Tuesday, May 12, 2009

Greenshooters Sheet

Breakdown of The Green Shooters Macro Outlook

The Stress Test seems to be using a slighly worse forecast than 'the blue chip' consensus. A few points

-If the Blue Chips forecast for 91-day T-Bill rates plays out, that implies a federal funds rate at 2.5-3% by 2011, this would hurt bank margins and earnings. It's very likely this fact wasn't factored in the stress test as the Treasury seems to think all banks problems will be magically over by december 2010

-Its May and the unemployment rate already matched the blue chip forecast for the entire 2009

-They all expect 10 Year US Treasuries to be around 5% from 2013 to 2019, this seems like a joke, its very likely its going to be one extreme or the other, either the US becames japan and the ten year trades around 2% for a long time or it gets out of this problem with inflation and fiscal issues(including the severe entitlement problem) and rates soar

The stock market own forecast is probably a mix of those above, it clearly doesn't expect the stress test 'more adverse' scenario to occur otherwise banks would have no earnings(They would post a more than $200b net loss) and the XLF would nosedive. Consensus is usually too bullish, especially when massive bubbles burst, when the market realizes that the more adverse scenario is actually the baseline things will get ugly

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