• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

A Tale Of Two Growth Outlooks

Tyler Durden's picture


Just over a month ago, global earnings revisions were on the upswing (admittedly off markedly low levels); since then they have turned sharply lower to the worst levels in a year (based on Citi's Global Earnings Revision index - ERI). Critically though, as 'hope' is pinned on a steepening term structure as indicative of 'growth' and happy times ahead for stocks, the ERI has dramatically diverged from the yield curve. As Citi notes, it is evident that analysts are not at all convinced about the improvement in the growth outlook that this steeper curve has historically suggested. What is perhaps more worrisome for the "it's different this time" crowd is that the last time we saw this kind of dramatic divergence between global earnings and the US term structure was in the run-up to Lehman - and that did not end well...


Global earnings revisions typically track the US Treasury term structure very closely - both implicitly suggesting growth or no growth expectations...


But in recent weeks, the steepening of the US Treasury curve (growth - whether due to Fed Taper discussions explicitly reducing the flow or implicitly by the Taper meaning the Fed is more optimistic about the future - which has never ended well) has been entirely dismissed by the analyst community globally as earnings revisions have been slashed to their lowest in a year!


The last time we saw this kind of divergence was in September 2008...


And that did not end well...


Charts: Bloomberg

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Sun, 07/07/2013 - 19:39 | 3729210 B2u
B2u's picture

Earnings do not matter.  QE and moar QE is all that matters any more.

Sun, 07/07/2013 - 19:52 | 3729229 knukles
knukles's picture

The steepening of the 2-10 spread has been driven 100% by "taper talk".
The earnings momentum decline has been driven 100% by weakening economic environment translating into poor earnings
The resultant divergence will result in no taper, no economic resurgence and later declining rates.

The Bernak et al Must Print to Keep Equity Prices Up.

Not to mention that the data dependent business of the Fed ain't gonna get good/happy data.

Now, who's talking taper, anyhow?
The MSM!

Go figure....

which means that all the rubes on CNBS will still have jobs for a while
and we shall have the Hedge

Sun, 07/07/2013 - 19:57 | 3729238 flacon
flacon's picture

A week ago Zero Hedge had an interesting article about taper. Perhaps Bernanke has NO CHOICE but to taper?:


"the Fed is now responsible for monetizing a record 70% of all net supply measured in 10 year equivalents."




Sun, 07/07/2013 - 19:58 | 3729241 maskone909
maskone909's picture

Alot of folks say the fed needs good data to taper. That would be logical and rational right? But this is the fed we are talking about. Bernak is always claiming he is seeing signs of improvement lol

Sun, 07/07/2013 - 19:45 | 3729217 maskone909
maskone909's picture


By the looks of that divergence we are in for a mind freak of epic proportions

Sun, 07/07/2013 - 19:48 | 3729224 Yen Cross
Yen Cross's picture

   Growth outlook?  I call it "earhair".

Sun, 07/07/2013 - 20:01 | 3729246 robochess
Sun, 07/07/2013 - 20:03 | 3729250 robochess
robochess's picture

So it seems that the velocity of money............. oh, wait........... the Simpsons are on.

Sun, 07/07/2013 - 20:05 | 3729256 fonzannoon
fonzannoon's picture

I'm seeing 2.75% on the 10yr bitchez.

Mon, 07/08/2013 - 01:00 | 3729957 Panafrican Funk...
Panafrican Funktron Robot's picture

Yep, every hundredth of a point in the 10 year has at least $2 billion in IR swaps associated with it.  From May 1st to right now, the swaps market has had a $225 billion dollar swing.  I'm sure that's not completely blowing the fuck up a major TBTF trading desk that "for real I swear!" isn't co-mingling despositor funds.  Because the financial industry is trustworthy.  Very, very trustworthy.

Mon, 07/08/2013 - 01:06 | 3729967 Panafrican Funk...
Panafrican Funktron Robot's picture

And, of course, that's if the mREITs don't blow up first.  My money is on the derivatives issue, but this can't be fun for recent darlings such as AGNC and NLY.




I mean, shit, these guys have been written about to death, about being a safe haven play for yield.  

Sun, 07/07/2013 - 20:06 | 3729258 Cognitive Dissonance
Cognitive Dissonance's picture

Yeah......but THIS time is different.


Sun, 07/07/2013 - 21:20 | 3729441 asteroids
asteroids's picture

In the 80's and 90's I was struck with awe at the Japanese. They had a tremendous real estate bubble that made a lot of them rich. They travelled the world and bought everything. Then it imploded and left a lot of zombie banks. The Japanese government refused to do anything until it was too late. Sound familiar? I wonder if the Japanese and Chinese look at the US and Europe with the same amount of disgust as we looke at them 40 years ago.

Sun, 07/07/2013 - 20:12 | 3729274 chump666
chump666's picture

The Fed lost control of the yield curve, wasn't from taper talk.  Those idiots know oil/energy inflation is eating into their paychecks, taper bs talk.  F*ck'em.  No,  there are great disturbances in the bond markets, most likely originating from Asia and EM markets.  PIMPCO/Gross screwed it, I mean, here he is saying that he was short USDs.  Please...

Sun, 07/07/2013 - 20:15 | 3729280 fonzannoon
fonzannoon's picture

Chump how in the hell is the nikkie rising while the JGB's are just chillin? At the same time I am watching the 10yr head towards 3% and the equity markets could give a shit....we HAVE to be setting up for a massive dump, no?

Sun, 07/07/2013 - 20:25 | 3729286 maskone909
maskone909's picture

Yeah JGB 10y is pissing me off needs to halt already especially when the yen is up past 100

Sun, 07/07/2013 - 20:29 | 3729294 chump666
chump666's picture

Most probably.  Looking at the YEN now which is trading it's 'beat-down' trading zone 102 and 103.  Maybe a bond vigilante is just sitting awaiting to set the primer.  Blow Japan up again like in June 12, when their markets (all) collapsed.

Fonz, it's a wash cycle.

Sun, 07/07/2013 - 20:30 | 3729297 fonzannoon
fonzannoon's picture

2.76% on the 10yr....

It certainly is a wash cycle. Great point.

Sun, 07/07/2013 - 20:32 | 3729299 maskone909
maskone909's picture

Hell yeah im McLovin this

Sun, 07/07/2013 - 20:51 | 3729348 involuntarilybirthed
involuntarilybirthed's picture

Or the Fed sees a fatal flaw and has no choice but taper and maybe more quickly than we imagine? After all none of the mandates justify changing course? We will soon see.

Sun, 07/07/2013 - 20:53 | 3729361 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

I appreciate and realise that it is inadvisable to play this casino and I have indeed not been at the table for three years (or since just after QE began and burned my sorry short positioned ass).

However, I have been  thinking about a short entry on the stawks....and those charts above...WOW

Sun, 07/07/2013 - 21:57 | 3729549 slimething
slimething's picture

Wasn't it Marc Faber that said you would have to believe in Father Christmas if you believe the Fed is going to taper. QE99 or something like that.

So is it taper or double down? It appears QE in its current form has outlived its intended effect, unless the intent was for bond yields to rise.

Mon, 07/08/2013 - 01:55 | 3730018 dunce
dunce's picture

It really is different this time. We have the worst president in our history and other countries are mindlessly following his lead. The damage will be on a global scale never seen before. No one is likely to escape unscathed.

Mon, 07/08/2013 - 12:25 | 3731008 NipponMarketBlog
NipponMarketBlog's picture



Forget valuations. Forget earnings growth.

This 'musical chairs' market is all about sentiment. Trade the sentiment, or leave it alone....



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