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The Hope-To-Reality Gap

Tyler Durden's picture


"Europe looks as bad as we thought it would, but our US economic outlook was too optimistic" is how JPMorgan's Michael Cembalest describes the recent environment (adding that US equities have stayed relatively stable thanks to resilient corporate profits and a ton of liquidity). However, with negative pre-announcements mounting (and corporate cash piles startiong to burn a little), we suspect the unusual disconnect between profits and economics will end soon enough. As the following two charts show, when US economic data has been generally sub-par (as exemplified by the plunge in Citigroup's economic surprise indicator), US equities have deteriorated notably in the past. For now, it appears there is a 15-20% disconnect in the S&P' 500's performance relative to the real economy's performance - and the current 'hope' gap looks extremely similar to last summer's before reality set in.

Compare this year's dislocation between the economy (red) and the S&P 500 (blue) to last year's...

It would seem empirically at least that this hope-to-reality gap is around 15-20% in the S&P 500 - among the largest on record.

Either we are about to see a surge in economic data back to positive surprises or the S&P 500 faces a rude reality.

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Mon, 07/09/2012 - 11:57 | 2598792 Cursive
Cursive's picture

Benron will save us.  /sarc

Mon, 07/09/2012 - 12:12 | 2598818 eclectic syncretist
eclectic syncretist's picture

Benron will continue to attempt to "maintain price stability" by interfering with and attempting to manipulate markets.  He will ultimately fail, like all the others before.


Here's the ONE CHART that details the Feds record on price stability.


Obviously, they have failed to maintain price stability.

Mon, 07/09/2012 - 12:26 | 2598858 Skateboarder
Skateboarder's picture

Aren't these the same markets that no longer respond to speculation, real events, or anything of that sort? I've been watching the markets since I was five years old, and I know that 2008 - present is the most rigged state of the market I have seen in my lifetime.

Mon, 07/09/2012 - 13:00 | 2598974 blazinrabbit
blazinrabbit's picture

Makes you wonder what they are teaching in Financial 101 at Harvard B school?

Mon, 07/09/2012 - 12:00 | 2598795 Temporalist
Temporalist's picture

Oh it's a good thing reality set in last year so we can reject it this year.

Mon, 07/09/2012 - 12:00 | 2598796 not fat not stupid
not fat not stupid's picture

kudos on another batch of awesome and awful graphics.

Mon, 07/09/2012 - 12:43 | 2598906 Clueless Economist
Clueless Economist's picture

BOOOYAHHHH CRAMER...yes, you are fat and stupid

Mon, 07/09/2012 - 12:02 | 2598800 km4
km4's picture

Hope-To-Reality Gap would be great campaign slam of Obama for Romney 

note: I cannot stand either candidate

Mon, 07/09/2012 - 12:06 | 2598807 101 years and c...
101 years and counting's picture

if the economy is crashing at 1350, cant wait to see it at 1080 (down 20% from here).


Mon, 07/09/2012 - 12:08 | 2598811 monopoly
monopoly's picture

Want nothing to do with this market, up or down., And my screens show investors are scared or at least nervous. Bond yields a good tell today. 

Mon, 07/09/2012 - 12:10 | 2598815 Shizzmoney
Shizzmoney's picture

Benron would be a awesome Transformer as a kid.

Basically Benron would be a bearded centient being in a suit, who turns into a Federal Reserve Note that sets itself on fire.

Mon, 07/09/2012 - 12:34 | 2598839 Sudden Debt
Sudden Debt's picture

is there a way so the computertraders will ignore this fact!

Mon, 07/09/2012 - 12:28 | 2598866 sbenard
sbenard's picture

Can you spell "bubble"?

But now we have Bubbles Bernanke as Fed Chairman, who considers assets bubbles to be just "wealth effect". At least Greenspan had the courage to call them "irrational exuberance". When a central banker considers asset bubbles to be GOOD, then we know we are in for a calamity of central bank concoction!

Mon, 07/09/2012 - 12:32 | 2598874 LMAOLORI
LMAOLORI's picture


Bullshit story of the day???

France borrows for first time at negative rates

Mon, 07/09/2012 - 16:40 | 2599888 smiler03
smiler03's picture

Holy shit, it's true!! (but they were only 13 and 24 week bills)


Mon, 07/09/2012 - 12:34 | 2598879 firstdivision
firstdivision's picture

Risk On! Pants Off!

Mon, 07/09/2012 - 12:44 | 2598908 DonGenaro
DonGenaro's picture

"Why don't you wish in one hand, and shit in the other. See which one fills up first."
Billy Bob Thornton (as Willie in "Bad Santa")

Mon, 07/09/2012 - 13:13 | 2599023 haskelslocal
haskelslocal's picture

Moral behavior is a false premise designed to mislead the masses. 

You be moral as I scoop up the goods. If I get caught, I say "oops I'm sorry" and you say, "okay, but don't do it again".

Then I do.

Mon, 07/09/2012 - 13:57 | 2599184 Coke and Hookers
Coke and Hookers's picture

"adding that US equities have stayed relatively stable thanks to resilient corporate profits and a ton of liquidity"

Uhh hmm well interesting. Corporate profits are in fact 'resilient' because of 'ton of liquitidy'. Or in other words, corporations are showing profits mostly because public and private debt is increasing. There's nothing real behind this and you could even say that corporate profits in this economic environment signify nothing more than economic fakery and are therefore cause for alarm rather than cause for celebration.

The bailouts/out of control government spending/fiat printing has two goals: Save the financial system by indirectly seizing assets of citizens present and future and to fake the economy to prevent the sheeple from rising up and stringing up the political class. The gap between profits and economy is the result of total and utter falsification and it's done on purpose. I can't understand why this isn't obvious to everybody.

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