Archive - Oct 2010

Hilarious: "We are downgrading BAC to Hold from Buy. Sadly, this action goes against our better fundamental analysis/judgment especially after the company reported 3Q10 results that we believe were better than many feared. Does the fact the company is trading at 90% of reported tangible book value of $12.91 matter? It should, in our view. But, unfortunately it doesn’t – at least not right now." In other words, "unfortunately" the sellside ponzinomics model is breaking down when the rule of law has to be followed. How "sad" indeed.

The only pages in Wells Fargo's typically labyrinthine earnings release were 26 through 30, in which Warren Buffett's bank, which continues to be in denial over Fraudclosure and still refuses to admit it also was a RoboSigner, discloses its putback/repurchase liability. The total disclosed repurchase reserve liability as of September 30 was $1.3 billion. This compares to Bank of America's total Rep and Warranty liability of $4.4 billion, which as we disclosed yesterday took a tiny provision of $872 million in Q3. This means that when, not if, Wells is also subject to a comparable action by litigants such as the one from yesterday which included Gross, Fink and Dudley on the offensive, the hit to the bank will be that much more dire. And since Wells management now has zero credibility, and negative fiduciary duty to its shareholders, we are currently combing through the MaidenLane portfolio to determine which New York Fed securitizations include loans originated by Wells Fargo. We are confident quite a few will make the cut. After all, as the bank itself notes, of its $1.8 Trillion Resi Mortgage Servicing Portfolio, "8% [or $144 Billion] are private securitizations where Wells Fargo originated the loan and therefore has some repurchase risk."

• Bank of America Accused of Racketeering in Foreclosure Lawsuit in Indiana (Bloomberg)
• Fed to Buy ’Plenty’ of Debt, If Needed, O’Neill Says (Business Week)
• China-Japan South China Sea fiasco returns: Spokesman: Japan FM's remarks are 'shocking' (China Daily)
• FBI Investigating foreclosures (AP)
• Chicago sheriff says no to enforcing foreclosures (Reuters)
• France faces more protests as pension vote looms (Reuters)
• Pimco Says U.S. Economy Will Disappoint With 1.75% Growth (Bloomberg)
• China Rate Move May Lure Capital, Complicating Policy (BusinessWeek)
• Michael Pettis on FOMC Rate Hike (Mpettis)

After successfully pinning the 2% move in the DXY, the question everyone is asking themselves is: is this a trend change or just a bump on the road? Technically, nothing indicates in AUDUSD or S&P for now that it cannot be a trend change. The Shanghai composite index remains stuck against resistance, we still have in place the VIX signal dated October 13 which usually precedes a top in price by between 5 and 10 business days, and the Nikkei has failed so far to take out the 9,750 resistance which would call for at least 3% further upside. Looking at the price action more closely, we can see on the S&P 10-minute and AUDUSD 60-minute charts that we possibly have a 1)-2)-i)-ii) Elliott formation. What does it mean? Well it means if 0.9850 on AUDUSD and 1,175 in S&P future are not bypassed there is a distinct chance we accelerate to the downside, and if that is the case the market will go bypass 1,129 and dip much lower from here. Full disclosure long term I am VERY bearish, the key is to find the timing when Keneysian policies breakdown. - Nic Lenoir

Following news of a setback in mortgage loan applications, we hear from another Fed speaker around lunch time and from the regional banks in the beige book shortly thereafter…

The glory days of reckless banking aren't going to be punished by the courts, congress, or the regulators. The undeniable pressures of the markets are whose coming home to roost!

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 20/10/10

Day traders support and resistance confluence PowerZones created by combining multiple support and resistance methods.

This daily report is designed to help traders find opportunities to trade against this group. The premise is very simple we are looking for 66% of retail traders to be trading either long or short a currency pair, we then look for opportunities to fade (trade against) this group. For example if 72.99% of traders are long the USD/CHF we look for opportunities to short that pair.

Did the Mortgage Giants INTENTIONALLY Sell Mortgages Which Would Default, to Generate Huge Credit Default Swap and Synthetic CDO Payouts?

Timberrrrr. The market sold off today as a result of tech companies posting earnings that failed to titillate the street, China raising their interest rates to try to stave off an asset bubble that soon may be only a prick away from popping, and the rent still being too damn high.

The statistics that the government pumps out have been meaningless for decades. The true number of unemployed is closer to 30 million, or about one in five working age Americans. The economy is obliterating jobs far faster than anyone realizes. As many as 25 million jobs were exported to China and other low waged emerging markets.

In the movie Terminator, various faceless machines, and one especially murderous one almost caused the end of the world. In an ironic twist of life imitating art, the very core premise of our capital markets - the effective allocation of capital to worthy assets on the basis of solid fundamental analysis (and yes, "information arbitrage") is on the verge of being eliminated by the same combination of forces: millions of faceless, anonymous algos, and one destructive endoskeletal machine. Remember: Ben Bernanke is out there. It can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until both the middle class, and the dollar, are dead.

In an ironic twist of events, last night Bank of America's Chris Flanagan, head of MBS strategy penned an article titled: "Foreclosure Issues Pose Risks, Should Be Resolved With Time" in which the Bank of American proudly reports the following piece of supreme denial: "While that resolution should involve time, effort, and cost, we do not believe it will result in a major long–term disruption to the housing or mortgage markets...Additionally, the allocation of additional costs due to advancing and legal fees will have to worked out. We do believe that the tenets of securitization, MERS, extensive legal foundation that has been established over the last 30 years, and REMIC eligibility will stand." Well isn't it ironic, as Alanis would say... To think all this occurred when Bank of America was still just above it 15 month lows. After today's festivities, not so much. As for the tenets of, well, all those things that are supposed to stand, we are sure that is the case: after all would Moynihan wouldn't risk perjury if he was concerned that a multi-decade culture of perjury, fraud and lies could ever be overturned. The alternative of course would be jail time. And recall what happened to his securities-fraud committing predecessor. Regardless, here is the full MBS defense as presented by the bank with the most to lose when things finally get out of hand. Oddly enough, even this most KoolAided  of defenses admits that "the end result will likely be a further extension of foreclosure timelines." Which makes one wonder: just what gives the bank the confidence that it will be able to lift the moratorium within a week? And just what will happen to the firm if it is unable to sweep all these tens of billions in future losses under the rug.

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