Morgan Stanley On The Mirage Paradox Of Goldilocks Strength

Greg Peters, and other strategists from Morgan Stanley are out warning anyone who will listen that what is going on in the economy is a fool's rush (we would add predicated by momos who know nothing about reading financial statements but everything about dollowing a trend) and that MS' core advise to clients is to "sell into strength." Here is how Morgan Stanley differs from the consensus. Also discussed are returns before and after the EPS season, and how to hedge surging implied asset correlations.

• Exit strategy comfort (Fed on perma-hold)
  • A disconnect between ever-firming economic data, steep yield curve, higher back-end yields, a strong equity market with a so-called emergency Fed fund rate
  • Markets are susceptible to perceptions of a “policy mistake”
    Watch inflation expectations very closely

• Greece
  • OPA! We think not
  • Markets see this as idiosyncratic white noise – we fret about systemic risk implications

• Core views remain the same
  • Sell into strength (admittedly it has been much stronger than we thought)
  • Higher rates, steeper curves, weaker EUR, stronger $, buy high quality companies with above average growth, but continue to “buy the junk” in HY

Full presentation

Comments

[unwashedmass]

my god, a firm that is actually telling its clients the truth? or are they?

is ms in the golden circle with the Fed, or is just a club with three members? (JPM, GS and the Fed)

[fuggetaboutit]

Again, the engine of the economy is not falling for this. Small business confidence falls to 8 months low DURING the month where equity market went parabolic on no volume (although thats redundant, obviously anytime things go up its on no volume)

Anyway for all the "hey no one understands how strong this inventory cycle is gonna be" types (including alan greenspan...) note a few takeaways from the SMB survey (which is 90% of the domestic economy, incidently)

1. Intention to build inventory: Negative 7%, below 6 months average

2. Expect better economy: Negative 8%, now a negative reading 2 months in a row

3. Good time to Expand: 2%, lowest reading in at least 6 months

Maybe the combination of input prices going through the roof (i know, i know, there is no inflation) and taxes going through the roof in the presence of endless binge borrowing and bailouts isnt the firmest foundation on which to build an economy?

But hey the recovery is intact, right? So lets not allow things like Alcoa missing revenue by almost 10% and the entire SMB segment never actually emerging from recession deter us from buying everything in the Russell 2000 today

[GlassHammer]

After looking at the slides I need some help answering one question:

Is MS for buying short term T-bonds or not?

[Fritz]

If MS continues with this unauthorized negativity, they will not be invited to the next FED sponsored bailout party.

[whydtinogo]

Hey Fritz - were you not listening there at the back? Didn't you hear? THEY DIDNT NEED THE BAILOUT - they only took it for the good of the system.

[MrPalladium]

The great unknown at this point is how the absence of $100 billion per month of newly printed money from the Fed is going to impact prices.

What the adoring crowd wants to know is - exactly how, or how much of, that $100 billion per month used to purchase MBS was tied to ramping up the stock market?

If MS knows, it ain't telling!

All in the fullness of time!!

[Hugh Janus]

weird, i haven't heard anything about this on TV?  just like the last time, they'll claim no one saw it coming, no one could have predicted it.