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"Optimism Bias" & "Nervous Stasis"; The Sell-Side Fears "It Feels Like 2007 All Over Again"

Tyler Durden's picture




 

As with any drug addiction, the first step is admitting you have a problem (or waking up naked in Glasgow train station). It seems HSBC - among a number of other sell-side strategists - are starting to wake up to their undying 'faith' and 'hope' that, based on the world's addiction to free money, there will be a return to the old normal status quo. As HSBC's Chief economist Steophen King notes, "there is an optimism bias, largely reflecting an attachment to pre-crisis growth trends which, post-crisis, have mostly remained out of reach," and they are finally facing up to the fact that "the world economy has succumbed to a lower structural rate of economic growth." But it is RBS that is waving the red flag as they warn of a "sense that this nervous stasis is dulling our perceptions about risk... it feels like 2007 all over again."

As Bloomberg reports, [analysts] say they’ve overestimated global growth prospects for each of the last three years by being too upbeat after the 2008 financial crisis. They’re now taking corrective action.

“There is an optimism bias, largely reflecting an attachment to pre-crisis growth trends which, post-crisis, have mostly remained out of reach,” according to a report published last week by the team led by Stephen King, HSBC’s global head of economics and asset-allocation research. “Our latest projections are consistent with this sense of ennui.”

 

HSBC hasn’t been alone.

It was all supposed to be so easy...

The list goes on: Printing money was supposed to lead to higher inflation, yet hasn’t. A run-up in equity prices has failed to ignite economic activity, and house prices are booming even with weak inflation.

But it hasn't worked out that way.

Behind the errors lay a reliance on “simple rules of thumb,” say the London-based King and his colleagues. Economists are suffering from a bias toward optimism that suggests economic drivers are the same now as before 2008.

 

...

 

Businesses are also signaling a permanent downshift in price expectations by restraining investment despite cash surpluses and cheap financing costs, said HSBC.

As they conclude...

Either the post-crisis financial hangover is longer-lasting than the majority of economists expected, or instead the world economy has succumbed to a lower structural rate of economic growth,” they said.

But if economists are waking up to the new normal, strategists are also starting to get nervous..

“Difficult to see any risks that lie just ahead” is “the way markets feel right now with spreads tight, rates low and volatility at or near record lows,” RBS strategist Bill O’Donnell says in note.

 

Sense that this nervous stasis, if you may call it that, is dulling our perceptions about risk as cash-laden global investors pile into rates and equity markets with little apparent heed paid to things like RISK-adjusted returns”

 

“Feels like 2007 all over again and no wonder many investors have simply chosen to disengage from markets as our slipping turnover reflects”

*  *  *

So who is left to tell you to buy? CNBC? Cramer? Your friendly locall asset-gatherer? The bright-white-shiny-smile-wearing long-only equity fuind manager on TV?

 

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Tue, 07/01/2014 - 14:59 | 4914691 Pheonyte
Pheonyte's picture

It's not 2007 all over again. Back then everyone thought things could only get better. Today, everyone knows the whole thing is FUBAR.

Tue, 07/01/2014 - 15:10 | 4914741 NotApplicable
NotApplicable's picture

“To be clear, we do not expect to use proceeds of this equity offering to further decrease leverage, but rather to take advantage of future market opportunities, which are abundant. And over all, we stand extremely well capitalized to take advantage of these new opportunities. From a risk management perspective, we continued to operate in our disciplined manner we’re known for,” said Erin Callan, the CEO of Lehman Brothers, in June of 2008.

Tue, 07/01/2014 - 15:28 | 4914825 max2205
max2205's picture

Nflx up 7% because GS said it's good. 475

 

I feel better already

Tue, 07/01/2014 - 15:58 | 4914963 RevRex
RevRex's picture

2007: no ZIRP No QE No massive Belgium Bond Buying.....yep there's no difference.....

Tue, 07/01/2014 - 14:59 | 4914692 stocktivity
stocktivity's picture

It's all Bullshit!!!

Tue, 07/01/2014 - 15:04 | 4914695 Dr. Engali
Dr. Engali's picture

Why is it they never talk about the three main drivers killing growth; oil, debt, and overcapacity in every sector of the economy? It's almost as if they are purposely avoiding something. But surely they wouldn't do that now would they?

Tue, 07/01/2014 - 15:57 | 4914888 El Vaquero
El Vaquero's picture

The fraud in the MSM need not be brought up in detail on this site as it is beating a dead horse, but once you get away from the fraudulent people, those three drivers put people into a very uncomfortable place.  They know that something is royally fucked, and confronting them with the drivers (fraud should be included too) would force them to draw conclusions about the future that are frightening to most who have grown up in what is unprecedented wealth when compared to much of the rest of the world.  I've had people go apeshit when I've told them that we are headed to a civil war or a collapse for this reason.  The conclusion is TEOTWAKI.  Maybe not the end of the world, but certainly the end of the way things are today.

Tue, 07/01/2014 - 15:00 | 4914697 Atomizer
Atomizer's picture

What goes up, must come down. 

Tue, 07/01/2014 - 15:01 | 4914698 AccreditedEYE
AccreditedEYE's picture

If everyone is starting to believe in this bias, that means it is already priced in that we would see a decline thus: we go much higher.

Tue, 07/01/2014 - 15:02 | 4914707 NOTaREALmerican
NOTaREALmerican's picture

We go higher and higher until somebody big doesn't get paid.   

Tue, 07/01/2014 - 15:23 | 4914803 PartysOver
PartysOver's picture

Bingo.  The Ponzi shall continue.  DOW 20K, 25K, 50K?   Heck if I know but it come to an ugly end.

Tue, 07/01/2014 - 15:05 | 4914723 PlusTic
PlusTic's picture

FAKE IS AS FAKE DOES...

Tue, 07/01/2014 - 15:07 | 4914725 Tulpa
Tulpa's picture

How appropriate that HSBC's chief economist shares a name with a horror story writer.  Grip your teddy bear and close your eyes because the scary part's just beginning.

Tue, 07/01/2014 - 15:11 | 4914744 NotApplicable
NotApplicable's picture

Plot twist: It's the same guy!

Tue, 07/01/2014 - 15:07 | 4914729 SheepDog-One
SheepDog-One's picture

I talk to people every day who tell me there's no way they can lose, I had my stepdad tell me it's all good because he's got 'insurance' and can't lose more than a few %, I didn't even bother getting into that farce of stops.

Tue, 07/01/2014 - 15:12 | 4914752 Tulpa
Tulpa's picture

"Businesses are also signaling a permanent downshift in price expectations by restraining investment despite cash surpluses and cheap financing costs, said HSBC."

Maybe it has something to do with Obamacare and the B.O. administration's utterly unpredictable regulatory environment in general?

Tue, 07/01/2014 - 15:13 | 4914758 Goldilocks
Goldilocks's picture

Tame Impala - Feels Like We Only Go Backwards
http://www.youtube.com/watch?v=wycjnCCgUes (3:19)

"Feels Like We Only Go Backwards"

It feels like I only go backwards baby
Every part of me says "go ahead".
I got my hopes up again, oh no... not again.
Feels like we only go backwards darling.

I know that you think, you sound
Silly when you call my name (my name)
But I get it inside my head all day.
When I realize I'm just holding onto
The hope that maybe
Your feelings don't show...

It feels like I only go backwards baby.
Every part of me says go ahead.
I got my hopes up again, oh no... not again.
Feels like we only go backwards darling.

The seed of all this indecision isn't me, oh no,
'Cause I decided long ago.
But that's the way it seems to go when trying
So hard to get to something real,
It feels...

It feels like I only go backwards darling,
Every part of me says "go ahead".
I got my hopes up again, oh no... not again.
Feels like we only go backwards darlin'.

Feels like I only go backwards baby,
Every part of me says "go ahead".
I got my hopes up again, oh no... not again.
Feels like we only go backwards darling.

Feels like I only go backwards baby,
Every part of me says "go ahead".
I got my hopes up again, oh no... not again.
Feels like we only go backwards darling.

Tue, 07/01/2014 - 15:18 | 4914779 Bemused Observer
Bemused Observer's picture

Big money is supporting the market, for now. But the retail investor doesn't have the means to join in, so at some point, one of these big guys is going to get nervous, and start selling to take some of those profits. If enough of the others figure this is it, they will follow suit. If they're the only significant players, it will fall fast.

The Fed can have all the plans they want, none of their friends will hang in there if they fear losing lots of money.

Tue, 07/01/2014 - 15:25 | 4914811 AccreditedEYE
AccreditedEYE's picture

People who hold large pools of assets and get paid more as their values rise don't sell until they absolutely have to.... And even then, they wait.

Tue, 07/01/2014 - 16:23 | 4915046 yarak
yarak's picture

That's a point, but not sure they have nearly the market-moving power of the hedgies.  More and more money is in ETFs, etc.  Also, asset-gatherers still make a lot of money with S&P at 1900 or 1700.  Nah, the hedgies and the i-banks need vol to make money.   The time for shearing looks near now. 

Tue, 07/01/2014 - 15:34 | 4914853 SheepDog-One
SheepDog-One's picture

What? You don't have a spare $10,000 for a few shares of Go-Pro?

Tue, 07/01/2014 - 23:47 | 4916582 Bemused Observer
Bemused Observer's picture

Go-Pro...Is that thing still around?

An expensive novelty...I just duct tape my digital camera to my forehead, coal miner style.

Tue, 07/01/2014 - 15:26 | 4914800 JenkinsLane
JenkinsLane's picture

I read Stephen King's last book, "When the Money Runs Out - The End of Western Affluence", in a

couple of days because I had nothing better to do and I thought it would give me a better

understanding of what to expect in the future. I thought because he was the Chief Economist

of HSBC he would have some valuable insights into the future.

 

His book was appalling. The only memory I have of the book is he essentially recommended doing

away with healthcare and pensions for seniors because otherwise the tax burden on the young would be too high

and they would emigrate en masse. He also spent at least a few paragraphs arguing for the end 

of "free banking" [sic] and that the peasants should be charged for current accounts - if he had been

in the room with me when I read that I would have punched him in the face.

 

I returned the book to Amazon and got a full refund. I never bothered to write a review because

I was so sickened at the 10 hours of my life he had wasted and was unwilling to waste any more

time related to him.

 

Tue, 07/01/2014 - 15:35 | 4914858 J Pancreas
J Pancreas's picture

-1 for returning a read book that you "bought". Get a library card.

Tue, 07/01/2014 - 15:51 | 4914931 JenkinsLane
JenkinsLane's picture

Nonsense - I wasn't about to put my money in his pocket for wasting 10 hours of my life - he

should have paid me to read his drivel.

Tue, 07/01/2014 - 15:26 | 4914814 TideFighter
TideFighter's picture

LOL. I was in the trade room the day Qualcomm blew....

Tue, 07/01/2014 - 15:30 | 4914837 orangegeek
orangegeek's picture

What to buy?  Use a dartboard.  Works everytime.  BTFATH!!!!!!!!!!

Tue, 07/01/2014 - 15:38 | 4914867 TheSecondLaw
TheSecondLaw's picture

Can't you get some advertisers with products targeting IQs a little higher than 90 and down?

Tue, 07/01/2014 - 15:41 | 4914884 vote_libertaria...
vote_libertarian_party's picture

Or the third option...

 

Overly up biased economists are just paid liars for WS.

Tue, 07/01/2014 - 16:16 | 4915027 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

I'll do it for cryin' out loud!

 

BUY FUCKERS BUY....

BUY FUCKERS BUY....

BUY FUCKERS BUY....

AND KEEP BUYING YOU SONS OF BITCHES, BUY, BUY, BUY!

Do NOT follow this link or you will be banned from the site!