Morgan Stanley Slashes Q1 GDP To 1.5%; Next Up - Wall Street Starts Cutting 2011 EPS

Tyler Durden's picture

And the hits, er, cuts, just keep on coming. Q1 GDP, which everyone now has forgotten was supposed to be the inflection point in the new and improved American Golden Age story: remember that whole payroll tax benefit which was expected to contribute 1.5-2% GDP points, is being cut by everyone. From an original consensus of nearly 4%, this number is now down more than 50% according to Wall Street's cadre of so-called economists. The latest lemming to join the Jan Hatzius downgrade wagon (yes, folks: Goldman is and always will be the key factor in any swing in convention wisdom as today's move in crude demonstrates so vividly) is Morgan Stanley's own David Greenlaw who a month ago couldn't contain his enthusiasm about the explosion in US economic activity. So much for that giddyness... And now that Q1 GDP is done, look for Q2 and H2 GDP downward revisions, and screams of protest demanding more fiscal and monetary (QE3) stimulus. Since the fiscal route is a dead end, we let readers conclude what that means for the future of the DXY and all the carry trade derivatives.

From Morgan Stanley:

Very weak report. Both exports (-1.4%) and imports (-1.7%) posted sharp declines in February after big gains in January, with the volatility probably partly a result of seasonal adjustment problems with the Chinese New Year. The weakness in February came even with substantial further upside in prices. In real terms, goods exports (-3.7%) and imports (-3.0%) both plummeted, leaving the real merchandise trade deficit only slightly narrower after a sharp widening last month, significantly worse than we expected. Incorporating these results, we lowered our Q1 GDP forecast to +1.5% from +1.9%, with our forecast of the net exports contribution falling to -0.4pp from +0.1pp.

All major export categories were weak in February, with the biggest declines in autos (-9.3%), industrial materials, and ex aircraft (which saw a good gain as expected) capital goods (-2.7%). The pullback in autos was surprising given the sharp further ramp up in auto assemblies in February and March, and the drop in industrial materials came even with sizable upside in prices, with real industrial materials exports down 4.5%.

On the import side, a steep drop in volumes after a big run up over the prior few months more than offset a further jump in prices to leave petroleum products down 4.4%. Capital goods (-5.1%) and autos (-10.9%) also posted big  declines.

We were expecting the real goods trade deficit to reverse the sharp widening seen in January, but instead it only narrowed to $49.5 billion in February after rising to $50.3 billion in January from $46.0 billion in December. Even with a decent narrowing in March, the real goods trade gap in Q1 will be significantly wider than in Q4. There is some likely offset from translation of the real Census Bureau real oil imports to the BEA figures (which have  predictably for a number of years shown big seasonal weakness in real oil imports in Q4 and Q1 and big upside in Q2 and Q3), but it still now appears likely that trade will be a modest net drag on Q1 growth instead of a minor add. We see net exports subtracting 0.4pp from Q1 GDP growth instead of adding 0.1pp. We now see real exports rising 5.5% instead of 14% and real imports gaining 7% instead of 11%.

Next stop: major downward revisions to everything, up to and most certainly including FYE 2011 EPS.

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InconvenientCounterParty's picture

and the impassioned cries for QE grow stronger.

China, Russia and 50% of Opec are ready to rumble!

Handle with care's picture

That's good.  So long as they cut the estimates the day before the release they can report that they beat expectations and the market can keep rising.

Ruffcut's picture

GDP is such a bullshit number. They should change it to GDD, gross domestic DEBT.

Now, that's a number that has growth potential. Indeed a bullish number.

Mentaliusanything's picture

As even the devil Warned today- The IMF said if you wealthy fucker's don't stop spending what you don't have we all a going to have a very big problem. 

(What they didn't say was we have a problem now.)

Yesterday I was broke Today I borrowed myself to wealthy ---- Yeh ha

Where the hell is Harry Wanker (wanger)

Tis he broke or is just his fingers broke?

lolmaster's picture

holy c*** why dont they just skip to QE3 already

Jason T's picture

10.8% budget deficit.. and only 1.5% growth?  Debt saturated?


recipe for hyperinflation if not careful.. or pure evil.  

TooBearish's picture

CSCO announces layoffs of 550

Unemployment drops to 8%

Cdad's picture


Let me guess....NO ONE could have seen this coming?  Complete surprise.  An error in modeling.  Simply an adjustment in expectations at this time.  WTF is right.  Who do these guys think buys any of this shit anymore?  The same people that get their trading ideas from Pete giddy up Najarian?  

Wall Street  Perhaps, it is simply time to stop calling them a criminal syndicate Wall Street cartel and instead just call them what they are...institutional equity bagholders.  


NOTW777's picture

time for obiden and obama to kick off the summer of recovery tour

Urban Redneck's picture

Recovery Summer 2 1/2- The Smell of Panic

Starring Leslie Biden & OJ Obama

RobD's picture

The company I work for slashed it's projections last week and one of our rivals got hammered today after posting bad numbers and guidance last night. I survived the last crash but I'm thinking this time will be different.

Mentaliusanything's picture

I would advise you are feeling Facts - Truth has a way of cutting through bullshit.

I would advise....... Are fuck it.... same slop bucket. being Worldly is the "penitence de Jour"

Cleanclog's picture

Corporate Profits, US GDP, and Meg Whitman points out that the US has a negative net worth of $44 Billion along with a negative cash flow for 9 consecutive years.  Would you invest in that company?  Not unless they had something incredibly technically innovative in the works that was legit.  Does the US?  

Gotta devalue the US$ massively.  No way around it.

Cdad's picture

Not unless they had something incredibly technically innovative in the works that was legit.  Does the US?

Netflix?  The $9 burrito?  Lulu Lemon?  You don't think these are game changers?  Don't tell the criminal institutional bagholders.

Cleanclog's picture

I do like your posts and humor Cdad.  I think we did invent the strip mall right?  Proud of that game changer too.  Especially once they went cookie-cutter every 5 miles with the same stores.

slewie the pi-rat's picture

well i can't argue that you don't make an attractive cheerleader, clog, but jeeeez!

cheerleading for reflation?  you ok?

Mentaliusanything's picture

Hey clean clog with the big tits. They have hope and change.

Like babies - They hope they don't shit their pants but if they do they get changed!

Hey its not technical like...... but fact.

As to the US dollar, It is the reserve currency .. whores are exchanged in it.

But also food, energy, all things traded including drugs.

Debias it and the price goes up because NO one takes LESS

Village Idiot's picture

"Morgan Stanley Slashes Q1 GDP To 1.5%"

Tyler, a more effective (and visual) term for any kind of "cutting" might be the word "dickskin".


"Morgan Stanley dickskins Q1 GDP To 1.5%"




The Axe's picture

MUDDY WATERS....LTF looks like a muddy waters slam China make-believe careful out there people...

clones2's picture

I think they've got the unemployment numbers so false and jacked up... that someday soon we may have figures showing that 105% of all people are employed.


-5% unemployment... haha

Dick Darlington's picture

04-12 13:50: Tyco breaks out on no news, next resistance is at $52.20

Ok, so now that the "growth miracle" is over will this be the hollow reality on the way to 36K in Russell 2000 and what not?

Mercury's picture

remember that whole payroll tax benefit which was expected to contribute 1.5-2% GDP points...

I think that's GDP percentage points...saved or created.

So technically we're still winning the future.

smithcreek's picture

Winning the future is so over, now we're bi-winning the future.

GDP points saved or created, I'll have to remember that one!

ivars's picture

So my February 6th DJIA price chart with the USA entering recession in q1 2012 is still OK ( it only shows most prominent trends, not weekly fluctuations) .

I wonder what could cause a small spike in August ? USD value drop? An attempt to start QE3 which will be abandoned as oil reaches Brent 150?

A drop in oil prices in August (see Feb 6th graph that has correctly predicted 2 peaks and 2 throughs now) to Brent 115 USD ( after reaching 140USD in July) giving a false idea that lower demand due to lower world economic  growth may temper oil shock?


Problem Is's picture

"In real terms, goods exports (-3.7%)... plummeted, leaving the real merchandise trade deficit... significantly worse than we expected."

What Say You Now, Teleprompter-Bitch?
It's a good thing Obummer started doubling exports over the next 5 years...

BTW: John Williams at Shadow Stats points out that by massively understating inflation, you overstate GDP by about 2%...

We're all negative now...

Road_Scholar's picture

Propaganda numbers=

1) Government can show that they can't possibly make cuts in this economy. 

2) Treasury gets their QE3 fix. 

3) Banksters get large bonuses from continued use of the Discount Window and ZIRP. 

4) Sheeple get screwed.