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Here Are The Funniest Quotes From BofA As It Throws In The Towel On Its "Above-Consensus" GDP Forecast

Tyler Durden's picture




 

It is hard not to gloat when reading the latest embarrassing mea culpa from Bank of America's Ethan Harris, who incidentally came out with an "above consensus" forecast late last year, and has been crushed month after month as the hard data has lobbed off percentage from his irrationally exuberant growth forecast for every quarter, and now, the year. As a result, BofA has finally thrown in the towel, and tongue in cheekly admits it was wrong, as follows: "our tracking model now suggests growth of -1.9% in 1Q and 4.0% in 2Q for a first half average of just 1.0%.... Momentum is weak, but fundamentals are strong. We have lowered second half growth to 3.0% from 3.4%."

This happens just as Goldman's Jan Hatzius released only his second "above trend" forecast since December 2010 (that one was clearly wrong).

We give Goldman 2-3 months before it too admits it was irrationally optimistic on an economy which will likely grow well below 2% for the full year at a time when the Fed's is injecting less and less credit money into the economy, and in which bank lending - which is supposed to offset the tapering of Fed liquidity - is, as we reported earlier this week, plunging.

So how does Bank of America weasel its way out of being consistently wrong with its bullish (and this year was a super doozy) forecasts? Below we provide the funniest snippets which we are laughing out loud as we read and reread (highlights ours):

  • Last fall, for the first time in this recovery, we shifted to an above-consensus forecast. With the weak recent data, we are pulling in our horns
  • We now expect growth of just 3.0% in the second half of this year and peak growth of 3.2% growth during this minirecovery. We still believe there is room for a cyclical recovery, but it won’t have quite as much force.
  • The US economy disappointed in the first half of the year (Table 2). When we published our year-ahead piece last November, we were expecting 2.75% GDP growth in the first half, but our tracking model now suggests growth of -1.9% in 1Q and 4.0% in 2Q for a first half average of just 1.0%.
  • This is the third time in this recovery that annualized growth has dipped to just 1% or less over a two quarter period.
  • It is hard to explain the weak growth at the start of the year.
  • "Grossly distorted product" [but only when it is lower than our permabullish forecasts predicted]
  • Consumer: weak wages; strong wealth
  • What’s a forecaster to do?

Such confusion, many economists, very LOL:

Normally when there are distortions to a data release, economists “x out” the offending components and come up with a “core” story. However, first quarter GDP has so many x-factors that there is virtually no core. Consider the many moving parts: implementation of the Affordable Care Act, stronger utility spending surged due to the tough winter, government spending returned to normal after the 4Q shutdown (+0.5pp), collapsing inventory growth, and big trade swings. Weather also had a severe impact on many parts of the economy, causing some “demand destruction” (foregone activity that won’t come back) and some “demand deferral” (activity that will come back). Net it all out and the quarter still looks weak.

Oh wait, you mean you didn't anticipate all these "x-factors" when you predicted 2.75% first half growth? Gotcha.

The confused mea culpa continues:

What’s a forecaster to do? We fall back on several themes. First, although we can’t completely dismiss the weakness, it is worth noting that the extreme weakness in GDP is not matched by the 1Q annualized growth rates for other indicators. Payrolls rose 1.5% and aggregate hours rose 1.6%, numbers consistent with about 2 ½% GDP growth. Manufacturing output rose a modest 2.1%. The composite ISM index dipped to 52.9, just below its historic average of 53.6. Our own “global cycle” indicator for the US was just slightly below its historic average during the quarter, suggesting trend-like growth.

 

Second, we will be watching the “clean” post-spring data very closely. If December, January, and February were biased to the downside, then presumably, there is some temporary bounce back in March, April, and May. The data in May have been positive, on balance. Most indicators have been at or around consensus. One month does not make a trend, but this is a good kick-off for the summer.

But wait, there's more. Because it just gets better:

Housing: more cross currents

 

Home sales have been on a downward trajectory since June of last year, although recent data suggest a slight turn higher. Housing starts have essentially moved sideways with gains in multi-family building offsetting a soft trend in single-family building. Back in early May, we revised down our forecast for housing starts this year to 1.03 million from 1.1 million. We also trimmed our forecast for existing home sales and now look for sales to be down about 4% from last year.

 

We are still assuming that the second half of the year looks better than the first, and that starts average 1.25 million next year. Based on our new  forecasts, we look for residential investment to be up about 2.0% this year, adding only 0.1pp to GDP growth.

 

Capital expenditures: all it needs is confidence

 

After a solid initial recovery, capital spending took a breather over the last two years. We believe this weakness reflected a loss of confidence in both the economy (after repeated soft patches) and in Washington (with repeated brinkmanship moments). Looking forward, we expect these headwinds to abate. Recent budget agreements take brinkmanship off the table for at least a year, if not all the way through the presidential election. Companies also seem a bit more confident about growth so a good couple quarters should spur some animal spirits.

 

Trade: unpredictable squalls

 

The trade data are always a wildcard, including in recent months. However, we expect trade to be an essentially neutral factor in growth over the next two years. Continued growth in domestic energy production should continue to constrain imports, but the rest of the trade balance will likely deteriorate modestly. The US still has a high propensity to import, and while our trading partners are growing faster than we are, the gap is not very large. For example, over the next year and a half we expect US GDP growth of about 3.1% and growth in the rest of the world of about 3.7%.

 

How long?

 

Stepping back, much of our discussion has focused on demand drivers, but the supply-side of the economy will determine how long this assumed mini-bounce in growth will last. Over time the Congressional Budget Office has been trimming its estimate of potential GDP. They now estimate potential growth of 1.7% and an output gap of about 4.5%. If that is correct, the economy would need to grow
3.5% over the next 10 quarters before the output gap closes.

 

Fed up

 

All of this leaves our Fed call the same. Our growth and inflation forecasts are close to the FOMC central tendency. We have lowered our growth forecast and raised our inflation forecast, each by a couple tenths. Looking ahead, we expect the Fed to continue to counsel patience even as growth and inflation move higher. We expect the Fed to start seriously considering rate hikes next spring, but actually do the first hike in 4Q. We continue to expect very slow initial hikes, but a peak funds rate of over 4%.

Well Ethan, if this whole weather-forecasting thing, pardon, economastery for a bailed-out bank doesn't work out, you can always try your hand at comedy.

 

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Fri, 06/13/2014 - 10:36 | 4852760 Haus-Targaryen
Haus-Targaryen's picture

BoA will still get its pound of flesh either way.  Just waiting for the negative overnight.

Fri, 06/13/2014 - 10:37 | 4852769 nope-1004
nope-1004's picture

Insolvent bank.

 

 

Fri, 06/13/2014 - 10:44 | 4852785 hedgeless_horseman
hedgeless_horseman's picture

 

 

Goal Seek: exempli gratia, "...our tracking model now suggests growth of -1.9% in 1Q and 4.0% in 2Q for a first half average of just 1.0%."

Fri, 06/13/2014 - 11:37 | 4853088 knukles
knukles's picture

The thing that really got my attention was the cute puppy picture

Fri, 06/13/2014 - 12:40 | 4853547 SAT 800
SAT 800's picture

Really. Better than the news release. B of A couldn't find their Ass with both hands.

Fri, 06/13/2014 - 13:59 | 4854131 Anusocracy
Anusocracy's picture

That's Janet Yellen with makeup on.

Fri, 06/13/2014 - 10:44 | 4852790 simplejack
simplejack's picture

 

 

Is BoFa like GM?  Is this what happens when Bankrupt companies are forced to stay alive?

 

What will people learn from this?

Fri, 06/13/2014 - 10:36 | 4852762 PartysOver
PartysOver's picture

And they get paid for this?   Where being wrong does not matter?  Nice job if you can get it.  

Fri, 06/13/2014 - 10:43 | 4852786 101 years and c...
101 years and counting's picture

projecting 4% in Q2?  the next mea culpa should be even better when Q2 comes in at 1%, or lower.

Fri, 06/13/2014 - 10:41 | 4852772 Yen Cross
Yen Cross's picture

    lol With oil @ Crude Oil    106.70    +0.17    +0.16%  (and rising)

  BAC = Bullshiting Another Call

Fri, 06/13/2014 - 11:40 | 4853102 Colonel Klink
Colonel Klink's picture

BAC = Bankrupt After Countrywide

Fri, 06/13/2014 - 11:45 | 4853135 Yen Cross
Yen Cross's picture

  I like that one to. :-)

Fri, 06/13/2014 - 10:40 | 4852777 Kaiser Sousa
Kaiser Sousa's picture

again, another rocket shot to the moon in the equity indexes right at the bedginning of the close in London...

shit is a fucking joke....

Fri, 06/13/2014 - 10:41 | 4852780 pound the vix
pound the vix's picture

His bonus will only be $4.2 million this year instead of $4.4 Million.

Fri, 06/13/2014 - 10:41 | 4852781 Racer
Racer's picture

So if they don't like the numbers they remove bits until they get the one they want?

Why bother, just make them up in the first place! Ah but they would do themselves out of their snake oil job then wouldn't they!

Fri, 06/13/2014 - 11:02 | 4852877 Kprime
Kprime's picture

apparently all the monkeys have died and the dart board has fallen down behind the filing cabinet

Fri, 06/13/2014 - 11:37 | 4853084 tarsubil
tarsubil's picture

Sooner or later, they will see the same thing and simply start to make up the numbers completely. These things have a way of progressing.

Fri, 06/13/2014 - 10:42 | 4852783 Dr. Engali
Dr. Engali's picture

NOBODY could have seen this coming. Who is this nobody person? I'd like to meet a person with this much foresight.

Fri, 06/13/2014 - 12:10 | 4853320 koncaswatch
koncaswatch's picture

OT - Doc, I don't know who Nobody is, but Nevada may be on his trail as a "none of the above"

http://personalliberty.com/none-wins-nevada-democratic-gubernatorial-primary/

 

Fri, 06/13/2014 - 10:46 | 4852795 orangegeek
orangegeek's picture

Negative GDP for Q2 is pending.  That should stirs things up quite nicely.

Fri, 06/13/2014 - 10:54 | 4852828 Winston Churchill
Winston Churchill's picture

Election year remember.

As everyone  looks 'below the hood' nowadays I'm not sure how they fudge

a positive number,but thay will.

Fri, 06/13/2014 - 10:58 | 4852846 kowalli
kowalli's picture

Q2 would more negative than Q1 because people just don't have money to buy all this junk..

Fri, 06/13/2014 - 10:58 | 4852832 Anasteus
Anasteus's picture

"Momentum is weak, but fundamentals are strong", or... the fundamentals are strong to keep momentum weak.

Fri, 06/13/2014 - 10:56 | 4852834 insanelysane
insanelysane's picture

They're blowing an Expected GDP bubble.  If you follow the logic that any one company's potential future earnings can be infinity, therefor any stock price below infinity is cheap, then any one country's potential future GDP can be infinity.

Fri, 06/13/2014 - 10:57 | 4852838 Dr_D
Dr_D's picture

"Momentum is weak, but fundamentals are strong"

As someone who has made a living from making economic predictions for 15+ years I consider this a classic...

Fri, 06/13/2014 - 11:50 | 4853175 SheepDog-One
SheepDog-One's picture

Sure....the body may be a paraplegic in a wheelchair, but the brain is a gold medalist Olympic sprinter!

Fri, 06/13/2014 - 10:58 | 4852850 eaglerock
eaglerock's picture

When was the last time anyone increased a growth forecast?

Fri, 06/13/2014 - 11:18 | 4852853 ebworthen
ebworthen's picture

This is a string of catch phrases and terminology thrown in a mental blender to create a smooth lie shake.

This person knows, in their heart, that we are in a grinding depression; their mind is struggling to deny the truth.

Fri, 06/13/2014 - 11:54 | 4853206 SheepDog-One
SheepDog-One's picture

Gotta protect his phoney-baloney job and bonus check somehow!

Fri, 06/13/2014 - 11:02 | 4852870 Reaper
Reaper's picture

The power of positive economic thinking fails again.

Fri, 06/13/2014 - 11:03 | 4852881 Downtoolong
Downtoolong's picture

Our forecast is based on hisorial trends, which we previouly forecasted wrong, and still don't understand.

How do I get a job like this?

Fri, 06/13/2014 - 11:23 | 4852989 Peter Pan
Peter Pan's picture

In fairness to BA one must not discount the adverse effect on 1st quarter GDP as a result of not having February 29th in the current year.

Do these people even look at themselves in the mirror?

No wonder someone once said that the only function of economic forecasting is to make astrology look respectable.

Fri, 06/13/2014 - 11:50 | 4853170 nakki
nakki's picture

In a world were no one is accountable for anything, why expect economist's to be any different. Unfortunately I was raised in a family, that taught me accountability meant something. In my prior profession, you were instantly accountable for your actions. If you made a mistake it was instantly obvious and you to responsibility for it. In conclusion, it appears that my family and my choice of profession were completely wrong. In the future it would appear that excuses and blame should be pointed else where and that nothing I ever do that's wrong should be my fault. 

Fri, 06/13/2014 - 15:38 | 4854576 RaceToTheBottom
RaceToTheBottom's picture

Economists are predicated on NOT being accountable.  

This is why the Bernank was in a hurry to leave.  He knew that even when things go bad, which they have to go bad, he knew he could just blame those that followed him, not that his theories were faulty.

Fri, 06/13/2014 - 12:16 | 4853370 zookeep
zookeep's picture

Gotta make those banks lend to drive the GDP. All it takes is ambition and arrogance. Arrogance is not evil when you are saving the economy.

 

25% negative interest on bank reserves, checking accounts, savings accounts, and CD's. That will send the GDP into the stratosphere, where it's gotta be for the housing market.

 

Fri, 06/13/2014 - 14:14 | 4854215 bugs_
bugs_'s picture

oh my look at the time!  ---> doge

Fri, 06/13/2014 - 14:17 | 4854221 novictim
novictim's picture

This reminds me of another, even "GREATER" man:

ALAN GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology. The question is whether it is accurate or not.

And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact.

REP. HENRY WAXMAN: You found a flaw in the reality…

ALAN GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working?

ALAN GREENSPAN: That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

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