US Economic "Surprise" Factor Plunges By Most Since 2009

Tyler Durden's picture

The below chart from SocGen demonstrates why the stock market, unlike bonds, is currently massively overpriced. The current economic surprise factor swing, from an all time record at +100 recently, down to about -100 (the third lowest in the past 5 years, and likely longer), a 200 point swing which only compares to the 2008-2009 Lehman collapse, was accompanied by just a 15% drop in stocks over the past 8 months, indicates two things: either the current "soft patch" is indeed "transitory" as the Fed would like us to believe, or that the market is pricing in QE 3. And while SocGen, which is the source of this chart, believes that the collapse is indeed "transitory" we completely fail to see what the factor will be that will push the global economy higher in Q3 and onward: Japan? Europe? Fiscal generosity in the US? China? No, no, no and no. Sorry, there is no catalyst that will provide an impetus for a hockey stick effect this time around. Except, of course, for more monetary easing, perhaps in Japan, but mostly in the US. Yet for that to happen, as we have been claiming for nearly half a year, stocks will need to plunge to their pre-QE2 levels, or about 900. Alas, the mutual funds which currently hold the lowest amount of cash in history, and are levered more than ever, are simply unable to sell without blowing themselves up. We are confident, more than ever, that an unstoppable desire for extend and pretend is about to hit an immovable force...

From SocGen:

Slowdown driving yields lower, but double dip clearly not priced in. 10-year Treasury yields are back below 3.0%, as those – like us – who had a small bearish bias into the end of QE2 continue to be frustrated. There is little doubt that increased EMU have supported some flight-to-quality flows into Treasuries. The Greek 5-year CDS has widened by some 500bp over the past 2.5 months (a 50% increase). However, the prominent driver remains the economy, which has delivered sharp negative surprises over the past three months. The consistent and large positive US economic surprises at the turn of the year have reversed sharply. If anything, despite the help from EMU jitters and other signs of reversed exuberance (e.g. Chinese equity market at a 4-month low) 10-year Treasuries have struggled to keep pace with the poor data (Graph 1).

The Fed told us at the 27 April FOMC that the Q1 slowdown was transitory. Well, the transition has grown a bit long, with Q2 showing little bounce so far from the soft 1.8% growth seen in H1. Admittedly, we have seen more transitory negative forces at play; in particular the Japanese disaster has disrupted the global supply chain. Let’s make no mistake, however, the market has priced the slowdown as being a temporary phenomenon. Graph 1 suggests that yields might have fallen much more otherwise. Equally, the S&P has erased just 15% of the gains made in the eight months to late April. Global markets are clearly not pricing a double dip just yet. In a double-dip scenario, QE3 would be on the table, which would feed the Treasury rally.

Our economists certainly are in the ‘transitory slowdown’ camp and are looking for a bounce in Q3. Sentiment should start to improve by mid-June, when the first manufacturing reports for this month are due. This improvement in sentiment would coincide with the end of QE2 by late June, adding pressure on Treasuries.

In the meantime the pain trade is for Treasury prices to crawl higher as the TYU1 closes the gap to 124-02 (see technical analysis section). There is little data to turn sentiment in the coming week, once the NFP report is out of the way. The 3-, 10- and 30-year Notes need to be digested though. Note that the PBoC may deliver another rate hike ahead of the June 6 holiday as it fights inflation (our economists predict a hike this month), and this could add to global growth concerns.


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Dolemite's picture

Precious metals to present good buying oppurtunity after a near term correction?

Gold and silver showing signs of weakness, and oil is confirming.

Sig Sauer's picture

Seriously, are you going to post this on every article today?

chartcruzer's picture

seems reasonable to expect a typical summer Precious Metals correction.  PM and PMM still on sell signals.[s234896717]&disp=P

oil seems to be simply participating in the luqidity withdrawal trend like most commodities+stocks[s219715419]&disp=P

Ancona's picture

Transitory? I would start getting your parachute ready, because it is starting to look like the bottom will drop out.

urbanelf's picture

You're talkin' about a transitory bottemless pit, right?

monopoly's picture

Moving along on the right track. Slow but steady. See no reason to change course. Thanks for all you do Tyler.

Michael Victory's picture

Extend and pretend.

<sarc> More easing = deflation. </sarc>

I'm amazed how the price of food hasn't risen.


augie's picture

Extend and pretend.

That sort of thing isn't my bag.... baby.

Michael Victory's picture

That sort of thing isn't my bag.... baby.

Tell Benny.


Cdad's picture

Correct!  There must be Plunging and Screaming in order to initiate the next bailout...errrr...quantitative easing.  The picture perfect, text book breakdown in the S&P last week is the confirmation.

So everyone should enjoy the nonstop criminal syndicate Wall Street banker prattling over at the BlowHorn [CNBC] about "buying opportunities" and "historically cheap valuations" and "channel checks indicate positive future qtrs" etc.  This as they wholesale liquidate their positions to whatever idiot stands there with maw gaping... as the great deleveraging continues.

Market credibility is now below zero...breaking down to the 200 sma of "ridiculous."

Have fun dip buyers.


SheepDog-One's picture

'Channel checks'...what did CNBC do switch over to Bloomberg and see what crap theyre spewing?

Bunch of nonsense, the Wall St rollercoaster ride is over. No one believes another QE round will do anything except make it all worse. 30,000 McDonalds hires, whoopeee! Those min wage workers buy new houses and cars? Anyone with a brain and MONEY knows this is over and just fguring the best way to get out, which would be dumping your 401K right now.

Stuck on Zero's picture

In answer to the question ...  what the factor will be that will push the global economy higher in Q3 and onward ... I will take the economists point of view and state that a major war, natural disaster, plague or torching of a few cities by disgruntled citizens could be the answer.

ibjamming's picture

You had it correct with your first guess...a major war is coming.  In the ME...for oil and to take out Islam.  If China resists, we'll declare war with them too, wipe out ALL the debt they hold...and voila!  Cheap oil, 2/3 of our debt erased, "forced" austerity here at home.  Win-win for us and the ONLY way out as I see it.

Oh regional Indian's picture

War indeed ib, but not just in the middle east.

If you look carefully at th elast three years or so (post 2008 crash), it's been a series of chess-moves, all over the board. You look at the key factors, Socio Economic, Socio-Political etc. and it is clear that a stage is being set. If most of this weird weather is man-made too, which I believe it is, then we already in the 2nd of 9 innings. 

The war never ended. Korea/Vietnam/Iraq/Iran/Bosnia/Afghanistan/IraqII/Libya...

Pretty continusous, same players. It's quite obvious.


ibjamming's picture

We stay to remind people who is boss.  We stay when we beat someone, we stay when we help someone.  It's a part of the game for sure.  I'm thinking more along the lines of Iraq, Afghanistan, though...those are "basing places" to attack Iran.  Face it...the ME will roll over once Iran is gone.  Then we just tell them how much we're going to pay for that oil...and how much to pump.  Depending on what happens...we just may go Crusades on them and take it all back.  We DID own all that land until we gave it back.  I think it will depend on public opinion of Islam/Muslims...if they go crazy with terrorists in the US and Europe...I think we'll take it all back and a lot of people are going to die.  We could see a genocide...people suffering austerity will already be pissed off.  If terrorists deny them even more...I think they'll support a religious war.  You don't think a holocaust can happen again?

$50 a BBL oil will go a LONG way towards jump starting global (the west) prosperity.  Does anything else matter? 

India will pick the "right" side I'm sure.  Isn't it still pretty much a colony?  At the top government levels?

This could be the great screwing of China...send it back to peasants living in huts with their ducks.  After all...China IS becoming a threat...not long as they don't have a "global reach" military.  Nukes are the wildcard.  The "west" hold no allegiance towards the Chinese...we'll fuck them over in a minute.  Just as they would to us.

I've often used the chess metaphor... 

When are you thinking it happens?  I give it until the end of October...maybe a little after.  The budget is fucked, a war is our only way out!

mayhem_korner's picture

a major war is coming.  In the ME...for oil and to take out Islam.  If China resists, we'll declare war with them too, wipe out ALL the debt they hold

What's this - a war against creditors?  Whose side would you be on in ME?

Your thesis is that we should go militant on those who we've depended on to effectuate our economic collapse.  I don't follow...

ibjamming's picture

Arab creditors.  They're not "one of us" fuck them.  Just like the Chinese.  Look at how much we owe them.  Look how much high priced oil is hurting the world.  It's time to eliminate that fucking middle man!  $50 oil will do a world economy wonders!

A WW is the only way out the west has.  Read what I said to ORI above.

falak pema's picture

as far as oil is concerned its now physically constrained, not a political constraint. You cannot make the arabs more US compatible than they actually are...USA owns those with oil; but its China/india/brazil that is hurting the oil price, along with traditional US/EU markets. So what ever you do, unless you NUKE the world, the price of oil will just keep going up. Not enuff supply and no real substitute (except russian gas/venezuelan goo). So if its WW3 we are talking about it means taking out the BRICS to save the US market. That is a tall order. Given that US forces cannot even take out Afgh/pak with traditional arms. Armageddon...? Nukes? No holds barred free for all? Military Fukushima quadrillion times? Goodbye civilization!....

ibjamming's picture

It's the "middle man" that has to go.  Oil would be $50 a BBL if we didn't have to support the entire population of the ME when we buy it.  If all those oil producing countries were to suddenly cease to exist...oil would halve in price.

Yes...the use stays up...but you're no longer supporting all those people over there.  Look at the wealth that goes to the ME countries.  If you take the oil fields...and oil becomes "free"...the cost goes down.  We support all those people living in a desert...with our oil dollars.  Eliminate the get to keep your dollars.

I still say it's our only way out.

falak pema's picture

could you define which "middle man" population you are talking about?
Does it begin in ...Indonesia and extend to....Mauritania? That's 800 million people...The middle man problem was Hitler's final solution in Europe. Yours seems to be on a much grander scale! You are now a true Aryan...I wonder what the Chinese think of your middle man they ARE the middle kingdom on earth!

ibjamming's picture

Yup...war sucks.  For now...the middle man are the "Arabs".  If everyone else who's a major oil producer falls in line with CHEAP oil...there's no reason they can't live happily ever after.  We all know the goal is a world full of free spending customers...who can make their monthly payments.

Hitler MAY have had a real problem with the Jews...remember who writes history...but we DO have a BIG problem with the Arabs.  If the Americas had a lock on fresh water...would it be right to gouge the world who desperately need it?  Isn't that what the "Arabs" are doing now?  They're walking all over us.  Indoor ski centers?  Tallest hotel?  Islands shaped like palm trees?  They're SWIMMING in our we can't afford to be giving them any longer.  Just like SS and Medicare need to be cut...our costs for oil also need to be cut.

We can do this peacefully of we can get rough...YOU decide.  I think the rough path is the preferable least to governments.  As I said, we can eliminate all the debt that the ME countries currently hold.  If China decided to make their move...we'll eliminate everything we own them too.  A total of 2/3 of Americas debt could be wiped out in an instant.  So we can start the climb again.

What is China going to do against the west?  Besides a suicidal nuclear launch...not a damn thing.  No blue water navy.  No global reach aircraft.  An army of a billion men...sure...most have pitchforks.  It's also a LONG walk from China to the ME oil fields.  Past Afghanistan?  How convenient we're already there...  China's been our bitch...slaves to make stuff for us...on credit!  On credit!  They rely on the outside for their raw materials...and that's what a blue water navy is for...denying them of those resources.  China is a young bull terrier puppy.  It can hurt you with a nip...and it has to die before it gets big enough to be a threat.

I have a feeling that we'll talk again...before the year ends?  After all...we're already bankrupt and we NEED a way out.

Jayda1850's picture

All of the seven-figure salaried economist have been completely and utterly wrong on all  their forecasts and yet they are all out trying to convince everyone that this "soft patch" is all transitory. How many times do they have to be proven wrong before the ignorant public realizes that we've entered into the land of the absurd? God forbid people actually discover there is more going on than who's winning dancing with the stars and american idol. Sadly, america gets what it deserves.

SheepDog-One's picture

They perish for lack of knowledge and wisdom....huh maybe that bible wasnt such a fairy tale after all.

Absinthe Minded's picture

Whatever happened to that Swiss banker that spilled the beans on offshore accounts in the Cayman's? Wikileaks was supposed to drop a bomb on this and still nothing. Weakleaks?

cosmictrainwreck's picture

geez.... are those guys still around?

serotonindumptruck's picture

Perhaps he is suffering from Morgellons disease. That tends to happen to people who blow the whistle on the international elite.

shortus cynicus's picture

Or do not agree to attack dictators having oil and tons of gold in own vaults.

High Plains Drifter's picture

"You all make me laugh, you're so bearish you probably can't see the sun rises every single day! YES, I am bullish on the US stock market (and there won't be any QE3) and the US economy. It is still a jobless recovery but what you all do not see -- or more precisely, do not want to see -- is that the worst is behind us, not ahead of us like all you doomsayers are constantly warning. That's it from me on this topic, will work on my elite fund piece today and enjoy myself."

Leo 5/15/2011

Absinthe Minded's picture

Leo! paging Leo! Now where could he have gone.

fuu's picture

but but but Chinese Solars set to sail!

agNau's picture

With no formal, or "other" QE, where do the funds for bond purchase in the ongoing PONZI materialize? There MAY be a gap and then QE after the deflationary "episode". But sorry to inform, rising rates will become uncontrollable sooner rather than later w/o a continuation of a full punchbowl. Note how with the trash paper falling the market is still not catching bids. Bernank has gotten some bowel movement toward the bowl of treasuries. The question now is will he go for a nice big flush in the commodities complex to once again push major in the devaluation.

Bartanist's picture

Soft patch?!?

What kind of soft patch will we have when the world population actually starts shrinking in a few years?

The growth paradigm should be dead because there is an inherent inconsistency between "real" growth and population decline.

The alternative is to continue the consolidation of industries until there are just a handful of companies left and no competition. Which of course, is the exact opposite way to have both a free and stable society. In stable free society, just as in a corporation or the military there are divisions of social groups and responsibility down to the level where people can both understand the relationships and have some feeling of control. Obviously an overreaching federal government is anathema to societal health.... ramble, ramble, blah, blah.

ibjamming's picture

I didn't junk you BTW...

Why does the world population HAVE to fall?  It doesn't HAVE to.  War in the ME...the west taking over control of the oil will allow expansion like we used to enjoy until the Arab oil middlemen started demanding too big a cut so they could build indoor ski resorts, tallest hotels, and islands shaped like palm trees.

They're throwing their fucking wealth in our faces!  It's time to cut them out.  Besides, they're Muslims, who will reject a war with them?

Yup, war is coming.  A forced austerity for the populous to "support the war effort" al la the 40s.  It gives the inner city young men something to do.  And...if China objects, we simply "delete" all that debt we owe them from our computers.  Instant solvency!  How would YOUR finances fare if you could instantly delete 1/3 of total debt?  Like maybe a "forgiven" mortgage?  Instant prosperity.

I'm telling you...war is's win-win for the west...especially the US.

MrBoompi's picture

There's only so much food and water to go around, and once we start seeing a real decline in oil production, food will become even more expensive and scarce. And this isn't even factoring in the effects of global warming on agriculture. There will be depopulation. This doesn't necessarily mean we have to suffer premature violent or painful deaths, we could simply reduce the rate of reproduction over time, but I wouldn't count on that.

There's more money to made on war, and it accomplishes the same thing, only quicker. War also has the advantage of increasing the authoritarian control of the masses. The Elites don't mind war at all, since they fund every side.

The most dangerous myth some of us have heard is we only recocered from the Great Depression because of WW2. Let's hope we don't start begging for WW3.

Alcoholic Native American's picture

You can't create jobs and expect them to pay as much and have as many benefits as they have had in the past in our new McEconomy.  Besides, now that housing prices have crashed after all major financial institutions were allowed to fail the cost of housing rent/ living have fallen drastically. So we don't need these bloated high paying jobs with bennies.


Oh wait never mind.

Absinthe Minded's picture

Yeah, everybody's shitting themselves over the state of their portfolios.

I see Leo is reading but not posting, we all got junked for not drinking the koolaid. Could be Robo too. Just another stripe for us infantry in ZH's army.

LoneStarHog's picture

There is only one TRUE surprise left in today's bullshit world:  A Fart With A Lump In It!

Goldbugger's picture

@ High plains Drifter.

Yes there will be a QE3,and it will be global but it won't be called that.

There is not such thing as a Jobless recovery, that has never happened, if so show me the stats! There are more people on food stamps now than when the marketcrashed in 08', and more poeple unemployed, the number don't count those who have fallen off. You can be bullish on the market as long at the FED keeps prininting monoty out of thin air, but the effects of that are inflationary down the road.


Natasha's picture

Wall Street has been using the US economy as a cash cow for decades. The cow has keeled over and Wall Street continues looking for new ways to drain it. What they conveniently fail to notice, is the cow is rapidly running out of blood and its veins are collapsing.

They will not stop poking the poor beast until the majority of Americans are living a Haitian lifestyle.

SheepDog-One's picture

Pretty dangerous game theyre playing, pumping a market on money printing, then when that runs out plunge the markets and repeat? And they count on people believe their story that '3rd times a charm' using the same actions that have failed twice? What if people holding 401K's just decide theyve had enough and dump it all before they can re-pump it all? Just a stupid game theyre going to lose control over.

Absinthe Minded's picture

Or better yet, wait until they pump it and then dump it for a gain for a change. Never mind, I forgot we're talking about sheeple here. I plan to wait for the next orchestrated take down of the PM's and then dump my 401K into AU and AG. Got some already but too much is never enough

SheepDog-One's picture

Well if anyone has a brain, why not do it now instead of waiting for a collapse, and hopefully the re-pump which very well may not get us anywhere near these all time bubble highs again? Unless they just like rollercoaster rides.

Real Estate Geek's picture

Dump it . . . to whom?  If your timing is off, you'll find that there's no demand for your shares.

mayhem_korner's picture

Our economists certainly are in the ‘transitory slowdown’ camp and are looking for a bounce in Q3.

That camp is drinking Fukishima water.  High test.

shortus cynicus's picture

Expect one news: Fukushima water is good for health. It kills e. coli!


Ignorance is bliss's picture

A hurricane slammming the east coast will reinvigrate the markets

Arch Duke Ferdinand's picture

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