This page has been archived and commenting is disabled.

Morgan Stanley Follows Goldman, Downgrades Economy

Tyler Durden's picture




 

And like clockwork, the expect avalanche of economic downgrades greenlighted by Jan Hatzius begins. Heading up the lemming crew, as always, is Morgan Stanley's David Greenlaw. "We are adjusting our GDP growth forecast lower for the third time this
year. We now look for +3.3% GDP growth over the four quarters of 2011
(versus +3.6% in our April update
). Essentially, this puts us back to
where we were in early December – before policymakers enacted a package
of tax cuts aimed at stimulating the economy." In other news David, how do you spell roundtrip (and is a refund due)? Or "hockeystick?" Or how about an imminent push for more QEasing once the inflationary "shock" is forgotten (unless Saudi Arabia falls to the tsunami of "spooks on the ground" in which case all bets are off), just in case the virtuous cycle doesn't quite kick in, in this 3rd, and soon to be failed, attempt to jump start the economy. In other news, we can't wait to hear what validation LaVorgna, who is always at the very end of the lemming bus, comes up with to justify his feverish enthusiasm over the economy, which once again proves to be worth the amount of money DB's customers pay the firm's sales coverage to bet against them.

Full note from Morgan Stanley:

Another downgrade to US growth. We are adjusting our GDP growth forecast lower for the third time this year. We now look for +3.3% GDP growth over the four quarters of 2011 (versus +3.6% in our April update). Essentially, this puts us back to where we were in early December – before policymakers enacted a package of tax cuts aimed at stimulating the economy.

The logic behind this round trip in the forecast is fairly straightforward. The payroll tax cut enacted in December was worth a little more than $100 billion of stimulus for 2011. However, gasoline prices started off the year at $3/gallon and now stand at about $4/gallon. A good rule of thumb is that every $1/gallon change in gasoline prices subtracts about $120 billion from discretionary spending power. Since the elevation in gasoline has been largely exogenous (unrelated to internal demand forces) and since the personal savings rate is expected to be relatively steady, the move in gasoline just about fully offsets the impact of the payroll tax reduction.

Energy is still the big swing factor. To be sure, there are plenty of crosscurrents in energy markets at present. And, if the collapse in prices seen over the past couple of trading sessions is sustained, this would provide some meaningful support to the consumer.

Sustaining job growth is key. Crosscurrents are also evident in the labor market. We continue to believe that the US economy is currently in the midst of a transition from a recovery driven by a short-term surge in productivity growth to a more mature expansion sustained by job creation and associated income gains. Thus, it is critical that the recent acceleration in employment growth be sustained. While the latest results from the establishment survey were quite encouraging (+244,000 for April together with 46,000 of combined upward revisions to February/March), the household survey was less impressive and jobless claims have been drifting higher. We expect to see continued employment gains ahead – although perhaps not quite as strong as seen in recent months.

Stronger performance over the balance of 2011.

Otherwise, the key sources of upside for the US economy going forward from here are expected to be: 1) an eventual pickup in motor vehicle output, 2) ongoing momentum in capital spending, 3) significantly better performance from net exports, and 4) a rebound in defense outlays.

Keep an eye on core inflation. From our standpoint, the inflation story has been getting overlooked to some extent in recent months. In fact, we believe that inflation represents a far more important policy driver than the growth story at this point. Since troughing in October, the core CPI has moved from +0.6% year/year to +1.2% year/year. Most importantly, we don’t see anything that is likely to derail this trend in the months ahead. In particular, we have been emphasizing the fact that a significant tightening in rental market conditions across the US is putting a good deal of upward pressure on shelter costs. In fact, the story that we described in our December 22 note, “Have We Seen a Bottom in Core Inflation?” has been playing out according to script. Moreover, anecdotal information – including recent comments by the CEO’s of Wal-Mart and Kimberly-Clark – suggest that consumer goods prices will be on the rise in coming months.

CPI vs. PCE. Admittedly, the Fed likes to emphasize core PCE, which has been somewhat better behaved – moving up to +0.9% in March versus a trough of +0.7% back in December. However, the combination of developing fundamentals and base effects suggests that the year/year readings for core PCE will be trending sharply higher going forward. Indeed, we suspect that core PCE will reach +1.5% by October.

Exit ramp ahead. If you’re betting on a “Fed on hold” scenario for the rest of 2011 (“on hold” meaning no change in statement language, no change in MBS reinvestment policy, no reserve draining operations – and no rate hikes!), then you appear to be betting on a scenario in which the Fed ignores a sharp run-up in core inflation – to a rate that just about matches their long-run target. Moreover, you are also betting that despite the combination of such a huge move in core inflation and a complacent Fed, that inflation expectations will somehow remain well anchored. This seems farfetched. A bet on a “Fed on hold” scenario is really a bet that the recent trend in core inflation will dissipate – despite fairly widespread empirical and anecdotal evidence to the contrary.

Sequencing intact. The bottom line is that the exit sequencing timetable that we have been highlighting for a while still seems quite reasonable. We continue to look for the Fed to stop buying in June, stop reinvesting in August or September, start draining sometime in Q4, and hike the interest rate on reserves (IOR) in early 2012.

And summarizing it all (and more downgrades to come from here on out):

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 05/08/2011 - 19:17 | 1254028 knukles
knukles's picture

LOL

Sun, 05/08/2011 - 19:20 | 1254029 firstdivision
Sun, 05/08/2011 - 19:31 | 1254054 CPL
CPL's picture

Unless they were hammering the sell button, meh.

 

Give it a month.

Sun, 05/08/2011 - 19:19 | 1254034 penisouraus erecti
penisouraus erecti's picture

a well oiled propaganda machine is something to behold

 

Sun, 05/08/2011 - 19:22 | 1254035 augie
augie's picture

I am only a novice but this seem strange to me. How can CPI, and consumer price index ex food/energy both be the same 2.1 in 2012?

 

Sun, 05/08/2011 - 19:26 | 1254037 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Can we just get one thing clear before i go insane:

QE1, QE2, QE Lite, QE 33 1/3, QE Sugar free...

... all of these have not helped the 'economy'. So, er, why is everyone worrying whether QE3 will happen soon or not, like it's the be all and end all of things?

Don't need to answer, i know already, it's all a scam. Just wanted to get it down in writing to clarify my sanity on the ginormous financial scam (maybe someone 50 years in the future will find this post and say "hey, at least one guy could see what was going on back then").

Sun, 05/08/2011 - 19:42 | 1254071 mynhair
mynhair's picture

Gonna answer anyway, attitudes.

Thank God Comcast dumped Erin Blownette.

Sun, 05/08/2011 - 19:49 | 1254089 augie
augie's picture

ERIN BURNETT IS A SAINT!

 

hopefully she'll develop a drug habit and start doing porn.

Sun, 05/08/2011 - 19:23 | 1254039 Cleanclog
Cleanclog's picture

Wall Street Investment Bank analysts and forecasters are just behind Credit rating companies in the biggest-putzes-in-the-markets contest. Positions #2 and #!

And that includes retail investors, gold bugs, PIMCO and MariaB.

Sun, 05/08/2011 - 19:26 | 1254044 CPL
CPL's picture

Looks like they won't be able to attempt to keep the price of a dwindling commodity down.  Maybe with MENA going up the river, Libya on fire, UAE in trouble as of last night, Egypt is sabre rattling again and the Afganistan offensive collapsing (turns off the oil to europe unless Russia has some soldiers not dying of drink).

I think MS and Goldman are in their right minds.  They are just off by a couple of years.  By friday we'll be seeing MS and GS trading their bonds and trust with the same appeal of used toliet paper.

 

Sun, 05/08/2011 - 19:27 | 1254046 Roy Bush
Roy Bush's picture


The bottom line is that the exit sequencing timetable that we have been highlighting for a while still seems quite reasonable. We continue to look for the Fed to stop buying in June, stop reinvesting in August or September, start draining sometime in Q4, and hike the interest rate on reserves (IOR) in early 2012.

 

HA HA HA HA HA!!!!  SUUUUUUUUURRRRREEEEE! QE to infinity and beyond!

Sun, 05/08/2011 - 19:32 | 1254056 plocequ1
plocequ1's picture

Who's baby is that?  Whats your angle? I'll buy that.

Sun, 05/08/2011 - 19:35 | 1254064 Fiat Money
Fiat Money's picture

pretty simple:  The MORE MONEY YOU GIVE to [failed, bankrupt, fraudulent, insolvent, con-gress bribing] banksters... the MORE YOUR ECONOMY CONTRACTS.    The reason is simple:  the more money the banksters get,   the more they can use to go on an ASSET BUYING SPREE, and EXTORT high "profits" from necessary, limited supply consumables they have CORNERED THE MARKETS with.  

   This above follows very simply from a concept that should be familiar to any first year college finance student: "MARGIN" (or "percentage" or "ratio," etc.)

  IF  the banksters are collecting a BIG PROFIT MARGIN from government "stimulus" spending...  then that "profit" margin is COMING DIRECTLY from _real_  ECONOMIC ACTIVITY that is NOT being purchased.     

   "Keynsian economics" was NOT  vindicated (entirely) by Roosevelt's NEW DEAL (which was run by, hello? GOLD CONFISCATING Treasury Secretary HENRY MORGANTHAU, and FDR's lead economics 'advisor' was uber-connected,  uber-conservative NY/Wall St. banker/finacier Bernard Baruch) 

  No, it was the EXPLOSION in WWII wartime economic & industrial production which vindicated Keynes.

  There was NO "overnight magic pot of gold" to FINANCE the war effort on June 8, 1941 (the day after Pearl Harbor brought US actively into the war)... no,  Uncle Sam had to SELL WAR BONDS (= DEBT, = DEFICIT SPENDING) to keep his armies, navies, & air fleets equipped, manned, & supplied.  

  but the KEY was, STRICT, STRICT, STRICT OVERSIGHT of  Financial Markets:  STRICT  limits on interest rates (one of the "ratios" synonymous with "margin"), and HIGH marginal TAX RATES - up to 90% for top incomes. 

   THAT's how you GROW an economy:  by reigning in the "CLEARANCES" and "ENCLOSURES" minded predatory, thieving, SABOTAGE minded  elites!    

Sun, 05/08/2011 - 19:39 | 1254066 kito
kito's picture

come on, its not like they downgraded to 2 pct. they shaved a few bips off. hardly news

Sun, 05/08/2011 - 19:37 | 1254069 I am Jobe
I am Jobe's picture

Ok then lets all go out and buy fucking IPADS and start eating that. Austerity measures coming sooner than later. Get ready I mean really get fucking ready. Gonna be ugly.

 

Another downgrade to US growth. We are adjusting our GDP growth forecast lower for the third time this year. We now look for +3.3% GDP growth over the four quarters of 2011 (versus +3.6% in our April update). Essentially, this puts us back to where we were in early December – before policymakers enacted a package of tax cuts aimed at stimulating the economy.

Sun, 05/08/2011 - 19:45 | 1254090 slewie the pi-rat
slewie the pi-rat's picture

"Sustaining job growth is key. Crosscurrents are also evident in the labor market. We continue to believe that the US economy is currently in the midst of a transition from a recovery driven by a short-term surge in productivity growth to a more mature expansion sustained by job creation and associated income gains."

would you like fries with that?

Sun, 05/08/2011 - 19:49 | 1254100 I am Jobe
I am Jobe's picture

More like do want that supersized?

Sun, 05/08/2011 - 22:08 | 1254381 Iam_Silverman
Iam_Silverman's picture

Sounds to me like they are pricing in the end of (visible) QE and see a smaller job pool growth.  With smaller bits of (visible) QE, the growth of government sector jobs should see smaller growth - or with luck, contraction.

Sun, 05/08/2011 - 19:57 | 1254115 TK7936
TK7936's picture

So whats so bad about a 3 % Growthrate? Maybe just import less workers and it will be enough.

Sun, 05/08/2011 - 20:00 | 1254117 Hephasteus
Hephasteus's picture

Downgraydd 2d's for a double dose of pimping.

Sun, 05/08/2011 - 22:01 | 1254374 topcallingtroll
topcallingtroll's picture

Bring back the two D's bitch.

Watsa matter? Becoming a prude?

Sun, 05/08/2011 - 20:11 | 1254118 mynhair
mynhair's picture

Are you all brain dead?  You CAN eat Ipads!

 

http://www.youtube.com/watch?v=lAl28d6tbko

Some gold rum, mint, a dash of Spitzer, and you have a Liberal Mohito.

Sun, 05/08/2011 - 20:02 | 1254120 infiniti
infiniti's picture

Russell 2000 futures up 60 basis points. Move along, nothing to see here.

Sun, 05/08/2011 - 20:39 | 1254210 I am Jobe
I am Jobe's picture

The Stock Market Crash of 2011: It’s About To Happen and You Must Read This! (NYSE: SPY)

http://shaneedmund.com/05/stock-market-crash-2011-topping-nyse-spy-sp-500/

Sun, 05/08/2011 - 20:37 | 1254215 baby_BLYTHE
baby_BLYTHE's picture

BUY SILVER NOW!!! Got that folks?

Do not allow these terrorist to keep winning!

After the worst recession in the history of the world, the market recovers 100% of its gains. Unbelivable. the Bernank is winning, doesn't that make you people sick!?!?

We don't have much. But we have are financial freedom with Gold + Silver.

Buy as much as you can, let us win this financial war against these terroirsts.

Sun, 05/08/2011 - 21:58 | 1254364 topcallingtroll
topcallingtroll's picture

If bernanke wins and safely guides us thru this thing that wont be all bad. A growing healthy economy would be a relief.

I get all conflicted on this collapse thingy. Yeah the bankers dancing from the lamp posts and some royalty and a few other representatives of the oligarchy joining them sounds appealing, but then we have the bad hangover for the next 15 years.

Sun, 05/08/2011 - 20:54 | 1254240 silberblick
silberblick's picture

the economy will look much better after the SLA has cleaned stuff up. Watch the animation here:

http://thesilvergoldhedge.blogspot.com/2011/05/join-sla-to-get-even-and-...

Sun, 05/08/2011 - 21:12 | 1254278 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

If the real rate of price inflation is 9% or so and GDP is going up 3% doesn't that mean the economy is contracting in real terms!?   Oh, I apologize, the establishment media told us that the recovery began two years ago next month.  I forgot.

 

==Tuco Benedicto Pacifico Juan Maria Ramirez

Sun, 05/08/2011 - 21:42 | 1254336 tony bonn
tony bonn's picture

at such a torrid pace of 3.3% shouldn't we be wringing our hands over inflation and overheating by demanding that the fed tighten monetary policy? surely these green shoots have grown into weeds and threaten financial stability....

Sun, 05/08/2011 - 22:18 | 1254412 blunderdog
blunderdog's picture

I'm sick of all the negative perspectives, so let me just say: the blunderdog expectation has shown remarkable improvement over the past few months.  In January, I was predicting an 18% chance of Federal budgetary collapse and effective default.  Now in May, I've upgraded the expectation, and only predict a 15% chance of such a condition obtaining.

Hugely bullish.

Mon, 05/09/2011 - 00:30 | 1254654 baby_BLYTHE
baby_BLYTHE's picture

So stocks are insanley cheap then, correct?

Mon, 05/09/2011 - 01:02 | 1254684 slewie the pi-rat
slewie the pi-rat's picture

hey, b_Blythe!   saw you got jumped for the anti-bankster-in-charge-of-money comment the other nite!  anti-semitism!  i almost went for the bait, but decided to let the asshole live for a while.  LOL!

hope yer semester went well with the Jack!

one thing you said a while back, about putting your life on hold, till we get through this madness:  i want to encourage you not to put your life on hold.  i'd been back from vietNam (drafted) for abt 8 months when nixon took the US off the gold standard.  fuking insanity.  kissinger, riots, kent state, cities burning, price controls. 

i was convinced the wheels were coming off--40+ years ago!  and, they may be, now.  hell, if i could tell the future, i'd never leave the race track, right?

anyhow, it is your life, so you do as you see best, and follow your own reason, feelings, and instincts.

Mon, 05/09/2011 - 02:48 | 1254755 baby_BLYTHE
baby_BLYTHE's picture

Wow impressive there Slewie, thanks :)
My semester went pretty well, one more year to go!

I am still pessemstic as ever about the world economy. However, I have decided to enjoy my summer for what is worth, sold out of some of my positions (pretty decent gains for a first year trader thx to blogs like ZH and others). Going to go to Southern Asia (Myanmar, Thailand and Maylasia) this summer with some of my friends.

Zero Hedge and its wonderful contributors have really opened my eyes to vast knowledge and insight into the world. Great work Tyler and others, thanks!!!!

Mon, 05/09/2011 - 02:50 | 1254756 baby_BLYTHE
baby_BLYTHE's picture

dp

Mon, 05/09/2011 - 11:48 | 1255703 blunderdog
blunderdog's picture

Stocks cheap?  I didn't say anything like that.  But a 16% reduction in the likelihood of catastrophic collapse is really good news, you know.

Good/bad for the stock market has nothing to do with the economy, anyway.

Sun, 05/08/2011 - 23:02 | 1254483 mkkby
mkkby's picture

So assuming this means GS and MS trading desks are getting very short now, with leverage, when do they drop the bottom out?  I'd like to make some $ out of this to put into PM's.

Mon, 05/09/2011 - 02:00 | 1254731 slewie the pi-rat
slewie the pi-rat's picture

i came back to this b/c i noticed tyler's:  (unless Saudi Arabia falls to the tsunami of "spooks on the ground" in which case all bets are off)

flip flops, everywhere, but this is food for thought. 

i've been re-reading Terrorist Hunter [2003] by anonymous  ("Rita Katz" who c0-founded the SITE intitute and now has quite a bit of online press as a poss. mossad disinfo agent)  and she gives the etymology of al-Qaeda on p. 208.

when bin laden first went into the af-paki in'79, he stayed out of the "action" for several years and lived in lahore, islamabad, and peshawar, which is not far from where he was recently 'killed'.  his mentor, dr. abdallah azzam (in '79, the 22- y.o. bin laden took the name abu-abdallah) encouraged him, in '84, to go into afghanistan.  bin laden was shocked by not only the misery of the men who were fighting the jihad against the soviets, but also by his own kind of cowardice at following his family's and brothers' wishes (they were running the business empire) and staying safe.  so, he went for it!  using his expertise in construction and wealth to build the fortified facilities for the warriors of jihad.  tunnels. hospitals, camps.  they used safe houses in pakistan to bring in recruits who wanted to fight.  they smuggled in arms through their now-famous "islamic charities" and in jaji, near the pakistani border, he had established his first training camp, called the lion's den (al-masada).

the two man began to see the islamic jihad differently, and in '85, drifted apart, with bin laden building the camp.  assam dies in a car bomb explosion in peshawar in '89, but had reconciled, it seems, with bin laden, and had come to agree with his former disciple/student, after he'd visited the now-amazing 'lion's den' and seen the way bin laden was picking the best fighters and operatives, and training them.  in '88, assam published "THe Solid Base" about al-masada, the "lion's den" and in arabic it is:  "al-Qaeda al-Saliba".  so, from working with and becoming part of the leadership of the mujahideen, bin laden's training camp and infrastructure got this tag.

i have no idea whether this is true, or not, but that's her story, and she's sticking to it!

Do NOT follow this link or you will be banned from the site!