Morgan Stanley's Credit Team Joins The Bearish Call, Looks To Reduce Risk In Counter-Trend Rallies

Tyler Durden's picture

Over the weekend, we presented the suddenly very pessimistic outlook by Morgan Stanley's equity strategist team which stated in no uncertain terms that it "assigns a higher probability to our bear case than bull case, preventing us from becoming increasingly optimistic" adding that it "continues 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." Yesterday, the firm's Credit Strategy team joined the call for a bearish outcome, when in a conference call it stated its case for why its "bearish strategic view is based on long-term structural and valuation issues." Two key metrics watched by MS: i) The unsustainable DM credit super-cycle may be approaching a difficult dénouement, and ii) based on long-term P/E valuation measures, US and UK equities are still expensive. MS warns that "a larger correction in risk assets is likely if a recession occurs, more so for equities" a topic discussed by the equity strategy team over the weekend which believes that the probability of a recession has surged (and continues to be confirmed by leading indicators such as yesterday's Empire State Fed survey). Morgan Stanley's concluding advice to clients: "look to reduce risk in Developed Markets  in Counter-Trend rallies." Luckily, any time volume trickles to a halt, the counter-trend rally should present itself providing ample opportunities for selling into it.

The take home:

Prefer EM assets over DM
· Better cyclical, secular, valuation, and fund flow factors
· Within EM, credit has become rich relative to equities
· Potential rate cuts positive for local bonds, negative for currencies


Continue to reduce beta in DM
· UW European equities on sovereign concerns


Maintain neutral position on government bonds
· 10Y Treasury to stay range bound while Fed on hold
· Bunds face incremental risk from sovereign stress contagion


EUR weakness, JPY strength
· Expect continued EUR weakness from sovereign risk concerns
· JPY remains supported as only G4 currency not in debt spotlight


Commodities stay resilient if growth does
· Expansionary monetary policy bullish for gold
· If growth holds up, commodity balances will tighten

A chart readers saw over the weekend showing the potential downside once the recession stretches its wings:

Yet what is amusing is that Morgan Stanley as usual hedges to the hilt, saying that both IG and HY credit is cheap on some metric they follow. So... credit is rich, but its two components are cheap? Brilliant.

More in the full presentation below:


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RobotTrader's picture

Bears need to be careful.

RTH is green during this selloff, led by LOW, TGT, WMT, HD, etc.

Sudden Debt's picture

How many pennies do you make for posting all this crap?


spiral_eyes's picture

Bearish outlook?

Krugman calls for Alien Invasion to save the economy, bitchez! 

SheepDog-One's picture

Robo says 'bears need to be careful', but no warning to bulls after his clownishly bad call to get all-in leveraged at DOW 12,700 for the certain massive rally upon debt ceiling hike passage.

Whatta's picture

War Of the World II, bitchez.

Long Uranium for intergalatic weaponry!!!!! Nuke them green bastuhds.

LetThemEatRand's picture

Dilithium Crystals are about to go parabolic.   And if you don't like the volatility of the crystal market, you can always buy mining stocks on Rigel.

Cognitive Dissonance's picture

He loses a few pennies on every post, but makes a killing on the volume. :)

prophet's picture

Perhaps he is paid by replyballs.

gulf breeze's picture

Lets all pile into tzoo and banks.  You are great stock guru. you will disappear when selling starts

SheepDog-One's picture

STFU RoboTrader with your scolding know-it-all posts and obscure 'green stock' snapshots, you were all in long at DOW 12,700 for the huge debt ceiling passage run up, remember that? 

buzzsaw99's picture

Why does Morgan Stanley hate America?

Cognitive Dissonance's picture

Better late than never I always say.

John come lately is very

Josh Randall's picture

Go ahead JPM - buy SILVER - you know you want to.. that Silver and JPM cross is gotta be a B!tch to bare 

Cognitive Dissonance's picture

I smell another Gold/PM margin increase coming from the JPM manipulated garbage dump.

Smiddywesson's picture

They will have to use their precious margin increases in pairs, only to see gold prices return to trend in one week.  They know that is the new normal.  So I would be surprised to see another margin increase real soon, they will raise margins only when they are desperate.

AcidRastaHead's picture

That's some fancy footwork: "assigns a higher probability to our bear case than bull case, preventing us from becoming increasingly optimistic".  A lot of words to basically say they're pessimistic.

RobotTrader's picture

-1304 TICK, watch out.

Oh regional Indian's picture

Holy Cowabungabunga.

I just realized that the bull-bear duality is no different than the red/blue, lib/conservative and all of those other distracting seperations. In this mad-house, one would look pretty spastic, going from bull to bear to bull to bear....

Plus, inquiring minds want to know, if all the news is so bad and and any of this re-search really matters, why are indices at the levels they still are?

More Gun Stun Lee Don't With Her Dis Cover.


Cognitive Dissonance's picture

I just realized that the bull-bear duality is no different than the red/blue, lib/conservative and all of those other distracting seperations.

Now you're getting somewhere grasshopper. :)

This is also why Gold and other PM "bugs" are so important to the system. Gives the other side (which ever side that is) something to hate and thus something to believe in. Insanity draws all its energy from within.

Oh regional Indian's picture

Interesting CD. Veddy interesting. I need to go looking up all my other, en-trained dualisms right away.

Why give the system any pow-her at all, hmmm?


Cognitive Dissonance's picture

So many of our spiritual and emotional energy leaks are programmed and conditioned into us from birth that we are not aware of them unless we dig deeply within and question EVERYTHING.

I like to think of these energy leaks as the red, blue and green lights on various electronic devices scattered about the home and office. The 'machine' might be off or idling. But the energy is still being sucked out of the system and over each 24 hour period of time this 'loss' might equal 20-30% of total energy consumption. As the insanity progresses and escalates so do the energy suckers.

The popular press now calls those small energy consumers "energy vampires". Very apt description of the overall state of energy loss.

Cognitive Dissonance's picture

Ron Paul is a necessary counter balance to the machine. His stature grows as the insanity grows because the balance must be maintained. I'm not saying he is controlled opposition. Just that there must be a growing Ying to the dominate Yang in proportion to the overall imbalance.

As more and more people awaken to their insanity and opposition grows, the majority must clamp down and oppress even more to strengthen that side, thus keeping it all in relative balance.

Note the use of the word 'relative' here. I'm not talking a 50-50 balance of energy. More like 90-10. As it shifts to 80-20 the system loses stability. We are moving there now. Thus the majority must press down even more to try and bring it back to 90-10. It is a losing battle because the world is re-setting.

Koffieshop's picture

Insanity draws all its energy from within.

Yes but is there an alternative? 
As far as I can see any social structure needs this deception circus to function and give people boxes to think in.  No boxes = no society

Cognitive Dissonance's picture

In my view there is no alternative if we remain within this paradigm. You are essentially asking, is there any other way to run an internal combustion engine than by way of some form of hydrocarbon fuel. Of course the answer is NO because the machine is designed only to use that type of fuel.

What is going on in the world today is another opportunity to create a new paradigm. The real question is, are people now, or will people become, desperate enough to seek alternative ways. The current PTB rules because we don't wish them not to rule. We could all make them go away in a few weeks at most if we truly wanted them gone. But do we wish to deal with the consequences of those actions. At this point NO.

Maybe tomorrow, maybe next week, maybe next year or decade. But not now, not yet.

anynonmous's picture

Blanchflower (super Keynesian) on Bloomberg just now


EU = Great Depression 2.0 

it's too late

RobotTrader's picture

Is the correction over already?

Geez, dip buyers coming out of the woodwork again.

SheepDog-One's picture

Geez really? So Robo hows your big long at 12,700 for the big debt ceiling passage run up working out? You buyin dat dip? Remember you were here posting all your posts from other blogs saying you better be all-in here at DOW 12,700? Hows all that workin out for ya? Did you find another stock that happens to be up yet?

papaswamp's picture

Boom... Silver just took off.

Ned Zeppelin's picture

If MS = bearish, time to go long US equities.

Village Smithy's picture

They want to push this thing as high as they can this morning because they know the Mercosium at 12:30 will be a dud.

Smiddywesson's picture

This is not a market, so bullish or bearish calls don't matter.  TPTB are dangling the worm in front of all traders, hoping that you will bite so they can take your money.  They are also calming the fears of the general public, and will spend any amount of "money" necessary to support this "market."

Meanwhile, what's really going on is happening in the PM markets.  That's real, the rest is for show.

orangedrinkandchips's picture


RiverRoad's picture

Beware everyone going bearish......