Groupthink Or Black Swan Rising? Not A Single 'Economist' Expects An Economic Downturn

Tyler Durden's picture

Submitted by Pater Tenebrarum of Acting-Man blog,

A 100% Consensus

This doesn't happen very often.  Marketwatch reports that Jim Bianco points out in a recent market comment that the 67 economists taking part in a regular Bloomberg survey have a unanimous forecast regarding treasury bond yields: they will be higher 6 months from now. This is a truly striking result, and given the well-known propensity of mainstream economists to guess wrong (their forecasts largely consist of extrapolating the most recent short term trend), it may provide us with a few insights.

In fact, considering that there have been only a handful of instances since 2009 when a majority of the economists surveyed predicted a decline in yields, we can already state that their forecasts regarding treasuries are quite often (though obviously not always) wide of the mark. In fact, so far this year they are already wrong again – and so are fund managers, as they hold their lowest exposure to treasuries in seven years.

This is not the only thing there is complete unanimity about. Not a single economist taking part in a separate survey believes an economic downturn is possible.

“Economists are unwavering in their assessment of where yields are headed in the next half year.


Jim Bianco, of Bianco Research, points out in a market comment Tuesday that a survey of 67 economists this month shows every single one of them expects the 10-year Treasury yield to rise in the next six months.


The survey, which is done each month by Bloomberg, has been notably bearish for some time now, with nearly everyone expecting rising rates. In March, 97% expected rising rates. In February, 95% expected yields to climb. And in January, 97% held that expectation. Since the beginning of 2009, there have only been a handful of instances where less than 50% expected rates to rise.


Still, the fact that every single survey participant is bearish is striking. The last time the survey had that result was in May 2012, when benchmark yields were well below 2%.


“Literally there is maybe one economist in the United States straddling the bullish/bearish divide on interest rates. The rest are bearish,” Bianco writes.


He adds that a J.P. Morgan client survey shows that the percentage of money manager respondents who said they are underweight Treasurys is the second highest in seven years.


This is all the more surprising when we consider that investors went into 2014 thinking yields would rise significantly. Instead, the benchmark yield is lower than when the year started, as the market waded throw subpar economic data, geopolitical tensions, and uncertainty over the Federal Reserve. The 10-year note last traded at a yield of 2.72% on Tuesday, down from just over 3% on Dec. 31.


Then again, a separate poll of economists recently showed that exactly zero expect the economy to contract.


But when the entire market thinks one thing is about to happen, the opposite outcome is often in store, notes James Camp, managing director of fixed income at Eagle Asset Management. So don’t count out that result with Treasurys, he advises.


“It’s the most hated asset class,” says Camp, but Treasurys are some of the best performers year-to-date.”

(emphasis added)

Color us unsurprised regarding the fact that the 'most hated asset class' has turned out to be one of the better performing so far this year. Gold is probably hated even more, and for similar reasons. Everybody expects the weakest recovery of the entire post WW2 era to reach 'escape velocity' (whatever that is supposed to mean), even after adding almost $8 trillion to the federal debt and some $4.8 trillion to the broad true money supply since the 2008 crisis have led to such a dismal outcome (of course as card-carrying Austrians we believe this development is precisely what should have been expected).



Likely Outcomes

While treasury bond yields have only moved down a little so far this year, one must keep in mind that they are at a historically very low level to begin with. At a yield of roughly 4%, a 50 basis points move represents 12.5% of the entire distance to zero. However, we also know that a lot more downside is possible. Yields have already been quite a bit lower on a number of occasions.

There can be little doubt that if the consensus of economists turns out to be wrong again, it will likely be wrong on both t-bond yields and the economy. As an aside, it is noteworthy that long term yields have weakened considerably even while five year yields have remained roughly unchanged and yields on the short end of the curve have actually risen slightly since the beginning of the year.

We interpret this as the market judging the Fed to be adopting a tighter monetary policy, and expecting weaker aggregate economic activity to ultimately result from this new stance. Clearly, the 'tapering' of 'QE' does represent a tightening of policy, no matter what Fed members are saying about it. It means the pace of money supply inflation is being slowed down.

Note that something similar happened in the run-up to the 2008 crisis, only in this instance the yield curve actually inverted prior to the economic downturn. One should not expect a complete yield curve inversion to warn in a timely fashion of a recession when the central bank is hell-bent on keeping its policy rate at or near zero. We know this from 'ZIRP' experiments that have been undertaken in other countries, such as e.g. Japan.

If the economy doesn't do what seemingly everybody expects it to do in the famed 'second half' (practically the entire sell-side shares the consensus of the economists surveyed by Bloomberg), then treasuries and gold should be expected to rise, while equities could end up getting hit quite badly.



30 year t-bond yield: declining since the beginning of the year – click to enlarge.


It is clear that one of the reasons why economists expect no contraction in the economy is that 'traditional' recession indicators still appear largely benign, if somewhat weaker than previously. We prefer to keep an eye on things most people don't watch, such as the ratio of capital to consumer goods production, which shows how factors of production are pulled toward the higher stages of the capital structure when monetary pumping is underway. This ratio tends to peak and reverse close to recessions. Its recent trend isn't entirely conclusive yet as it has begun to move sideways, but it clearly seems to be issuing a 'heads up' type warning signal.


Capital vs Cons.Goods Production

Capital vs. consumer goods production – it tends to peak close to the beginning of recession periods, and declines while recessions are underway, as the production structure is temporarily shortened again – click to enlarge.


Note also that the transition from expansion to contraction is usually quite swift, and never widely expected.



This is an astonishing degree of consensus thinking, but it perfectly mirrors the complacency we see in stock market sentiment and positioning data. The probability that such a unanimous view will turn out to be correct is traditionally extremely low. The economy is likely resting on a much weaker foundation than is generally believed. This is not least the result of massive monetary pumping and deficit spending, both of which tend to severely weaken the economy on a structural level, even though they can create a temporary illusion of 'growth'.

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Zest's picture

Oh, we'll be just fine. Nothing to see here.

Pladizow's picture

Who pays the salaries of these 67 retards?

john39's picture

downturn? crazy talk...  the FED fixed all that. 

dryam's picture

It’s called mathematics and the exponential equation.  When there’s *massive* debt at all levels of government, private debt, corporate debt, everywhere-you-look-debt, and there are $600+ trillion in derivatives (which are very rate sensitive) artificial low interest rates by the Fed will go on until the last breath of this current monetary system.  Rates go up the least bit, and it’s game over.

james.connolly's picture

The USA has been invading 100's of country's for decades and nobody did shit, ... why in the fuck now if other country's immitate the USA should any country on earth do shit?

The UN will simply VOTE, and there will never be a majority to do shti,

The meanest and strongest will all learn to rape and pillage,

The USA started the trend, and now every asshole on earth wants in on the action.


Stupid title "Russia 'invades' Russia, but whatever", ... nobody did shit when USA invaded and killed +100 Million over the last 100 years, ... nobody is going to do shit now when RUSSIA & CHINA start acting like uncle-sam.

The best thing to come of this will be collapse of the UN/IMF system, as everyone see's that the VETO (RUSSIA) prevent's UN  domination of the world, once the BRIC's drop out of the UN, then it will be world chaos for all.

CheapBastard's picture



Stock prices never drop....


...or is that house prices?

I forget.

Gaius Frakkin' Baltar's picture

It takes considerable more effort to herd 67 sheep.

Say What Again's picture

The thoughts and opinions of these 67 e-CON-o-mists mean nothing.

All that matters is if Ms. Yellen (or her F-Buddies at the BOJ, ECB, IMF, etc) will be printing moar money tomorrow and handing it over to the primary dealers in exchange for crap paper from their loan originators.  If the answer to that question is "YES", then the market will continue to go higher, until we have a major exogenous event like a war in the U-Crane, or a major disaster, etc.  It really is that simple.

And - Its been so long since the Central Banksta's have been out of the "market," no one will remember how to "invest" once the Banksta's stop printing fiat.  I really think they have crossed the rubicon, and will be unable to stop their printing in any meaningful way.

MeMadMax's picture

"Hey mike, I was calling to see what you were gonna put on this stupid bloomberg survey before I go out for a ride on my yacht... Bullish? Ok, see ya at the dinner party in cuba tonight!"

old naughty's picture

Isn't this groupthingy is exactly what gives rise to Black Swan?

PT's picture

followed by "Nobodycouldaseeditcummin!!!"






That's why you should ask a Nobody.

UselessEater's picture

USA has been invading countries - so have other nations and elites groups from various corners of the planet.

Lets not put the USA on a solitary pedal-stool.

The UN is a servant.

The USA started nothing that the British East India company for one example had not already started.

Who started the UN??? The IMF???? Guess?

Why would their demise help us? Do not get me wrong I want them GONE, but TPTB that started them are obviously using them to tilt the axis to their agenda.

Don't fall into their trap.

TheReplacement's picture

100 million eh?  Care to provide some backup there?

james.connolly's picture

exp(-infinity) is still zero, ... and its math, interests rates can be held to near zero for government forever, but the PTB will make the little people pay high interest, that's a different story.

The FED has been printing to astronomic numbers since 1970, and since 2008 to infinity,

The end of history is here,

Nothing can end the'end of history' accept loss of faith of the USD, and that can only come from the FAILURE of the USMIL, and that ain't likely to happen given that 80% of the worlds population is on TEAM IMF.

The USMIL back IMF, and IMF creates FIAT to infinite, today the USD, tomorrow the IMF-SDR, but its still the same people yesterday, today, and tomorrow running the show.

How can it possibly end? I can't, the perpetual FIAT machine is here, only complete destruction of habitat can end the system.


Fiat is wealth

Freedom is slavery

war is peace

ignorance is strenght ( zh moronity will also go  to infinity )


RafterManFMJ's picture

A follow on survey indicates 100% of NeoCons believe a nuclear war with China and Russia would be both winnable and enjoyable.

corporatewhore's picture

when you're paid close to $500k you have no sense of what is happening on main street. 

Try selling something someone can use, visiting malls, going to convenience stores to get a sense of how bad it really is.

WhyWait's picture


Does Stockman count as an economist?  He's not wearing a collar ...

Speaking of which I probably paid $20,000 - a whole lot more in today's money - for my economics degree.  If all 67 economists are wrong about a downturn ... could I still my school or ite Econ department for consumer fraud?


NoDebt's picture

I paid about $45K for my Economics degree from 'Nova, graduating in 1990.  I don't think we have standing to sue, based on this article.  More's the pity.

But we can disagree with them.  Makes me sick when economists are devalued to the point of being nothing but the "mystical high priests" who just slavishly confirm the status-quo for their pay-masters.  Yet, that seems to be what they've become.  Rubber stamp the recovery meme and here's your paycheck.  I want to puke.

I called the top in August of last year on here and..... I stand by that call.  Everything since then has been a bunch of channel-stuffing and the usual bag of tricks to pretend the economic hill has not already been crested.

Of course, we crested the BIG hill long ago.  But the most recent rise in this ever-descending roller-coaster ride is behind us as well.  

OldPhart's picture

I paid about $5k for my accounting degree.

I built the budgets for the forty seven companies I'm controller for with built in deflationary expectations beginning in June, though I added 20% for fuel costs.

My last budget was dead-on for fuel (we use a lot of fuel).

My base budget, with my deflationary expectations are the base for the lies I get told by Ops and Sales for their expectations.  I track both.  Since 2010 I've been within 5% of actual...thye've varied by 40%.

Have been through a lot of Ops Executives over the last couple of years.

FreedomGuy's picture

Economists remind me of real estate agents. Real estate agents always tell you the market is going up or about to go up. I think they attend the same schools or myopic optimism.

PT's picture

The highest paid economists are the best economists that money can buy.

"We need the Fed to print some money and give it to us.  Say something that will make the sheeps agree with us."

No such thing as highly paid economists.  They are a propaganda machine.

lordylord's picture

Are they basing this off of the real numbers or the fake government numbers?  Isn't central planning great? 

intric8's picture

They're all lined up like a bunch of ducks. Maybe their all convinced MMT is infallible. Central banks will backstop up the ass, till the end of time

hobopants's picture

The progenitors of the problem can't see the problem...hmm wonder why?

GtownSLV's picture

A kettle of Krugman's, what could possible go wrong?

fonzannoon's picture

the upside of a permanent depression is we will never have another recession

lordylord's picture

Keynes did promise to end the business cycle.  May he rot.

hobopants's picture

Zero hedge's first optimist ;-)

Skateboarder's picture

I'm tired of all of these -ions. Can't we have -ings or -als for a change?

medium giraffe's picture

Their calculators must not be able to handle large numbers like 17,000,000,000,000 and 85,000,000,000.

PT's picture

Don't you remember?  Debt doesn't matter because one man's debt is another man's income.  And that other man is going to innovate and create jobs and give us wonderful things to buy!

Pardon me while I puke.  Some things make me feel sick, even when I say them in jest.

Spitzer's picture

This is not the only thing there is complete unanimity about. Not a single economist taking part in a separate survey believes an economic downturn is possible.

And the author of the article seems to be delusioned into thinking that an economic downturn is good for the bond yields of the said country. 

Spitzer's picture

My bad. Should have said good for bond prices if you are long.

disabledvet's picture

"Name one Banker that can't wait for the next asset bubble!" (sound of crickets chirping.)

"Now name a single economist who can't wait for the next asset bubble!" (sound of the Wembly Crowd when Queen played at Live Aid.)

whooo-hoo! we've done it again!

disabledvet's picture

(somewhere out there in that crowd is the current and previous two Fed Chairmen btw.)

Spitzer's picture

Contrariansim is dead

NoDebt's picture

No, it just moved because it isn't rewarded around here any more.

Spitzer's picture

So the crowd was consensus long on gold in 2011 ? nope

rosiescenario's picture

....and 100% of all the engineers, owners, and passengers of the Titanic said it was "unsinkable".....tempt the fates at your peril.


It will crash due to some sort of "unforeseen event"....some "outlier" or "black swan"....or any number of "who cudda known" events.


How many German economists foresaw the hyper inflation to come under Weimar?

Spitzer's picture

The saddest part about this is, that Keynesianism will not be discredited in the eyes of the general public. The Keynes mouth pieces will just say, it was a one in 500 years event.

One day economics will be understood by all but none of us will be alive to see it.


disabledvet's picture

The saddest part is that all the data is proving beyond any doubt we have a slowdown well underway.

Of course when your "financial data" (cough, cough paycheck cough, cough) says "we own your ass"...what else is there but "never ending rays of sunshine"?

For the rest of us "it's just pointing out the obvious."

Or is it "the oblivious"?

August's picture

>>>One day economics will be understood by all but none of us will be alive to see it.

Man, are you ever the optimist.

Ayr Rand's picture

Nobody sees these things if they are too plugged in. From an interview of Warren Buffett in May 2007, in which he said the subprime crisis would not have a big impact on the economy:

Borrowers and lenders in the subprime mortgage business were betting that house prices would go up in future, Buffett said. Now that delinquencies and foreclosures are increasing there's extra supply of homes for sale, which changes the dynamics of the real estate market, he explained.

"You'll see plenty of misery in that field. You've already seen some," Buffett said. "I don't seen a big impact on the economy though."

Aquarius's picture

The "measure" (a qualitative term used here accordingly) of the "Economist" is about to benchmarked and recorded - in terms of harsh reality, for all to see. The smoke will finally clear and the mirrors will shatter, with the light of truth.

No wonder that they are dying like flies. Expect this trend to accelerate.

Ho hum