17 Macro Surprises For 2013

Tyler Durden's picture

Just as Byron Wien publishes his ten surprises for the upcoming year, Morgan Stanley has created a heady list of seventeen macro surprises across all countries they cover that depict plausible possible outcomes that would represent a meaningful surprise to the prevailing consensus. From the return of inflation to 'Brixit' and from the BoJ buying Euro-are bonds to a US housing recovery stall out - these seventeen succinctly written paragraphs provide much food for thought as we enter 2013.


Via Morgan Stanley:

Just When You Thought it Was Dead, Inflation Returns (Joachim Fels/Charles Goodhart)
A strong economic rebound in China and the US, adverse supply shocks in agriculture and worries about swelling central bank balance sheets lead to a sharp rise in actual and expected global inflation. Central banks don’t dare to respond, given high debt levels and financial fragilities, and either continue to ignore or abandon their inflation targets. Rising wheat prices lead to bread riots. In the UK, Chancellor Osborne advises the British to eat oatcakes instead.

Debt Cancellation (Spyros Andreopoulos)
The US Treasury, Japan’s Ministry of Finance and Her Majesty’s Treasury jointly announce that the Treasury debt held by the Federal Reserve, Bank of Japan and Bank of England respectively as a consequence of QE purchases are cancelled, and that these central banks will operate with negative equity until further notice. As a consequence, government debt/GDP ratios are brought down by 11pp, 18pp and 25pp, respectively. Ratings agencies love it, as does the bond market – until it realizes that large-scale debt monetization has just taken place, and sells off sharply.

US Over the Cliff and Likes it (Vincent Reinhart)
The US goes over the fiscal cliff and likes it. A deal delayed to early 2013 in which politicians compromise because of concerns about financial markets would resolve uncertainty more assuredly than the baseline of stop-gap legislation followed by a plan later in the year. As a consequence, confidence gets a boost, pent-up business investment kicks in and the labour market improves more rapidly.

US Housing Stalls Out (David Greenlaw)
The burgeoning housing recovery in the US begins to stall due to credit tightening. There is still no private mortgage market at this point and financial problems are brewing at the FHA which could lead to a dramatic reduction in credit availability for first-time homebuyers. Meanwhile, putback risk continues to cause originators to increase scrutiny for conforming loans.

BoJ Leads World in Adopting Rule-Based Monetary Policy, but Exit from Deflation Lags (Robert Feldman/Takeshi Yamaguchi)
Following a change in its leadership, the Bank of Japan switches to target the ex-food ex-energy CPI, adopts price level targeting to make up for past deflation, and implements a base money growth rule based on deviations of the actual CPI from the desired path. However, the targeted CPI measure remains negative year on year in December 2013, and the BoJ maintains aggressive policy into 2014 and beyond.

BoJ First to Buy Euro Area Bonds, ECB Left Watching and Waiting (Elga Bartsch)
The Bank of Japan, as part of its more aggressive policy stance to fight deflation (see above), starts to acquire euro area government bonds in order to push down the yen before the ECB is able to activate its OMT program. While the BoJ acts, the ECB waits in vain for the Spanish government to apply for an ESM credit line and OMT bond purchases. The BoJ focuses its purchases on ESM/EFSF bonds as well as higher-yielding core and large peripheral markets and thus effectively becomes a lender of last resort for the euro area.

Italian Politics Revives the CRIC Cycle and Triggers OMT (Elga Bartsch/Daniele Antonucci)
A lively anti-austerity campaign in the run-up to the early elections causes investors to seriously worry as to whether Italy could be contemplating an exit from the euro. The convertibility risk, which the ECB’s OMT announcement had reduced, returns and Italy is forced to seek an ESM credit line and becomes the first country to trigger the OMT. Unfortunately, the damage has been done as markets now believe that the convertibility risk is political rather than monetary. Investors sell the euro and peripheral assets and stock up on tinned food and mood-boosting pills.

From ‘Grexit’ to ‘Brixit’ (Elga Bartsch)
Financial markets come round to the idea that Greece will stay in the euro for the foreseeable future. Instead, investors are getting increasingly concerned about the UK’s political stance on Europe, especially in view of a possible referendum on EU membership. Polls during 1H13 start to suggest that an exit of the UK from the EU is now seen as more likely than an exit of Greece from the euro. The London property market wobbles as financial institutions start making contingency plans for moving employees to Frankfurt and Paris.

The UK Formally Gives Up the Fight Against Inflation (Melanie Baker)
As inflation looks set to remain well above 2% for yet another year, the government begins to fear that targeting inflation at the 2% level will mean an abrupt end to very low interest rates in the not-too-distant future...or a sharp loss of Bank of England credibility. MPs increasingly argue that embedding a bit more inflation might be a good thing for helping the UK economy out of its difficulties. The government raises the MPC’s inflation target and, for good measure, it merges the Monetary Policy Committee and Financial Policy Committee together.

Recession Returns to Australia (Gerard Minack)
Australia hasn't had a recession for 21 years - arguably, one is overdue. Markets view the risk as low: fixed income markets are pricing in only 1-2 more rate cuts, and equities have re-rated through 2012.

Not the Right Green Shoots in EM (Manoj Pradhan)
EM green shoots develop further, but from the ‘wrong’ sources of growth. Better DM growth and/or an unwinding of the shock to global exports stabilizes EM exports and hence production. Complacency sets in and structural reforms to move away from the broken, export-investment-led model are put on the back-burner. The result? EM growth deteriorates shortly after.

China’s Shocking Tightening (Helen Qiao)
The Chinese government inadvertently tightens financial conditions aggressively by applying a ‘shock therapy’ during the early stage of the recovery. Off-balance sheet lending activities are banned and forced to roll back onto commercial banks’ balance sheets, causing a major liquidity freeze in the system. More credit defaults occur, giving rise to higher systemic risks. The economic recovery unravels.

The AXJ Productivity Booster (Chetan Ahya)
Policy-makers in Asia ex-Japan move aggressively to implement policy reforms, boosting the region’s productivity dynamic. China accelerates the move up the value chain and boosts consumption growth; India unveils more measures to lift investment in the economy; and Indonesia initiates reforms which improve the competitiveness of the non-commodity sectors. This raises productivity growth in the region, which has slowed significantly since the crisis, and results in higher corporate profitability.

Mexico’s Moment Arrives in its Long-Troubled Oil and Gas Industry (Gray Newman/Luis Arcentales)
Newly inaugurated President Enrique Peña Nieto surprises with a passage of aggressive constitutional change in Mexico’s oil and gas industry – he gains the political upper hand in energy and fiscal reform by starting his six-year term with a big boost in social programs and promises that energy/fiscal reform will provide even more revenues for social spending. MXN rallies on the prospects of a new FDI wave and the sovereign sees an upgrade.

Brazilian Policy Shifts from Stimulating Demand to Boosting Supply, with Ambitious Infrastructure Program (Gray Newman/Arthur Carvalho)
President Dilma Rousseff surprises most Brazil watchers as she follows through on her promise of an ambitious infrastructure program, lifting the globe’s sixth-largest economy from near the bottom of the globe’s infrastructure rankings. The technical details show attractive IRR triggering large investment inflows from abroad. BRL rallies more than expected on the news.

Turkey Goes Boringly Orthodox in Rates (Tevfik Aksoy)
The Central Bank of Turkey switches back to a conventional, orthodox and less exciting monetary policy in 2013. It removes the non-standard and creative tools designed to achieve inflation and financial stability goals at the same time. As a consequence, it faces new challenges of currency appreciation, currency volatility and no meaningful decline in the current account deficit. The experiment fails and policy switches back to non-conventional measures later in the year in an attempt to recoup the loss of credibility.

Back in the USSR (Jacob Nell)
Putin is successful in enticing Ukraine into the Eurasian Customs Union in return for energy subsidies which reduce its balance of payments financing need to a level which requires neither painful policy adjustment nor a sharp FX adjustment. This closes the door on EU entry for Ukraine, since you can’t be a member of two customs unions at once, and leads to economic reintegration of the main post-Soviet states – Russia, Ukraine, Kazakhstan and Belarus. The removal of trade and investment barriers – particularly if accompanied by a pro-investment, pro-market set of Russian-led policies – triggers higher growth across the region, while Russian energy subsidies would stabilize the hyrvnia and ruble.

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Bobbyrib's picture

US Over the Cliff and Likes it (Vincent Reinhart)
The US goes over the fiscal cliff and likes it. A deal delayed to early 2013 in which politicians compromise because of concerns about financial markets would resolve uncertainty more assuredly than the baseline of stop-gap legislation followed by a plan later in the year. As a consequence, confidence gets a boost, pent-up business investment kicks in and the labour market improves more rapidly.

LOL. Yeah, pent up business investment kicks in and the labour market improves more rapidly...and Krugman's aliens attack earth. Get fucking real.

ball-and-chain's picture

The U.S. isn't going over the fiscal cliff.

2013 will be a carbon copy of 2012.

More printing.  More people out of the labor force.  Contractions in Europe.

Wash, rinse, repeat.


boogerbently's picture

Printing only helps (a few) bankers. Corporations need us to buy their stuff.

Zer0head's picture

Byron, why do they call it Blackstone

and why is your offspring called Blackrock?

and spare us the yiddish/greek schwarzpertos bs

my name is Zer0Head

but I don't call my fcking company noBlowJob


Muppet of the Universe's picture

There are two options for 2013 in terms of he cliff.  The first is that the cliff leads to a few minor jobs cuts, worry, and then apathetic return to delusion.  Seasonal job growth and loss, and in general, a continuation of increasing joblessness.  Then there is a path somewhere between, the original possibility, and the more extreme and unlikely possibility, that corporations and businesses panic in said event of a full cliff moment, and begin cutting jobs and investment, leading to hyper deflations.  However, In my honest opinion, this is simply another stop along the way to a greater collapse, 2-10 years down the road.  The cliff will be praised by idiots, feared by business owners, and loved by bankers.

Muppet of the Universe's picture

& remember, to not panic.  Make your plan, work your plan, and be prepared.  This can go up in flames in two years, or 10 years.

It is most important to NOT PANIC.  I say this because, according to the Hegalian dialectic, The reaction the Illuminati are looking to trigger is a fear based panic.

Do not play into the plan.  Rise above and think critically.  www.youtube.com/watch?v=QVUL6PQrU60  & when you need it, music will always be there.

kliguy38's picture

Thank god I tuned in just in time to listen to the Banker bullshit! NOW I can start investing wisely......as soon as I stop pissing myself laughing....I'll fade any of their bullshit

ultimate warrior's picture

#18. We are all living in the Truman Show.

GoinFawr's picture

More like "The Prisoner" . Of course, in the old days drones were a whole lot goofier than they are today (30:20).

DoChenRollingBearing's picture

@ ball-and-chain

Nice blog, keep up the good work!  It's hard, believe me, I know...

GeorgeHayduke's picture

"The U.S. isn't going over the fiscal cliff. 2013 will be a carbon copy of 2012."

Yeah, it looks like a slow bleed-out death is what we're going to have. Everyone is waiting for a crash, but it's just going to slowly wind down with more and more people falling over the edge while those close to the edges themselves hope they don't fall over as they slip closer and closer. Meanwhile, the ultra wealthy and powerful will rake in more and more as the remaining wealthy rushes toward them. The transfer of wealth upwards has been ongoing for decades now. Funny how that one doesn't get everyone in a frenzy. Try transferring it downward and watch folks get all worked up.

Of course, food shortages, or something beyond the control of the owners, or something that awakens this heavily drugged and slumbering society could change that quickly. For now, the slow death continues.

Matt's picture

That one, the "Chancellor tells Brits to eat (oat)cake" and the Debt Cancellation ones seem more like jokes while the rest seem like unlikely but possible scenarios.

HurricaneSeason's picture

More like 2 million are laid off from the sequester and 10 million laid off from the 500 billion tax increase that goes straight to the deficit without stimulus and 1 million are laid off from the price Boner will want for the debt ceiling increase. Business types will be just giddy. If it does turn out that the business types are giddy, we should raise taxes because there will be more unemployment and severance to pay.

ZeroAvatar's picture

I dunno.......isn't 13 an unlucky number?

DoChenRollingBearing's picture

Barron's published their "Outlook 2013" this weekend.

Review of Barron's -- Dated 17 December 2012


I am Jobe's picture

and parents lose EIT and other crap. More single mothers resort to prostituion and so does college girls. Parents sell their kids on ebay. welcome to Amerika, Will fuck for IPHONE society

EARLPEARL's picture

supply is more than demand now...blow job 2 lortabs....round the world 1 oxy...can/t get much cheaper...the viagra cost more than the sex

Northern Lights's picture

Agreed.  Young college girls in hock for tuition these days will go down on you if you take them out for a hamburger and milkshake.  After paying tuition, there's nothing left for food.


Anusocracy's picture

Perhaps there will be an increase in the kidnapping of the Elites' children.


fonzannoon's picture

i dare anyone to raise rates. anyone. who's first? let's see what happens. 

I am Jobe's picture

Too many pussies in the USSA. Home of the pussies, Amerika.

h0oS's picture

I see your rates, and raise you with secession in the US, the collapse of Israel and a gold standard.

Currency is Debt's picture

fonzanoon, ill double dare them with you. When you anchor rates at a certain level, there is x amount of elasticity before you create a new recession. Most of this money was issued at 0% ish to the banks. 2% is attractive versus 0% 2-4% is attractive. if rates hit 3-4% party stops

andrewp111's picture

How about the Fed sets a sharply negative rate like -5%, and withdraws all paper money from circulation so the negative rates cannot be circumvented.

francis_sawyer's picture

Surprise #19

Israelis withdrawl all Jewish settlements from occupied Palestinian territories...


[Has about as much chance of happening as the rest of this slobbering bullshit brought to by banking analysts pretending to be relevant ~ See... anyone can pull shit out of their ass if they're determined enough]

DoChenRollingBearing's picture

Agreed.  All of the above scenarios seem like made-up BS fantasies.

machineh's picture

Surprise #20 

Israel signs the Non Proliferation Treaty and opens its nuclear sites to international inspection.

[Just joking -- John Kerry's not gonna let fairness and reasonableness ruin a great land grab!]

zerozulu's picture

Surprise #21

Bernank decided to stop printing.

Yen Cross's picture

Rates are locked in(2016)---  need moar trees----to print paper....

Currency is Debt's picture

AUDUSD Chart 1996-2012

Record net longs on the aud at the minute.

Yen Cross's picture

Hey C/D, you are pretty smart. You caught that drop (gap down) in aud/usd. Good job!  Do not step in yet/ That is why i mentioned the DXY h-4 chart earlier.

Currency is Debt's picture

Would you be long or short? In theory around 1.10 id go short with relatively wide stops, but the market world is a crazy place in recent years. Australia and Canada have undergone booms longer than normal business cycles. their resource sectors are enormous, but usually there is a problem in going only up for too long. imbalances build....

Yen Cross's picture

short/ s/t ( i'm short/short term)  Do you people think I went overseas for pleasure?

DoChenRollingBearing's picture

OF COURSE you went overseas for pleasure, friend of nmewn!  Now take that + 1 for what it's worth!

Yen Cross's picture

nmewn is a good man. First of all. DoChen I would expect better from you?  You generally seem to be level headed?

 Are you implying something? I'm Christian, if you want to know?

TraderTimm's picture

Dollar Dives Decidedly (TraderTimm)

Debt finally reaches unsustainable levels (in terms of hiding and press spin), and the Treasury Curve goes nonlinear. China, having laid the groundwork for making Yuan-denominated trades with its economic partners - pulls the plug and takes the U.S. investment writedown to save itself. In a final stroke of irony, the US Dollar plunges below parity with the Euro.


Currency is Debt's picture

Wheat Futures Chart, 2009-2012

Inflation measured by commodities huge in recent years. To list a few Crude Oil, Wheat, Corn etc. 

Crude Oil, WTI is up over 850% from 1999-to date

tooriskytoinvest's picture

We Are Headed To A Historic Collapse Of The Financial System And US Will Lose Its Status As The Sole Superpower Which Will Bring About Global Chaos In 2013, With The “World After” Beginning To Emerge.



lolmao500's picture

I like LEAP overall but they are clearly blind to Europe (where they live). They think the ESM will be all right, that more integration is good and that all will be solved real soon. RIIIIIIIIIIIGHT.

fonzannoon's picture

Surprise # 14: while interviewing the Kimberly Clark CEO on his show Cramer slams the BUY BUY BUY button so hard his body recoil causes him to crap his pants. In attempt to cover up he makes it seem like he faked the incident and ties it into a toilet paper question about the company. As the interview rolls on and the obviousness of what happens sets in, Cramers studio employees begin to walk out behind him looking visibly sick from the noxious fumes. Cramer finally loses it and takes his pants off and starts throwing his feces at these people.

The next morning he comes on air and apologizes for his passion for stocks getting the better of him. The studio hosts forgive him and praise him for the passion that he continually exudes (literally).

kentmills's picture

The market raises US rates, the Fed's balance sheet implodes, debt is transferred to the Treasury (you and me) and Amerika gets a big fat IMF bailout. We The People are finally recognized as globalist chattel.

Seasmoke's picture

18. Food prices remain stable , but size portions are cut 90%

Matt's picture

Michelle goes on Oprah to discuss the benefits of a slimmer society and calls this "the best thing to happen to America since my husband was elected"

OpenThePodBayDoorHAL's picture

Wookie and Oprah both drop their drawers on live TV and Amerika is shocked to discover which butt is huger

chump666's picture

Food rationing? Very possible. 

zerozulu's picture

2013 will be the year when US finally decides that a gallon consists of only 6 pints.

HurricaneSeason's picture

The Saudi Royal Family is overthrown by the people of Saudi Arabia, much like in Egypt. OPEC sells oil in it's own currency.