODY tell me why SLV and GLD are moving in sync with equities and WHY they are not rocketing higher as safe haven when the equities collapse?

Tyler Durden's picture

Precious Metals will be the first thing to plunge when there are rampant margin calls. This has been observed and discussed extensively. That said, precious metals have the unique quality of not being printable by the Federal Reserve.

Cleanclog's picture

Exactamundo on the margin calls being met on equities with sales of liquid assets that can get off in time.  Very often precious metals.

Wonder how those funds and other cohorts of the financial terrorists feel about their Citi and AIG purchases now?  

BTW, where is homeland security with respect to our homegrown financial terrorists?

Bazooka's picture

Still not a very clear reason as to why SLV and GLD move in sync with the equities....margin calls, are you saying they were timed to rise and fall with equities? Can't believe it.

I believe SLV and GLD are part of what Prechter calls "All the Same market theory"....during the 2008 crash and 2009 turn, gold followed equities. GOLD and SLV recent highs marks the third mania....only to tumble to below where they started the climb.

Internet Tough Guy's picture

Egad, a prechterite who still has money for internet service.

SLV and GLD are paper. Paper moves with paper. The plunge you expect will come, but gold (not silver) will decouple from GLD and rise. GLD holders will get shivved, along with prechterites.


traderjoe's picture

1. Gold significantly outperformed equities today. 

2. Do you really look at day-to-day prices to make your comparisons?

3. A guy like you wouldn't believe it, but there's a large difference between paper silver and physical silver. 

4. Good luck with predicting a full return of silver/gold to crisis levels. You really think the financial markets/banking system can withstand such a move in equities?

5. If you are comparing fiat to PM's, you don't really get the point...

Quinvarius's picture

Then why is gold not following equities today?  Can you explain why gold was at all time highs when the S&P was at 666?  I see no evidence of any long term correlations.

tao400's picture

Gold was not at a all time high at 666. Do some research you idiot.

Cheesy Bastard's picture

You are correct.  A market crash is percieved as deflationary, and the price of commodities collapses with it.  It is the Feds response to the deflationary crash, ie massive digital printing, which will cause a loss of faith in the currency and make precious metals skyrocket.  If this is so, cash is king for now.  The key is timing the move out of cash and into commodities when there is proverbial blood in the streets. 

Caviar Emptor's picture

Gold was up today, equities were down big. That's not a "correlated", "all the same market" trade.

That's telling you that money was moved out of equities and put to work in gold. 

Other things that got hit hard as gold rose: metals, oil, other energies, ags. 

tao400's picture

Gold did go up, moron, while the market crashed. Stopping being an a hole. I see your posts below. You were acting like you did not know what was going on. The fact of the matter with gold increasing a little and the market crashing, that is a huge move.

Saxxon's picture

He's just a shit magnet, with his ugly avatar.  And has absolutely no skin in the game. Of for an Ignore button but there will never be one...

Number 156's picture

Regardless of what any graph shows, Silver is still worth more than green paper. Go physical and hang on to the shiny stuff.

Bazooka's picture

I disagree because your assumption is based on the fact that it won't fall anymore and will continue to rise. If that did happen, you would be correct. However, social mood has turned negative, and EW waves, which are fibonacci ratio based, show that SLV will crash as it had already passed the pivot zanny point. It will return to below where it started it's climb....$2.50

Number 156's picture

No, I agree it can fall some more, just dont sweat it too much if you feel that you bought it too high. I think the day still may come when the green paper will be used to bake the bread you bought with the silver.

Quinvarius's picture

That is the price silver has to go to for him to break even on his ZSL after decay.

Caviar Emptor's picture

Gold is trading right below all time records that were set only a few weeks ago. It's breaking out now. 

And again I repeat: despite a big selloff in equities, gold was up. 

Whizbang's picture

Don't bother giving yourself carpal tunnel syndrum Bazook. This website is an echochamber for precious metals salesmen. I do enjoy taking the opportunity to poke a little fun on here from time to time.

I_ate_the_crow's picture

It seems to me that they are both controlled by the same computer algorithims and HFT. The SLV and GLD are set to supression, while the equities are set to flotation. When equities fall, the SLV and GLD are supressed and seem to move in tandem with the equities. When equities rise, it seems like they let the SLV and GLD float up slowly with them as there is less danger of a breakout.

I'm no trader though, just my amatuerish tin foil hat take. Please correct if this is impossible or wrong for whatever reason.

The Profit Prophet's picture

You may be an amateur...but wisdom makes-up for the wrong kind of experience often demonstrated here.

Don't listen to anyone who tries to argue technicals or fundamentals in a centrally planned market.  TPTB money controls the direction of every manipulated market and every piece of data in order to sway political support and control the masses. Today's market action was great theatre from TPTB - and QE3 is as certain as the rising of the sun.  The coordinated world printing presses will stop when TBTP have determined that they are ready to crash the system and move on to the next stage of the privatization of sovereign wealth (and sovereignty itself).

T.E.I.N. everyone!  

CalibratedConfidence's picture

no sense in trying to rationalize what is irrational.  The price movements on SLV and GLD are not representative of true investor flights to safety.  Watch the /SI and GC contracts here ( and follow the inventories here ( 

ZeroHedge introduced the idea of two prices for commodities.  SLV and GLD are for the peasants while the physical contracts (which cost more now because of margin hikes) are the prices for the big boys. 

With the info that is out now on the metals manipulation, the derivatives are no longer "flights to saftey".  The derivative prices will tank when margins are hiked on the underlying, so why buy a derivative to preserve your wealth when A) the currency you get when you sell it is depreciating and B) the price is adjusted as it "finds" the true price of the metal (which is manipulated regularly with margin hikes.

Caviar Emptor's picture

And through it all, Gold is trading right near record highs that it set only a few weeks ago despite a one month equities sell off and a big hit to the market today, not seen since August 2010. 

Gold is where wealth and savings are being moved. In a big way. Demand for physical is at records.

And there's little wonder: The essence of it is nobody with wealth to protect trusts the claque of banksters, ministers, poilticians and chairmen anymore! They don't have your interest at heart, in fact the opposite: evidence is clear that they are confiscating wealth at every opportunity. They are hell bent on competitive currency devaluations and creating inflation in order to escape debt. Your money isn't safe. But your gold is


Hard1's picture

ummmm.  Funny thing that current economic policy will either lead to hyperinflatio or deflation.  I agree that both are possible at this point, but either way there will be instability.  Gold works better against the first scenario, but I don't think it will be a terrible asset under the second, so risk/reward still warrants holding some. 

carlo's picture

The funny thing is the move down today could have been just as easily a move up. You can't compete against a printing press when there are no bond vigilentes around, they are in total control until they aren't. The FED is everywhere hiding the fallout in modern finance by hyper-levering an already severely levered economy. May these people rot in hell for the life they will hand off to  my children.

Bazooka's picture

I will project the Gold bottom: $490 per ounce. By 2016. Based on EW analysis, Gold has completed it's abc correction and will decline. There will be several support stop points, but i'm keeping gold on the waiting list until sub $500.

Go ahead, all of you who recently bought gold, get pissed off at me...I don't care because I believe Gold has far more to fall.

ffart's picture

$490 price in what currency because it sure as hell won't be USD.

Bazooka's picture

I'm a Deflationist, so my study shows me that credit implosion will make every physical dollar more precious and have higher buying power. I believe the USD will climb to unseen levels.

Remember, credit and the physical dollar bill are not the exact same. Credit disappears with debt distruction but the remaining dollars will be more coveted, hoarded, in demand. There is only about $970 billion in physical dollar circulation and many, many trillions in credit. When credit disappears, like since 2007, companies will not want to part with their dollars by not hiring, banks will not want to part with their dollars by not lending, consumers will not want to part with their dollars by not borrowing.

Look at the Yen, it used to be 120 back before their deflationary collapse, now it will soon be below 80. The dollar will have same strengthening.

Dr. No's picture

You have some nice posts.  I dont agree with everying, but you take the time to post your thoughts.  Its appreciated.

Remember, credit and the physical dollar bill are not the exact same.

There are a few on these boards who confuse the two.  I have also seen people post that a default by the US Gov equates with a decline in value of the dollar just because of the enduring phrase "full faith and credit...."

End Game's picture

Might want to keep the old saw that commodities ultimately return to the cost of production.  Is the dollar a commodity?  If so, what is the cost of production?  What do you think would happen to counterfeiting volumes in a dollar shortage environment?  How quickly could that $970 billion base be expanded by the Fed's own printing press?  If people start hoarding dollars out of fear, what will they do with their gold?  Time will tell.  Let's revisit the question after QE5.

traderjoe's picture

In your same post, you discuss paper currency v. credit and then reference the JPY/USD relationship to provide the Yen has strengthened - against another fiat currency?

I used to be a deflationist. I no longer believe that in a crack-up-boom collapse of the credit (ya-da, ya-da on how that that's deflationary) system how people will view physical dollar bills are worth more. When people realize that the currency system in based upon credit/debt-money, they will not turn to more debt-money. They will turn to actual value. It may seem a bit OT, but it's not: what's the difference in the cost to make a $100 FRN and a $1 FRN? What will happen to the Fed balance sheet in a deflationary collapse?

You think farmers will be willing to sell their food to people for a smaller number of linen and cotton pieces? Nah. 

Big Ben's picture

The US government controls the value of the dollar. And the US government currently owes more than $14T, and that amount is rapidly rising. There is no way that the US government is going to permit deflation to happen.

Prechter seems to be an almost perfect contrarian indicator. He has lost more money for his followers than anyone I can think of. The only people who are going to notice a shortage of dollars are the people who follow his advice.

jerdog2003's picture

Silver is a widely used industrial metal. It can't be mined for $2.50 an ounce, so your theory there is profoundly inaccurate. As for the dollar becoming precious to hold on to, you ignore the obvious fatal fiat "grim reaper", which is compound interest on the debt. It's mathematically impossible to sustain the dollar as a viable currency, as many defunct fiat civilizations have painfully discovered...

End Game's picture

This would be a big surprise for the Central Bank of Mexico that just tucked away 96 tons in Q1.  Or even the Central Bank of India that bought at $1000.  Don't fight the Fed aka don't fight the central banks.

cougar_w's picture

Okay people, that's all the warning you are going to get.

QE3 will be announced within the next 5 days.

dwdollar's picture

Not until we see some front-running.

Protonrick's picture

Classic pump and dump.

Or is it dump and pump?

And we believe them why?

buzzsaw99's picture

JPM bonuses will not be negatively impacted.

stormsailor's picture

sold my 10 /es short from 26.5.  sold at 13.0