Société Générale has a very interesting piece out this morning looking at the notion of economic surprises and a double-dip scenario:

“The economic surprise indicator has returned to very low levels, indicating that a lot of negative surprises are now discounted. We don’t believe that the indicator will remain low for long as the drop is mainly due to a combination of several exceptional factors in H1 2011, i.e. the earthquake and nuclear threat in Japan, the hurricane in the US and the oil price spike owing to turmoil in the ME/NA region.”

The economic surprise indicator is SocGen’s proprietary measure of deviation of economic data surprises, calculated as the difference between figures released and figures expected by consensus.

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Number of news articles related to double dip

click for larger chart

Source Bloomberg, Citigroup, SG Cross Asset Research

Their proprietary newsflow indicator suggests that doubledip scenarios have come back to the forefront of the news, supporting the bond market but penalising cyclical assets.

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Newsflow Analysis


Source: Dow Jones, SG Newsflow Watch, SG Cross Asset

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See also: Citigroup Economic Surprise Index, Trader’s Narrative

Source:
Don’t believe the doom merchants
We don’t ascribe to the double-dip scenario: markets remain liquidity-driven
Société Générale Cross Asset Research, Q3 2011

http://www.sgcib.com/solutions/global-markets/cross-asset-research/cross-asset-research

Category: Analysts, Psychology, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Are Economists Now Too Pessimistic?”

  1. smedleyb says:

    The market dips 5% over a couple of months yet during that time bullishness drops by 50%, and bearishness rises by 80% according to today’s sentiment numbers?

    Hard to press the short side when the merchants of doom are so quickly embraced.

  2. AHodge says:

    of course they are
    a majority of wall st economists
    produce a short term economic view consistent with what the stock market has done the last month or two
    this makes them sound smart to their customers, it all makes sense now
    and produces a “market trend will extend” view based on the economics.
    this generates more trading than a “market turning point is coming”economic forecast

    so weaker econ views– even worse than the data?
    le contraire m’aurait etonnee.

  3. TheUnrepentantGunner says:

    All a bit rich considering this was the group that had Albert Edwards on its payroll I’d have to say…

  4. wally says:

    It is hard for me to even imagine now what a “positive” surprise might be… to many possibilites are now foreclosed by reality and politics and too many indicators have topped and actually begun to roll over.

  5. [...] negative economic surprises bottomed out?  (Big Picture, Trader’s [...]

  6. Ned Baker says:

    Which hurricane?

  7. billjohnson says:

    I think it’s time to do another “your favorite finance/investment/economics books” post. Don’t think you’ve done one of those since 2008.

  8. Cdale_dog says:

    Obama has done an absolutely horrible job and they are calling him on it – finally. Short the US markets, short the US of A and short Obuma!

  9. Mike in Nola says:

    Sometimes cyclical assets need to be penalized.

  10. David Merkel says:

    Well, you’re making me think. Ouch, that hurts.

  11. wally says:

    If we wait long enough, maybe something good will happen.
    At least, that’s the official position of the Fed.

  12. John Rothe says:

    I really feel that the media is making the economy worse. The US is a consumer based economy. If people are scared into thinking we will double dip, the won’t go out and spend. It becomes a self fulfilling prophecy.

  13. wally says:

    “If people are scared into thinking we will double dip, the won’t go out and spend. ”

    Do you think people have money to spend that they are holding back?

  14. aprof says:

    I love the historically conclusive 3 year analysis that utilizes their proprietary scale

  15. DiggidyDan says:

    Yes to both. Uncertainty about the future is causing most intelligent people I know who still have a decent job to save all the excess to pay off the debt hole they find themselves in instead of spending on non-necessities.

  16. ZenRazor says:

    The last thing I read from SocGen was Albert Edwards’ piece from May 25th that was forecasting the S&P 500 at 400 (and Albert is a very bright guy). Water cooler conversations might be fairly entertaining around that shop.

  17. Yaun says:

    Positive surprise would be if Greece suddenly found a cache of gold worth 5x GDP buried below the Akropolis.

  18. victor says:

    Here’s a positive surprise ref. Greece: Greece sells a couple of their islands to the German and French banks who are holding the majority of her debts.

    @ Yaun: fat chance, the Treasure of Troy was discovered in today’s Turkey by a German archaeologist who smuggled it to Germany via Greece only for the Red Army to appropriate it in 1945 and move it to Moscow where it still sits, as compensation for the destruction of Russian cities and looting of Russian museums by Nazi Germany in World War II. Anyway, God Kronos will save Greece, just wait, and wait, and wait….

  19. tosenton says:

    $1 Million Challenge

    It’s as simple as this: the U.S. economy is mature and rapidly losing steam. And economists and politicians must get their collective minds around that fact. This doesn’t mean we are doomed. But it does mean that sustained GDP growth of 3 percent is pure folly. Can US GDP grow at 3 percent in a given quarter or even year. Certainly it can. But it will never ever grow at 3 percent – or even 2 percent – for an entire decade.

    Let’s review:

    Average rates of growth for US Real GDP by decade:
    1940s: 5.99%
    1950s: 4.17%
    1960s: 4.44%
    1970s: 3.26%
    1980s: 3.05%
    1990s: 3.20%
    2000s: 1.82%

    The rate of US GDP growth peaked in the 1960s – and has been trending down ever since. The minor exception was the 1990s when Personal Consumption Expenditures (PCEs) were driven by a) an unnatural increase in income in 1998 and 1999 at nearly double the rate of all other years in the 1990s, coinciding with the dot-com bubble; b) a concurrent increase in access to goods in the form of mind-numbing and unsustainable retail expansion in the 1990s; and c) consumer individuation – a narcissistic shift in consumer behavior that supported the move toward individually-owned products (my car, my cell phone, my laptop, my television, my iPod, etc.). PCEs were effectively juiced – like an aging Major League Baseball player – fueled by folly and increasing by 5.2% in 1998 and 5.5% in 1999 when PCEs increased at an average of only 2.85% for the balance of the decade (1990-1997).

    The fact is that the US economy today is a 1% economy. That’s it. What are the implications? What are the implications for an aging 75-year old golfer? They can still play and compete – just not to the levels that they once used to enjoy. In effect, they have to deal with the fact that they can’t reach most par-fours in two anymore. So they become creative and find workarounds. That’s the US economy today. And if we are to survive, we have to accept that fact and find new and unconventional ways to create jobs rather than continually BS ourselves into thinking that we can grow our way out of this monumental mess. We can’t.

    Anyone who thinks that US GDP will grow at 2 percent or more for the decade 2010-2019 is delusional. I will wager $1 million with anyone who is willing to bet that the US economy will grow at 2 percent or more for the current decade. It will not. Deal with it.

    Tom Osenton
    tosenton@customershare.com
    Author of:
    The Death of Demand (Financial Times Prentice Hall 2004)