CREDIT SUISSE: 5 REASONS WE WILL NOT DOUBLE DIP
10 September 2010 by Cullen Roche
12 Comments
Credit Suisse is still bullish on the economy and the equity markets. They believe we are experiencing a typical mid-cycle slow-down and NOT a double dip. The following 5 reasons outline their thinking:
- Global PMIs are consistent with 3.5% GDP and European PMIs with 2.5% GDP (against our economists’ forecasts of 4.3% and 2.5% in 2011, while consumer confidence is rising in Europe). We acknowledge that the US is experiencing a mid-cycle slowdown, but this is normal – and our high-frequency economic indicator is now consistent with GDP growth of 2.1% (up from 1.4%);
- Corporates appear under-invested (the investment share of GDP is near record lows, free cash flows are high, leverage is only at average levels and returns on tangible assets are high). Investment intentions have held up well;
- US corporates appear to have overshed labour: from peak levels, hours worked is down 7.5% while GDP is down 1.3%. Our employment model is consistent with c1% annualised employment growth. Income growth is picking up on an increase in the work week.
- Emerging markets now account for 48% of global GDP – and China alone has accounted for 36% of the increase in global growth since 2006. We believe that China will have a soft landing (PMIs are consistent with 9% to 10% GDP growth, core inflation is just 1.1%, we believe a 20% to 30% fall in house prices is manageable and China remains under-leveraged and has not run out of labour or capital).
- The power of near zero bond yields: over the last three months, 5-year real bond yields have fallen from 0.6% to 0.2%. Low real rates help to improve government funding arithmetic (at zero real rates, US fiscal tightening of just 4.5% of GDP is needed to stabilize government debt to GDP), drive down the saving ratio and support risk assets
Source: CS
What a load of BS !
Bhahahahaha. CREDIT SUISSE gets the rare opportunity to find out just how wrong they are in 3-6 months when this thing noses over and heads straight for the mountain. People really should have to disclose their f’d up predictions from the past so we can laugh at them when they fire off new ones.
I agree with Willy
My first reaction to this is, “of course, they’re in the credit business”. After all, who wouldn’t want the gravy train to continue? But there IS an end.
I’m trying to think of a reason why I should trust anything Credit Suisse might publish and I’m coming up blank.
Credit Suisse is correct that there will not be a double dip but not for the reasons they have listed. The simple fact is when the 2008-09 liquidation occured the banks and creditors in general were running out of capital and had to get rid of their assests such as equities, commodities, etc. When Goldman, JP Morgan and all the big banks start to sell their tradable assests ofcourse equities and commodities are going to tank.
Now welcome to 2010 the banks have loaded up on capital. Unless the Chinese housing bubble pops or the US commerical real estate goes bust, or a chain of deafults & debt restructing takes place in the EU there probably will be no S&P 666 any time soon.
Step daddy: fair point on the capital shortages that exacerbated the 2008 episode. However, it’s hard to rule out the possibility of another chain reaction, given many asset prices are only dependent on what the collective minds believe them to be. Looking at the Shiller CAPE trajectory, in a worst case scenario we could see up to a 50% decline from today’s prices and stay there for a while.
When I see some Nasdaq stocks at extreme prices and PEs, there seems to be a lot of greed, chasing hot companies on the way up and selling to the greater fool. Combined with the exogenous downside risks you mention, the environment begs for conservatism.
It’s funny that they base all of their data on U.S. GDP figures. The government has manipulated GDP as well as CPI and Unemployment numbers for at least 2 decades!!! Funny figures mean funny results.
If you can borrow money for free you never need to liquidate. The boatload of debt will implode but no, not before interest rate takes off. Economy could stall but not going to collapse, Prepare for locust of liquidity chase scarce resource next.
And if price is going higher we will have positive GDP.
CS is correct that there will be no double dip recession. The reason for that is that we never left the first one and it has only evolved from a recession to a depression. We are and will be going through structural changes in the economy, that is the definition of a depression. This ain’t no sissy inventory adjustment aided by cheap money to clear it up. SP 666 is coming and let’s hope that it bottoms above 25% less than that.
Doom and gloomers who say “SP 666 is coming, at best..” You may be right, no one really knows, whether they think they do or not. People just have opinions with varying levels of certainty. You may end up right, but it wasn’t because there was 100% certainty at the time of your prediction.
So this sort of vague shouting does nothing for hypothesis development.
What’s needed instead of the extremely broad one-liners which generally amount to “it’s all going to hell” are objective predictions. Numbers and dates. So we can see if you knew what you were talking about.
For instance, “The SP 500 will be under 750 by March 1 2011 because the T-bill rate will go toxxxxx by Jan 1.”
Then you can say, ” See I was right” or bulls can say, ” See you were wrong, ” and the bases for your hypotheses can be examined and improved.
People have been saying the sky is falling since the 1000 A.D. millenium ( many were convinced it was the end of the world.) Without quantifying it, this kind of addled shouting is just speculation.
Lumpen,
I agree with you. It’s not a great environment for stocks and the economy, but the world also isn’t collapsing….