According to Bank of America there sill be no recession until 2027, if ever, and the S&P will hit 3500 by 2025. Just one thing we would like to know: does Bank of America anticipate another bailout of Bank of America during this upcoming golden age a la 2008, or is that also impossible to predict.
For the latest bit of evidence that global trade is indeed in free fall, look no further than the container terminals at the ports of Los Angeles, Long Beach, Calif. and around New York harbor which handle more than 50% of seaborne freight coming into the US. As it turns out, “peak” season turned out to be anything but.
"Using a dataset on developed market business cycles, we calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60%."
Courtesy of the following chart by BofA, we have the answer: while for the most part of 2015, the move in the price of oil was a combination of both supply and demand, the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy.
One year ago, as part of its always entertaining long-run forecasting exercise, Bank of America predicted that GDP growth in 2015 and 2016 would be 3.3% and 3.4% respectively. Fast forward one year, when in its updated "long-run" forecast, Bank of America's crack economist Ethan Harris admits he was off by "only" 30% in his prediction of next year's GDP, and instead of 3.3%, he now "forecasts" 2015 GDP to be... 2.3%. But the punchline is this: "if history is our guide, at some point in the next decade the US will experience a recession, but predicting a recession far in advance is almost impossible. We plan to update this table on a regular basis."
The last time the Fed tried to exit a period of massive balance sheet expansion coupled with ZIRP - back in 1937 - its strategy completely failed. The Fed tightening in H1’37 was followed in H2’37 by a severe recession and a 49% collapse in the Dow Jones. This is the ghost of 1937 and it is about to make a repeat appearance.
Unlike last year when every single weatherman, pardon "economissed", quickly declared the collapse in Q1 GDP from an initial consensus of 3% to an abysmal -2.5% was due to the weather, and not due to a dramatic tightening in Chinese end demand, this time there is suddenly no silver lining, and one after another, the economisseds are lining up to say that, ooops, they were all wrong.
In a note today, Bank of America economists (after looking at weather data) admit their finding "puts us in an awkward spot today." What did it find? Namely that all those who reran that 2014 playbook, Ethan Harris and other Bank of America economists included, and decided to blame the weather for Q1 GDP crashing from over 3% to under 1%, are wrong or simply lying.
And the answer is...
What in god’s name does Janet Yellen think she is doing? Just a few weeks ago she established the ridiculous Fedspeak convention that “patient” means money market rates will not rise from the zero bound for at least two meetings. Now she has modified that message into “not exactly”.
The December FOMC statement revealed a lack of agreement among Fed officials over communication, BofAML explains, as evidenced by the complicated extension of the forward guidance language and the dissents from both sides of the hawk-dove spectrum. While Standard Chartered expects the Minutes to show The Fed in no rush to raise rates, UBS warns the Minutes “could upset market perceptions of what is important to the Fed’s decision-making process."
The precipitous decline in the price of oil is perhaps one of the most bearish macro developments this year. We believe we are entering a “new oil normal,” where oil prices stay lower for longer. While we highlighted the risk of a near-term decline in the oil price in our July newsletter, we failed to adjust our portfolio sufficiently to reflect such a scenario. This month we identify the major implications of our revised energy thesis. The reason oil prices started sliding in June can be explained by record growth in US production, sputtering demand from Europe and China, and an unwind of the Middle East geopolitical risk premium. The world oil market, which consumes 92 million barrels a day, currently has one million barrels more than it needs.... Large energy companies are sitting on a great deal of cash which cushions the blow from a weak pricing environment in the short-term. It is still important to keep in mind, however, that most big oil projects have been planned around the notion that oil would stay above $100, which no longer seems likely.
Yesterday's exuberant equity market reaction has been largely defined by the mainstream media as driven by WSJ Hilsenrath's 'confirmation' that Yellen will keep the uber-dovish phrase "considerable time" in the FOMC statement today. So, we wonder, why did the Fed-whisperer, after markets had closed last night, issue a quasi-retraction of his prediction explaining that instead of some prohetical "I just know" statement, it was a "best guess," as he concluded, "will the Fed take these steps? Only the people in the room know that. The rest of us will see Wednesday afternoon." It appears the sell-side disagrees with him on the language...
The last week has been dominated by sell-side strategists raising hawkish concerns about this week's FOMC with a focus on the drop of the "considerable time" language describing the period from the end of QE to the start of rate hikes. The Wall Street Journal's Fed-whisperer Jon Hilsenrath just dropped a rather large hint that that the "considerable period" language will remain... “Given the economic backdrop, they don’t want to send a signal right now that rate increases are imminent." Here's what the street thinks...