Morgan Stanley Gets Downright Apocalyptic

Tyler Durden's picture

Listening to David Greenlaw and/or Jim Caron as they strike out again, and again, and again, with delusions of economic grandure over US GDP and some historic 2s10s bull steepener which is never, ever coming, one would be left with the impression that Morgan Stanley has inherited the title of most permabullish sell side advisory from Deutsche Bank's economics department. Nothing could be further from the truth. Like any other bank, MS has perfectly hedged its rosy outlook by spoonfeeding its retail clients with the rosy view, while whispering the apocalypse case to its institutional clients (judging by last week's pummeling in MS stock, there is not that many of them left). Below we present the view of MS' equity strategy team under Adam Parker, who gives not only a distribution range for his year end S&P target (1004-1425), but a matrix specifying the probability outcome of either case. Bottom line, "while there is 18% upside to the year-end bull case and 16% downside to the year-end bear case, we assign a higher probability to our bear case than bull case, preventing us from becoming increasingly optimistic." When even Morgan Stanley tells you (or rather the whale clients who are now more than happy to sell into every low volume, retail driven rally) there is little to smile about, it is high time to look for the exits.

From Morgan Stanley:

One way to think about what is priced into the equity market today is to look at a range of forward EPS and price-to-forward earnings multiples (Exhibit 2). Forward earnings data have existed since 1976, and the historical median price-to-forward earnings multiple is 13.6x. If the bottom-up consensus estimate of $114 turns out to be achievable, and the median forward earnings estimate were applied to it, the market would trade at 1550. Our base case is 12x $103.2 in 2012 EPS, or 1238. We have boxed in a variety of scenarios close to what is being implied by today’s price, and what would be implied by our bear and bull cases. While it’s impossible to know for sure what combination of multiple and forward EPS is being digested, we do believe that the market is pricing in something close to 12x $100 dollars today.

We don’t think a recession is fully priced in, as market retrenchment is usually far more substantial in that case, recent jobs data did not imply a recession is imminent, and corporate profitability and estimates remain robust. We think management guidance and sell-side estimates must be reduced to believe a substantial buying opportunity is imminent. Secondly, we have always, and continue to assign a higher probability to the bear case than the bull case, and believe the recent price action increases the probability of the bear case. Poor price action, the S&P downgrade of US sovereign debt, and the exacerbation of recent problems in Europe likely decrease confidence and increase the probability of the bear case (Exhibit 3).

Said another way, while there is 18% upside to the year-end bull case and 16% downside to the year-end bear case, we assign a higher probability to our bear case than bull case, preventing us from becoming increasingly optimistic.

Rather self explanatory.

Perhaps someone can ask CNBC Friday's afternoon permaguest David "Soul Glo" Durst how he justifies his endless optimistic outlook on stocks when his own colleagues warn the bottom is about to fall out...

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anynonmous's picture

so this is bullish?  seriously

scatterbrains's picture

very bullish, what with the EU pulling a bandaid of some sort out of their ass soon, another round of fed money printing on deck, zero interest rates as far as they eye can see and the mother of all carry trades in the dollar kicking off,  I'd expect we're only about midway up on this equity ramp.


Stax Edwards's picture

Not so fast.  Real asset prices are declining.  Commodities will hopefully follow, and if they do the scenario may become rosy again.

spiral_eyes's picture

deflation, anyone? kicking this can is getting heavier and heavier. got some serious club foot here. bernanke will kick again, and this time we'll start spurting blood. krugman already calling for more inflation. the inflation level — even weimar inflation — will never be enough for krugman. 

HungrySeagull's picture

Kicking? No. They have a whole fucking Congress using a Roman Ram as a team battering that thing down the dirt road.

RetardTrader's picture

why don't you go long inflation swaps? or spread long tips short bonds?

looks like a great entry point.


For what it's worth, that inflation you're talking about doesn't seem to be happening on many things except the price of gold.

Sudden Debt's picture

Let's just wait and see what Cramer says what we should all do...


Oh regional Indian's picture

I think cramer would have bitten his tongue off by US open on monday. He'll be making his usual in-cohate sounds while the edifice burns.....


Kiss My Icelandic Ass's picture

"there is 18% upside to the year-end bull case and 16% downside to the year-end bear case"


In other words...


After careful consideration, we believe the stock market could finish the year either up or down.

disabledvet's picture

Down is failure in the third year of a Presidential cycle. Period.

dracos_ghost's picture

They also predicted the rain for the rest of the year -- 50% chance of rain on the downside 50% chance of sun on the upside.

papaswamp's picture

The employment report was caca. Participation rate dropped and NILF increased. There are just fewer people in the workforce to layoff or hire. Thus the data has been compacted in relation to the population total.

Rastadamus's picture

I am no firefighter. That's why I am not qualified to go in a burning building. The equities markets are burning down. Babylon is on fire, smell it? Got gold? Silver bitchez?!


HungrySeagull's picture

Even gold and silver must liquidfy in the inferno. Don't stay in it too long.

Josh Randall's picture

too long ? You have another decade before even considering liquidating PM's, and you should try to never swap physical pm's for fiat - trading for assets is OK when you're ready to eject

Sudden Debt's picture

This debt crisis will indeed take between 10 to 15 years and a decade seems about right because PM's will be at their top over then.


HungrySeagull's picture

I tell you folks this.

10 years aint that long anymore.

I was in for a shock when my last wed. Updates for Mint Bullion went to 80.00 for ASE and 2500 for Gold. It stayed that way for about 10 minutes and then settled back to where they were. I don't know if it was the US Mint setting new pricing or what.... I would have been caught ankle deep in mud with the ocean gone and a oncoming tusnami wave.

It would have been the perfect knife catch. But sweated bullets as I scoured the net' entire PM related resources for similar pricing and struggled to get live tape on Sil and Gold to confirm. If that was true and stood within the hour or less.... there would have been a stampede unlike any experienced before this time and not likely to happen ever again.


I would think there may have been a few soiled pants in that Data Center when the masters on Tron-verse went AWW SHITE!!! HURRY!!! FIX THIS FAST!!!

mick_richfield's picture

It has been such a struggle for me to understand what is even meant by "selling" gold and silver.  "Taking money off the table" -- by "selling" money?

It's like listening to chemists from the middle ages talk about phlogiston.

In the time that I come from, all this landscape -- publicly traded equities, mutual funds, mortgages, mortgage-backed securities, credit default swaps, "government" bonds, "government"-backed currency, "government"-insured savings accounts, "guaranteed" pension plans -- it's gone. 

It's just all gone.



HungrySeagull's picture

I wish to buy your coin for 20 dollars spot value as set by London and then traded across the world. In the old days you called your Mint broker.

Today you simply type in a value of your purchase and wait. When someone else sells that coin eventually (A match) and after it executes both you and the counter party are taken care of. I have your coin and you have 20 dollars.

Hopefully you purchased that coin 30 years ago at 5 dollars and sit on a mountain of the stuff at your place or stored in a vault under your control with dues of course.


Don't even try to buy and sell stocks. By the time you get to a broker anywhere to buy something computer networks lie in wait to entrape you and strip you of all the money and then some faster than it takes for you to process mentally what just happened to that 4.00 share price of C being split with a new price of 40.00 as happened recently


Because your 100 share purchase of C at 4.00 (You thought.) executed at 40.00 now you owe the difference.


The rest of it... the talking heads on all sorts of shows about the market starting with Cramer who likes to pound things and hollar working all the way down to the dry eyes man who slowly pronounces very large words in different combinations until your eyes glaze over.


There really are only two entertaining movies to understand Markets.


"Wall street" latre 80's "Greed is good."


"Hudsucker Proxy" simple idea makes big profits.

disabledvet's picture

Not if we have a sock puppet. With a sock puppet doing the talking i'd say we could get this debt puppy moving in the right direction in...10 to 15 days! Now STEP ASIDE......the debt meister is coming through#

DCCynic's picture

I agree with Josh here. Commodities inflation Wage deflation.

Alea Iactaest's picture

This article and the FT piece about the Fed pulling liquidity got me thinking: inflation or deflation? Might be time to revisit some basic assumptions. Or is it more psyops? Here's an althernative hypothesis - is this what it takes to get political cover for QExx?

We've all been so convinced that inflation is inevitable and now with a couple of articles and some talking heads (Roubini anyone?) we've got the mother of all black swans.

Is this enough to make me puke PMs? Jury still out, but some people will definitely move to take money off the table. Or is it enough to get people begging Uncle Ben for some QE relief: "Please, please, please. Give us some inflation!"

Then what? People are sitting on cash afraid to take the next move. Fed has signalled ZIRP for 2+ years. Eventually some folks will start jonesin' for a return. Cue a whiff of inflation and the stampede into equities will be in full force.

I have no idea if this will happen. I'm not willing to bet on it at this point. I'm just looking for a theory to connect the dots. The alternative is that no one has any clue, let alone any control, and we are on the verge of the Great Reset. Highest probability in my mind, but the economy and/or the markets won't stand still while we wait for an answer.

LynRobison's picture

Let's assume for a second that there is deflation. With deflation, the economy slows way down and government revenue drops. How does the federal government even come close to meeting its $100+ trillion in debt and obligations in the coming years? As Greenspan said recently, "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." (

In short, deflation leads to the government having insufficient revenue to pay its debts, so the government has to print money to pay its debts, and that leads to hyperinflation of the U.S dollar. No?

Sudden Debt's picture

I don't think they got their act right.

They look to their income balance sheets and indeed the governments income is dropping. So they say deflation.

But they don't really look at the consumer prices as a indicator of inflation/defaltion because that one is WAY UP.

And their logic seems right income up is inflation income down defaltion but if those 2 happen at the same time IT'S CALLED STAGFLATION!

eddiebe's picture

Of course there is inflation with much more to come. The only thing keeping a lid on it is stagnant wages and people grubbing for a few bucks to buy what they need while the governments around the world print like crazy. Little by little that drives up the prices of everything of value. The black swan is a rush by fiat money to anything real.

scatterbrains's picture

crack up?  I'm looking hard at MCP with a twitchy finger...  I'm just surprised the pm's didn't come off more ahead of the next phase. My sense is that the next leg up in stock will be a sight to behold, spectacular historic ramp to the sky.

HungrySeagull's picture

Forget stocks.

Hold on to your PM's tight the more the big powers teabag it and shove it under the rug the more it will stink because they are constantly stomping shit over it all.

PulauHantu29's picture

From Greg Canavan at The Daily reckoning:

"...consider these facts about how serious America's debt situation now is:

* The US Government ran a budget deficit of $1.24 trillion in 2008, $1.44 trillion in 2009, $1.58 trillion in 2010 and is on track for a deficit of around $1.3 trillion in 2011.

* Over the same time frame, the Federal Reserve slashed interest rates to zero and increased its asset holdings from $951bn at the end of 2007 to $2.85 trillion as of 27 July 2011. It simply printed money to purchase the assets.

* Not surprisingly then, currency in circulation in the US economy – the fuel for inflation – has jumped from $773.9bn in 2007 to $1.03 trillion as of 27 July. That's a 33 per cent surge in 3.5 years.

* Over the same time frame, the economy has grown just 5.2 per cent. That's in 'current' dollars. Adjusting for official inflation, which is more than likely bogus, the US economy has not grown since the third quarter of 2007.

So all this money printing by the Fed and debt issuance by the government has achieved absolutely nothing – apart from enriching the ruling class to the detriment of just about everyone else.

Money printing and fiscal largesse in other parts of the world have also only had fleeting impacts on economic growth. The message seems obvious. All the stimulus and increase in government debt is useless. It has a very short term and misleading effect on the economy. And it leaves a lasting legacy of an increase in a nation's total debt levels. "

"Central banks set the price of money and regulate that price every day. And as the evidence shows, they have done a pretty bad job. Taking the ability to create and set the price of money out of their hands would be a giant step forward in improving the economic system. "

"To do this, gold needs to be officially recognised as a tool in setting monetary policy. "

Read Mr Canavan at The Daily reckoning...he has some good thoughts on how to preserve your wealth.

gwar5's picture

Thanks for mentioning that site, been meaning to check it out. Many things the banks could do, but won't. It's us against them, as ever. 


DosZap's picture



So all this money printing by the Fed and debt issuance by the government has achieved absolutely nothing 

Sure it has, made the banker(making the Bankers) 3-4% for buying Treasuries w/it( feeding the Fed), and at the same time, being an additional hidden to the Sheeple QE style ponzi program.IMHO

Sledge's picture


caerus's picture

i am the nightrider...i'm a fuel injected suicide machine...i am the rocker...i am the roller..i am the out-of-controller!

falak pema's picture

is it chardonnay or pinot noir that you ingurgitate to become so to vino veritas?

swmnguy's picture

It may or may not be alcohol-related, but they are quoting to each other from Mad Max.  Rather a propos, I'd say.

Aragorn's picture
The Nightrider. That is his name. The Nightrider. Remember him...

...when you look at the night sky.

lawrence1's picture

Totally worthless blabber.  Little consideration of marco trends, of systemic crisis.  My guess is better than theirs, and I say the market is going much further down   If it goes up it will only be due to hyperinflation.  Its been a flat market for years considering inflation.  Thats for my institutional investors as well as for my retail investors.  THEREFORE, BUY GOLD AND SILVER.  My fee for institutional investors is $ 20,000 yearls, for retail investors $ 2,000.  Paid in gold or silver.  Actually have been recommending PMs to friends and family for 5 years, and all three people who listened are happy. 

treemagnet's picture

Sounds like the Titanic - load the wealthy 1st class passengers into lifeboats first, let the rest of them fend for themselves.  And the band played on until it didn't.  Housing was our iceberg, Bernanke is our captain, and our societies belief in the "unsinkable" market is the complacency that dooms us.  Except, off the port and starboard bow - we've got asia and the euro shooting at us -

CrashisOptimistic's picture

Sometime when you get a moment, have a look at what spikes in WTI and Brent in summer of 2008 did to the ability of low lifes to service their mortgages.

It is THAT which pushed housing over the edge and started the avalanche and be very sure you understand that summer 2008 was before Ben started the printing presses, so that price spike was not from printing.

It was from . . .what you know it was from.

It's forever.  All the efforts to put humpty dumpty back together will reach a point where more glue has to be shipped in, and the gasoline for the trucks shipping it is too expensive, and so he'll fall back down.  Over and over.  With fewer pieces glued in each time before the next fall.

HungrySeagull's picture

We go back to oxen and mule. It will take longer but employ more people along the way.

Pay Day Today's picture


An economy is about keeping all of society going, not keeping the top 0.1% in the wealth they have come to expect.

Tired of hearing CEOs boast about record EPS in the first half of a conference call and then announcing massive staff layoffs in the second half.

Alpha Monkey's picture

Sometime when you get a moment, have a look at what spikes in WTI and Brent in summer of 2008 did to the ability of ignorant home buyers to service the unsustainable mortgages sold to them by greedy low lifes.

Fixed it.

vast-dom's picture

It may be time to short Apple.




I can't understand how anyone would invest in 99% of corporate stocks at this stage of the game.

johngaltfla's picture

Shorting AAPL has broken many a man. It's a ballsy call but totally justified after the next mini-rally.

Bam_Man's picture

It may be time to just forget about the stock market and do something more constructive with our time and energy.

treemagnet's picture

I'm a prepper, he's a prepper, wouldn't you like to be a prepper too? 

Old Dr.Pepper jingle - you may or may not remember.

firefighter302's picture

"It may be time to forget about the stock market..." Bam_man.

I took on that disposition in 2001 or so, after the NASDAQ taught me a little lesson in reality. (After owning CSCO, EMC and NTAP much of the way up and down.)

I learned, "diversified", does not mean within equities but among asset classes.