Bank of America

• London Quantitative Hedge Funds Report Second Year of Losses (BBG)
• Berlusconi Forms Alliance in Comeback Bid (WSJ)
• Japan to Buy ESM Bonds Using FX Reserves to Help Weaken Yen (BBG)
• Japan Mulling BOJ Accord Linked to Employment, Mainichi Says (BBG)
• Samsung Expects Record Operating Profit (WSJ)
• Boeing 787 Dreamliner Fire Probed, Blaze Adds to Setbacks (BBG)
• BOJ's Shirai: Open to Firmer Inflation Target (WSJ)
• HSBC N.J. Client Admits Conspiracy in Offshore Tax Case (BBG)
• Lampert to Assume CEO Role at Sears (WSJ)
• Abe prepares fresh stimulus measures (FT)
• U.S. Set for Biggest State-Local Jobs Boost Since 2007 (BBG)
• Pakistan Seen Needing IMF Bailout as Rupee Drops Before Vote (BBG)

If you ever wondered how just a few thousand bankers could impose their Ponzi global banking scheme upon 7 billion people, here is "The 9 Step Process Bankers Use to Force Global Slavery Upon Humanity."

The chapter on robosigning, i.e., Fraudclosure, is now closed with a $10 billion wristslap on US banks, of which a whopping $3.3 billion in the form of direct cash and $5.2 billion in "other assistance." The banks who are now absolved from any and all Linda Green transgressions in the past include: Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo. And so, banks can resume to resell properties with mortgages on which the original lien may or may not have been lost in the sands of time.

Fannie was already in the news this morning courtesy of the $10 billion settlement announced between the GSE and Bank of America. Let's make it two in a row courtesy of the firm's monthly housing survey in which one aspect, the ongoing expectation that home prices will continue to rise driven by the recent momentum, should come as no surprise: there is always hope that this dead cat bounce is different and unlike the previous three, and will result in something substantial. It won't, once all those millions of properties held on bank books and generating zero cash flow (remember: BAC's 6+ month delinquent mortgages now amount to a whopping $64 billion) are unleashed on the market once the subsidized housing price is perceived as sufficient by most as a new, and satisfactory, clearing price. What was surprising was the consumer outlook on the economy and personal finances, which was diametrically opposite, and in fact those who expect that their personal financial situation will get worse in the next 12 months rose to the highest since August 2011.

As had been widely expected, days before a National Mortgage/Foreclosure settlement is formally announced, the most exposed banks have started tying up the loose ends with the other nationalized entities. Sure enough, moments ago Bank of America just announced a $10 billion settlement with one of the GSEs - Fannie, whose CEO Tim Mayopoulous was BofA's former General Counsel and one of the people scapegoated by Ken Lewis. As just reported, as part of the agreement to settle representations and warranties claims, Bank of America will make a cash payment to Fannie Mae of $3.6 billion and also repurchase for $6.75 billion certain residential mortgage loans sold to Fannie Mae, which Bank of America has valued at less than the purchase price. These actions are expected to be covered by existing reserves and an additional $2.5 billion (pretax) in representations and warranties provision recorded in the fourth quarter of 2012. Bank of America also agreed to make a cash payment to Fannie Mae to settle substantially all of Fannie Mae’s outstanding and future claims for compensatory fees arising out of past foreclosure delays. This payment is expected to be covered by existing reserves and an additional provision of $260 million (pretax) recorded in the fourth quarter of 2012. Bottom line: hit to Q4 pretax earnings will be $2.7 billion. Yet, as BAC notes, despite the settlement, "Bank of America expects earnings per share to be modestly positive for the fourth quarter of 2012." Which means prepare for one whopper of a loan-loss reserve release for the quarter as more "earnings" are nothing but bookkeeping gimmicks.

• Secret and Lies of the Bailout (Rolling Stone)
• Banks Win 4-Year Delay as Basel Liquidity Rule Loosened (BBG)
• Hedge Funds Squeezed With Shorts Beating S&P 500 (BBG)
• Bankruptcy regime for nations urged (FT)
• Is the Fed Doing Enough—or Too Much—to Aid Recovery (WSJ)
• Cracks widen in US debt ceiling debate (FT)
• McConnell Takes Taxes Off the Table in Debt Limit Negotiations (BBG)
• Abe Seen Spending 12 Trillion Yen to Boost Japan’s Economy (BBG)
• Monti, Berlusconi Spar on Taxes in Weekend Media Barrage (BBG)
• Cameron Sets New Priorities for U.K. Coalition (BBG)
• Defiant Assad Rules Out Talks With Rebels (WSJ)
• Korea Seen Resisting Rate Cut as Won Threatens Exports (BBG)

Welfare recipients took out cash at bars, liquor stores, X-rated video shops, hookah parlors and even strip club - where they presumably spent their taxpayer money on lap dances rather than diapers, a NY Post investigation found. From Bronx strip clubs to gay dive bars in the East Village, US taxpayer-sponsored EBT cards have been inserted into ATMs and food stamp 'cash' has presumably been used to feed another need. The Post found dozens of pubs, nightclubs and tobacco shops where welfare dough was dispensed - and presumably spent. We should not worry too much though as Hilda Solis put us straight on how many millions of jobs these EBT-card fund recipients are creating and while we pass no judgment on those receiving and using the funds in whatever they see most fit, Cato's Michael Tanner summed it quite succinctly: "This is morally scandalous, I have nothing against strip clubs, but that’s not what benefits are for. I don’t blame [recipients]. If you are poor, it’s a crummy life and you want to have a drink or see a naked woman. I blame the people who are in charge of this." 32oz sodas made us gulp; rare steak tough to swallow; but take away the strippers and liquor - anarchy.

Back in April 2012, in "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement" we first explained how despite its best intentions (to boost the Russell 2000 to new all time highs, a goal it achieved), the Fed's now constant intervention in capital markets has achieved one thing when it comes to the real economy: an unprecedented capital mismanagemenet, where as a result of ZIRP, corporate executives will always opt for short-term, low IRR, myopic cash allocation decisions such as dividend, buyback and, sometimes, M&A, seeking to satisfy shareholders and ignoring real long-term growth opportunities such as R&D spending, efficiency improvements, capital reinvestment, retention and hiring of employees, and generally all those things that determine success for anyone whose investment horizon is longer than the nearest lockup gate. Today, one calendar year later, none other than Bill Gross, in his first investment letter of 2013, admits we were correct: "Zero-bound interest rates, QE maneuvering, and “essentially costless” check writing destroy financial business models and stunt investment decisions which offer increasingly lower ROIs and ROEs. Purchases of “paper” shares as opposed to investments in tangible productive investment assets become the likely preferred corporate choice." It is this that should be the focus of economists, and not what the level of the S&P is, as it is no longer indicative of any underlying market fundamentals, but merely how large, in nominal terms, the global balance sheet is. And as long as the impact of peak central-planning on "business models" is ignored, there can be no hope of economic stabilization, let alone improvement. All this and much more, especially his admissions that yes, it is flow, and not stock, that dominates the Fed market impact (think great white shark - must always be moving), if not calculus, in Bill Gross' latest letter.

Peer-to-Peer Lending and Crowd-Funding Have the Power to Change Finance

Just when you thought the seemingly endless rabbit hole of Wall Street-Washington corruption, cronyism, co-option, crime and kickbacks may have finally come to an end, here comes the House Ethic Committee to pronounce that no ethics breaches were found among House members in its investigation involving the scandal surrounding Countrywide "VIP loans" and the "Friends of Angelo." And in just doing so, the House effectively cleared itself of any wrongdoing and that's it, case closed - move along... Move along.

The US Fed is playing a very dangerous game by purchasing as many Treasuries as it is. But that game can last much longer than anticipated.

As was expected, the October Case Shiller data showed that the recent transitory pick up in the housing sector, now that both REO-to-Rent and Foreclosure Stuffing, not to mention unparalleled debt forgiveness by virtually every bank has been thrown at the housing problem, continues with a ninth consecutive month in Top 20 Composite Index increases, rising 4.3% in October. On the other hand, based on the NSA data, the 4th consecutive dead cat bounce may be coming to a much expected end with October NSA data posting the first sequential decline since March. What drove the pick up in Seasonally Adjusted data? Nothing short of yet another housing bubble in the much beloved speculative areas such as Phoenix and Detroit, where home prices rose by 21.8% and... 9.9%. Yes: apparently one can pay for mortgages with foodstamps now. Other places such as Chicago and New York were not quite so lucky, with the average price declining by 1.3% and 1.2% in the past 12 months. What remains unsaid - very much on purpose - is that the shadow inventory problem is only getting worse, as we reported a week ago, when we showed that nearly half the market cap of Bank of America is in 6 month + delinquent mortgages, or mortgages that are not yet in foreclosure but virtually certainly will be, and will also be discharged.

In the end, it was the banksters they chose, and thanks to your government, you got hosed.

Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).

If one reads sellside research (especially that of Bank of America or Goldman), if one listens to comedy-finance fusion TV channels, if one reads newspapers, one can't help but be left with the impression that everyone and their grandmother is now dumping Treasurys and buying stocks. Why - because this is a key part of Bernanke's latest masterplan (which is the same as all his previous "masterplans", which have failed so far about 4 times previously) to force what little retail investing capital is left out there out of the safety of bonds (return of capital), and into stocks (return on capital). The catalyst? This time, for real, central planners will generate enough (controlled) inflation to create losses for anyone holding long duration paper (such as the Fed of course, whose DV01 is the biggest in the history of the world at over $2 billion, but we digress). So just to test whether or not this was indeed the case, we decided to go to the source data for what the smartest money of all is doing: the 20 or so (RIP 21st PD MF Global) primary dealers. After all, if everyone is dumping Treasurys over fears of an imminent surge in yields, and rotating into stocks, it would be them right? Well, the result is charted below: we present it without commentary.