Deutsche Bank Hides The Hopium: "The Next Recession Should Start By The End Of August"
If there is one bank report that Obama wishes is absolutely wrong it is the following note from Deutsche Bank's Jim Reid (definitely not part of the bank's laughable Trinity Of Perma Bull consisting of Bianco, Chadha and, of course, La Vorgna) who, looking at the timing of business cycles, makes the following ominous, for both the economy and Obama's reelection chances, prediction: "If this US cycle is of completely average length as seen using the last 158 years of history (33 cycles) then the next recession should start by the end of August." The only saving grace for the president: since the advent of centrally-planned markets, nothing is as it used to be, and the business cycle no longer exists ("JP Morgan Finds Obama, And US Central Planning, Has Broken The Economic "Virtuous Cycle""). Still, maybe, this is the one last trace of free capital markets that the Fed has (so far) been unable to totally destroy. We are confident it will get right on it.
Our shorter business cycle theory (or return to normal length ones at least) first discussed two years ago was based around what we saw as a future lack of policy flexibility from the monetary and fiscal side. It feels like Europe has proved us right but that the US has the ability to disprove the universal nature of our theory. If this US cycle is of completely average length as seen using the last 158 years of history (33 cycles) then the next recession should start by the end of August. The average expansion has been 39 months over the period. One way the US can disprove us over the next 6-12 months is if they find a way of maintaining what are record peace time budget deficits thus showing that they retain fiscal flexibility where virtual every other country has had this reduced. Perhaps much depends on the election, the next budget ceiling point and crucially the Fiscal cliff debate.
Of course, just to confirm that every major bank is both schizophrenic and covers all bases at the same time, a member of the abovementioned trinity of Perma Bull came out literally at the same time as Reid with the following piece of "analysis":
MAPI, our US macro data surprise index, last week hit the bottom of its 2 standard deviation band. This has typically characterized the end of data disappointment cycles. Economic forecasts which were slow to come down have been downgraded sharply. The typical pattern from here would be for fewer negative surprises and then positive ones. The risk to our view is that the joint decline in the US, Europe and EM for the first time since 2009 has crossregion multiplier impacts that result in a deeper data disappointment cycle.
The world may be ending, but at least we are all laughing, all the way.