Bank of America
A shocker from Bank of America: "The number of new commercial loans made by BAC has declined notably over the first half of the year. Measured as an indexed level to cycle peak (which was December 2005), the data show that the recent drop was the largest since the recovery began." Oops. If this is accurate then not only is the Fed fabricating loan data outright, it is massively misrepresenting the general direction of loan creation altogether. In fact, if loans are contracting, when one adds the decline in reserve "asset" creation, then banks are set for a world of pain come October when QE is set to end!
Over 1 in 5 homes (with $674 billion of mortgages) in China stand empty... and if you think that urbanization will fix that, as WSJ reports, a 10 percentage point rise in the urbanization rate (already at 54%) would result in only a 2.6% drop in vacancy rates. China has a major over-supply issue thanks to property developers who had rushed into the market to build homes, which have been a popular investment as prices seemed bound to keep rising. But now, as Vanke recently warned, things are changing and "the golden era" of China's property market are over. The vacancy rate of sold residential homes in urban areas reached 22.4% in 2013 and as new home prices are slashed to move product, a 30% drop would leave 11.2% of Chinese homes underwater on their mortgages...
- World Bank Cuts Global Growth Forecast After ‘Bumpy’ 2014 Start (BBG)
- Al-Qaeda Offshoot Threatens Iraq Oil Site After Taking Mosul (BBG)
- Fed Prepares to Keep Record Balance Sheet for Years to Come (BBG)
- EU investigates tax rulings on Apple, Starbucks, Fiat unit (Reuters)
- Cantor Loss Shocks Republicans, Dims Immigration Changes (BBG)
- More surveillance: Google to Buy Satellite-Imaging Startup for $500 Million (WSJ)
- Tea Party activist who defeated Cantor focused on budget, immigration (Reuters)
- Airbus Suffers Worst Order Loss as Emirates Deal Scrapped (BBG)
- Amazon.com plans local services marketplace this year (Reuters)
- Amazon Stops Taking Advance Orders for ‘Lego’ and Other Warner Videos (NYT)
As we showed a week ago, it is not just the coincident housing signals confirming that the latest artificial bounce has faded, but both upstream and downstream indicators. Specifically, we showed that lumber prices - that one component so critical in the building of new homes and a traditional leading indicator - have cratered. That's the upstream indicator. As for the downstream, we go to Bank of America which finds that not only has home improvement store spending declined substantially since the dead housing bounce peak last summer, but that furniture spending according to BofA estimates, is now once again negative: the first such drop since early 2012.
Henry Ford once said, “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” We hope this brief discussion raises that 'understanding'.
One after another pundit has tried to explain the relentless bid for US Treasurys, and failed. First it was the March geopolitical shock, and the "capital outflows" from Russia that were supposedly entering the "safety" of US paper. Well, today Russian stocks just hit a bull market from the recent sell off (despite, or perhaps in spite of, Draghi's idiotic "estimate" of €160 billion in Russian capital outflows), however without a comparable move lower in the 10 Year, meaning it was not Russian capital reallocation that was pushing US Treasurys higher. Then, a new theory appeared, namely that pension funds, seeking to lock up equity upside, will "reverse rotate" out of stocks and into bonds. Judging by where US stocks are trading, they certainly did not rotate nearly enough, and now courtesy of Bank of America which parsed the latest Flow of Funds report, we learn that the in fact "buying of bonds by pension funds slowed down significantly in 1Q."
- Canada Aims to Sell Its Oil Beyond U.S (WSJ)
- ECB Unanimity May Prove Fleeting (WSJ)
- Chinese military spending exceeds $145 billion, drones advanced: U.S. (Reuters)
- France to sell 10 warships to Russia next? BNP Executive Firings Sought by Top New York Bank Regulator Amid Probe (BBG)
- Vodafone says governments have direct access to eavesdrop in some countries (Reuters)
- Home Price Gains of 20% Vanish as Hottest Markets Cool (BBG)
- G-7 Heads Warn Moscow Before Facing Putin (WSJ)
- Barclays Fine Spurs U.K. Scrutiny of Derivatives Conflict (BBG)
- "Or Costs" - Obama Says Putin Running Out of Time Over Ukraine (BBG)
- Banca Monte Paschi Falls After Offering New Stock at 35.5% Discount (BBG)
The massive consolidation of wealth, combined with the removal of any limits on money in campaigns, has allowed for the purchase of our government. Americans know that something is wrong, deeply wrong. They see signs of the problem everywhere: income inequality, growing concentration and power of mega corporations, political donations/corruption, the absence of jobs with decent salaries, the explosion of the US prison population, healthcare costs, student loan debt, homelessness, etc. etc. However, the true causes and benefactors behind these problems are purposely hidden from view. What Americans see is Kabuki Theater of a functioning form of capitalism and democracy, but beyond this veneer our country has devolved into the exact opposite.
Remember when the "thesis" for Q2 growth was that just because Q1 was so horrible, Q2 will have to bounce back? Well, oops.
- At least 74 dead in crashes similar to those GM linked to faulty switches (Reuters)
- Obama Calls for $1 Billion Europe Security Fund; Will Increase U.S. Military Presence in Eastern Europe (WSJ)
- Euro Inflation Slowing More Than Forecast Pressures ECB (BBG)
- China accelerates as euro zone stumbles (Reuters)
- Russia says Ukraine situation worsening, submits U.N. resolution (Reuters)
- Secondary Sales Squeeze Investors (WSJ)
- Barclays Said to Start Cutting Jobs in Investment Banking Unit (Bloomberg)
- Backlash Grows on Release of Sgt. Bowe Bergdahl in Taliban Prisoner Swap (WSJ)
- For fallen soldiers' families, Bergdahl release stirs resentment (Reuters)
- PIMCO's Gross stares at record outflow (Reuters)
While we await today's US Manufacturing ISM number (expected to rise from 54.9 to 55.5), here is how some 23 of the world's most important countries fared in May in their manufacturing data. In brief: as the below table shows, out of the 23 countries that have reported so far, 8 reported improvements in their manufacturing sectors in May, while 15, or two-thirds, recorded a weakening in mfg data from April. That's the bad news, and an indication that the latest upswing in the global manufacturing economy may be ending. The good news: despite the modest decline, there were only 7 countries "contracting" or in negative territory (below 50) and 16 in positive. In particular, France, Korea, and Norway moved from expansion to contraction.
With real incomes stagnant and the cost of everything from food, school tuition and healthcare premiums skyrocketing for millions of Americans, it appears that borrowing against one’s home is once again a key source for consumption, if not survival, for the nearly extinct socio-economic demographic known as the middle-class. The Wall Street Journal reported yesterday that home-equity lines of credit (Helocs) had increased at a 8% rate year-over-year in 1Q14...The new American Dream.
- Vietnam, China trade accusations after Vietnamese fishing boat sinks (Reuters)
- SEC Set to Spur Exchange Trading (WSJ)
- Bank of Japan quietly eyes stimulus exit (Reuters)
- Japan Risks Low Growth Even as Easing Spurs Inflation (BBG)
- Hello Japan: Bond Market Message to Fed: Your 4% Rate Outlook Is Too High (BBG)
- Malaysia, UK firm release satellite data on missing MH370 flight (Reuters)
- Fighting rages in eastern Ukraine city, dozens dead (Reuters)
- Bad Credit No Problem as Balance-Sheet Bombs Rally 94% (BBG)
- Draghi’s Asset-Backed Drive Rouses Academic Skeptics (BBG)
- For-Profit Colleges Face Test From State, Federal Officials (WSJ)
After the crisis, many expected that the blameworthy would be punished or at the least be required to return their ill-gotten gains—but they weren’t, and they didn’t. Many thought that those who were injured would be made whole, but most weren’t. And many hoped that there would be a restoration of the financial safety rules to ensure that industry leaders could no longer gamble the equity of their firms to the point of ruin. This didn’t happen, but it’s not too late. It is useful, then, to identify the persistent myths about the causes of the financial crisis and the resulting Dodd-Frank reform legislation and related implementation...."Plenty of people saw it coming, and said so. The problem wasn’t seeing, it was listening."
Remember the legend of the great rotation? Neither do we. But we do know that a Treasury fund inflow of $3.06 billion, the largest since at least 2010 according to Bank of America, coupled with an equity fund outflow of $7.1 billion, means just one thing: the great unrotation is raging. It does beg one question, however, with equity funds dumping in the past week, just who is actually left BTFATH? (Don't worry, that's rhetorical - we all have Kevin Henry and the HFT crew to thank for the ongoing endless manipulation of the rigged market).