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Morgan Stanley's Bear Case For The US Economy

Tyler Durden's picture


While Morgan Stanley's lower-than-consensus economic expectations for the US economy splits the difference between an economy where people remain hesitant to take on risk, essentially extending the post-crisis pall, and one where they embrace risk in the manner of a more typical post-WWII cyclical expansion; their alternative scenarios (at either corner of the goldilocks world) make one wonder just what the catalyst will be to release the kraken of better-than-subpar growth...


Via Morgan Stanley,

Typically, a comparison to consensus helps put our forecasts in perspective. At the time our forecast went to publication, however, consensus surveys were only available through May. That means consensus has incorporated only the initial reading on Q1 GDP (reported at +0.1%), which dragged down full-year estimates by 0.3 percentage points according to the Blue Chip Survey of professional forecasters. Since then, the BEA's second estimate of growth in Q1 has the economy declining by a full percentage point. Incorporating that result will no doubt pull down consensus full-year 2014 forecasts even further.


Having taken into account the latest reading on Q1 GDP, our full-year estimate for 2014 has fallen to 2.1%Y compared with the May Blue Chip consensus of 2.4%Y. Consensus surveys indicate forecasters largely have not changed their outlook beyond 1H14, and nor have we. As such, our forecast for 2015 real GDP growth remains at 2.8%Y compared with consensus at 3.0%Y.



Our baseline forecast splits the difference between an economy where people remain hesitant to take on risk, essentially extending the post-crisis pall, and one where they embrace risk in the manner of a more typical post-WWII cyclical expansion. Our alternative scenarios go to either corner.


The bear case envisions households remaining reluctant to spend out of the additions to their wealth, instead continuing to focus on balance sheet repair. Business leaders continue to find the risk-reward trade-off more favorable for return of capital versus return on capital, thus limiting the scope for even a modest pickup in capex. Externally, global growth flags, which translates into a hit to US exports, and evidence builds that deflationary pressures are being imported from abroad. In this scenario, the economy is unable to break out of its 2% growth path and the Fed delays the date of first tightening well beyond our baseline expectation.


The bull case considers a typical cyclical pickup in growth with US households re-leveraging and, in response, business investment kicking into overdrive. Additionally, this scenario coincides with a global pickup in growth, which translates into a boost to US exports. Growth averages above 3.0% over the course of 2014 and 2015. Stronger growth and inflation lead the Fed to begin hiking rates aggressively in early 2015.

So given all of that... we can't help but read that "bear case" scenario as very much the status quo and wonder what it is that all the Sell-side sees as the new normal catalyst for a change to "this time is different."

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Sun, 06/08/2014 - 18:12 | 4835079 TeamDepends
TeamDepends's picture

You'll never see $1300 dollar gold again

-Morgan Stanley tombstone

Sun, 06/08/2014 - 18:18 | 4835090 BrosephStiglitz
BrosephStiglitz's picture

You'll never see $1300 dollar gold again.. because the dollar won't be around in 10 years.


Sun, 06/08/2014 - 21:29 | 4835635 vaft
vaft's picture

You'll never see $1300 dollar gold again.. because all gold will be tungsten in 10 years.

Double fixed.


Sun, 06/08/2014 - 18:20 | 4835095 knukles
knukles's picture

Lemme see here...
What could go wrong?
We just wind up on the same track as we have been, doing the same things and ... oh well, y'all get the picture....

"OB's gonna change your life."
    -OB's mate

Sun, 06/08/2014 - 18:16 | 4835085 Yen Cross
Yen Cross's picture

  I'll bet "Morgue Stanley" could use a few good bond and currency traders right about now.? Even those markets are algo'ed out,   there's more [relative] volume.

 Keep printing Bitchez! My pasta was in 16oz boxes a year ago. ( Now in 12oz boxes)

Sun, 06/08/2014 - 18:18 | 4835088 knukles
knukles's picture

And mine's gone from 99 cents on sale to $1.99 on sale in 18 months for the still 1 lb box.

Sun, 06/08/2014 - 18:21 | 4835099 Yen Cross
Yen Cross's picture

      Hopefully we don't starve to death before I have you over for a pasta dinner Knuks. :-D

Sun, 06/08/2014 - 18:24 | 4835104 duo
duo's picture

"No one believes anything the government says about the economy, therefore no business can plan for the future.  The best use of retained earnings is to buy back company stock."

Translated it for ya.

Sun, 06/08/2014 - 18:24 | 4835107 Cattender
Cattender's picture

JEEEZZZUZZZ.. we are Obviously in a Huge Recovery Right Now.. $4 a Gallon Gas Means STRONG Demand!!!!!! (it's a GoodThing!) ROTFLMAO!!!!

Sun, 06/08/2014 - 18:40 | 4835140 Tasty Sandwich
Sun, 06/08/2014 - 18:26 | 4835110 BrosephStiglitz
BrosephStiglitz's picture

If I was in Obama's shoes right now I would be begging to be impeached.  The guy must be quaking that the economy goes south before '16.

Sun, 06/08/2014 - 18:29 | 4835115 dobermangang
dobermangang's picture

FWIW: A friend of mine(who owns 3 small businesses) talked to lots of small business owners during the last several months.  All of them told him that business was really bad.  They all say it's stranger than normal too.  A very eerie kind of business lull.  

Could it be that everybody is excited for the World Cup???

Sun, 06/08/2014 - 18:46 | 4835148 BrosephStiglitz
BrosephStiglitz's picture

Did you ask them if they considered seasonally adjusting their income statements? I hear that can make everything better.

Sun, 06/08/2014 - 19:00 | 4835194 RaceToTheBottom
RaceToTheBottom's picture

Accounting rules have become debased beyond recognition.


Sun, 06/08/2014 - 18:41 | 4835139 Yen Cross
Yen Cross's picture

     So Cal. gas/petrol is $4.23-4.53 per (2) hours ago.

      How much GDP gets evaporated with each (1¢) rise in fuel costs?

Sun, 06/08/2014 - 18:42 | 4835144 q99x2
q99x2's picture

You didn't worry about this stuff before you were born; why worry about it now? You just look out for that mushroom cloud and when you see it, kiss your ass goodbye.

Sun, 06/08/2014 - 18:51 | 4835169 orangegeek
orangegeek's picture

let's see - this thing started around 4.2% in October



Now we are at 2.1% a mere 7 months later - with a -1 in Q1, that's still a 3.1% increase.  There's two hopes of this happening - Bob Hope and NO HOPE!!!


LMAO!!!!   Lower MS, LOWER!!!!!

Sun, 06/08/2014 - 18:52 | 4835174 Yen Cross
Yen Cross's picture

  Hmmm? Should I add to my usd/jpy long @ 102.27 after the Draghi (negative rate) announcement last week?

 (I covered the the short for 42 pips). Probably NOT! The risk reward is blown OUT!

  Traders are looking at usd/jpy through a "magnifying glass". "The weekly chart must turn soon, because it's over sold".

  The weekly chart looks like a macro "news release" and hasn't finished retracing yet. (ya gotta love central banking!)

Sun, 06/08/2014 - 18:59 | 4835198 B2u
B2u's picture

What the hell....RELEASE the KRAKEN....


Sun, 06/08/2014 - 20:37 | 4835442 OpenThePodBayDoorHAL
Sun, 06/08/2014 - 19:19 | 4835254 AccreditedEYE
AccreditedEYE's picture

Fuck.. If Morgan Stanley is a Bear, I'm going to triple my equity exposure tomorrow. If this site has taught anything, it is to not trust the banks and primary dealers. Wtf?

Sun, 06/08/2014 - 19:37 | 4835294 realWhiteNight123129
realWhiteNight123129's picture

Morgan Stanley has had to change. They do not have the balance sheet to do prop trading and they know it. So their only way is to try to get more differentatied against the big ones. So they end up being a little less biased into trying to fleece the muppets, because they can not much prop trading anymore.


Sun, 06/08/2014 - 19:45 | 4835315 Yen Cross
Yen Cross's picture

  It's time for a "risk/rate" thread Tyler. Let's look at "real time risk". I'll bet those spreads are widening as I post.

Sun, 06/08/2014 - 20:30 | 4835418 Frilton Miedman
Frilton Miedman's picture



I'll beleive MS or any other TBTF analyst's market projections the day said bank fully discloses their futures & derivatives positions so the public can evaluate if they're trying to fuck us the way they did in '08.

Money talks, bullshit walks.




Sun, 06/08/2014 - 21:25 | 4835623 Colonel Klink
Colonel Klink's picture

I'll listen to Moron Stalin as soon as I listen to Obama.  Problem with both is, even if they tell the truth, you have to assume they're still lying.

Sun, 06/08/2014 - 21:38 | 4835666 Chippewa Partners
Chippewa Partners's picture

They keep coming out with such flagrant honesty the Treasury will never again bail them out with taxpayer money! 

Mon, 06/09/2014 - 08:50 | 4836599 AdvancingTime
AdvancingTime's picture

The term "the new normal" has not been used much as of late, but going forward it may be about to return. Many investors and the public at large may be about to realize that central banks can only do so much through printing money and lowering interest rates. Both these actions carry with them some very strong and nasty side effects.

Markets have become very distorted as money has flowed into risky assets in search of higher yields. It could be we are about to see the markets morph into a "realizing market", one that grinds slowly downward. Another possibility is that at some point the wisdom of buying every pullback changes and the market simply drops like a stone. More on what the future might hold in the article below.



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