Bank of America
BTFATH! That was the motto overnight, when despite a plethora of mixed final manufacturing data across the globe (weaker Japan, Europe; stronger China, UK) the USDJPY carry-trade has been a one-way street up and to the right, and saw its first overnight buying scramble in weeks (as opposed to the US daytime trading session, when the JPY is sold off to push carry-driven stocks higher). Low volumes have only facilitated the now usual buying at the all time highs: The last trading day of 1H14 failed to bring with it any volatility associated with month-end and half-end portfolio rebalancing - yesterday’s S&P 500 volumes were about half that compared to the last trading day of 1H13.
It appears the same 'contagion' that is driving copper prices higher is also impacting gold and silver this morning. As we have noted previously, the CCFD unwind drives synthetic short (hedge) covering and inevitably rolls down the curve to drive spot strength (as the paper gold market tail wags the 'physical' market's dog). Gold is at 3 month highs and silver getting close...
Banks and other lenders issued 3.7 million credit cards to so-called subprime borrowers during the first quarter, a 39% jump. "Even though [those borrowers] could be considered subprime, they're still creditworthy," is the deja-vu all over again message from the Financial Services Roundtable, who proudly crow, they are "starting to see an environment where issuers are feeling more comfortable to extend credit." How great is that? What could go wrong? One credit union exec notes, "lenders in general have really saturated the higher-credit-quality market, so it is only natural that as they look for growth opportunities, they expand downward," and sure enough, as one new borrower exclaimed, "my credit score is probably terrible," adding "I was surprised they'd give so much." Exceptional America is back...
- Minorities Seen Driving U.S. Household Growth (Reuters)
- GM prepares to recall some Cruze sedans with Takata air bags (Reuters)
- PBOC Halts Repos as China Money Rate Climbs to Seven-Week High (BBG)
- Ukraine Optimism Wavers on Peace as Cease-Fire Winds Down (BBG)
- Economic Rebound Seen Undercut by Weak Pay as Vote Winner (BBG)
- Cracks Open in Dark Pool Defense With Barclays Lawsuit (BBG)
- The Survivor: How Eric Holder outlasted his (many) critics (Politico)
- IBM, Lenovo Tackle Security Worries on Server Deal (WSJ)
- Militants take Iraqi gas field town, president calls parliament session (Reuters)
- Carney Surprises Confounding Markets as BOE Manages Guidance (BBG)
"An Unforgettable Winter" - Bank Of America's "Explanation" For The 17th Worst GDP Print In US HistorySubmitted by Tyler Durden on 06/25/2014 13:03 -0500
And so the polar bears penguins come out of hibernation, "explaining" today's disastrous GDP print. Randomly selected for your reading pleasure, here is Bank of Frigid America's Ethan Harris spiking the Kool Aid with an above Surgeon General recommended dose of hopium.
"According to the U.S. Energy Information Administration's reference scenario, domestic oil production is going to peak at 14.6 million barrels a day in 2019 and then drop to 12.7 million barrels a day in 2040. Given the 2013 consumption level of 18.9 million barrels of crude a day, the U.S. will never be a net oil exporter under this scenario,... The U.S. crude producers need the flexibility of exporting oil or selling it domestically. As for the political dreams of making the U.S. a major oil exporting power, or even of energy independence backed by the shale boom, they are just that -- dreams."
With the cease-fire on shaky ground in Ukraine, and the ongoing proxy war between the US and Russia growing in intensity (once again ignited in Syria); it seems Putin has fired a significant warning shot across the bow of the west. Reuters reports that Russia is considering banning state companies and other strategically important firms from holding accounts at foreign-owned banks. As Liberty Blitzkrieg's Mike Krieger notes if this actually happens, it would be a very big deal with significant negative implications to the global economy, and certainly an escalation in the friction between these two geopolitically crucial nations.
This week brings PMIs (US and Euro area ‘flash’) and inflation (US PCE, CPI in Germany, Spain, and Japan). Among other releases, next week in DMs includes [on Monday] PMIs in US (June P), Euro Area Composite (expect 52.8, a touch below previous) and Japan; [on Tuesday] US home prices (FHFA and S&P/Case Shiller) and Consumer Confidence (expect 83.5, same as consensus), Germany IFO; [on Wednesday] US Durable Goods Orders (expect -0.50%, at touch below consensus) and real GDP 1Q anniversary. 3rd (expect -2.0%) and Personal Consumption 1Q (expect 2.0%), and confidence indicators in Germany, France and Italy; [on Thursday] US PCE price index (expect 0.20%), Personal Income and Spending, and GS Analyst Index; and [on Friday] Reuters/U. Michigan Confidence (expect slight improvement to 82, same as consensus), GDP 1Q in France and UK (expect 0.8% and 0.9% yoy, respectively), and CPI in Germany, Italy, Spain and Japan.
Once Central Banks get out of markets, and I know some critics think that once they get in they are here to stay, healthy volatility and actual price discovery should come back to asset classes.
- Must be an early winter: Housing Falters as Forecasters See U.S. Sales Dropping (BBG)
- China Property Failures Seen as $33 Billion in Trusts Due (BBG)
- Polish Prime Minister Says Recording Scandal May Trigger Early Election (WSJ)
- Iraqi forces ready push after Obama offers advisers (Reuters)
- Priorities: U.S. cuts aid to Uganda, cancels military exercise over anti-gay law (Reuters)
- Kurds' Takeover of Iraqi City of Kirkuk Strengthens Their Hand (WSJ)
- U.S. says government lab workers possibly exposed to anthrax (Reuters)
- Netflix Up 21% With Tesla: The best U.S. stocks this month are ones that just a few months ago were the biggest losers (BBG)
- Architects of Iraq Invasion Return to Blame Obama (BBG)
- Nato claims Moscow funding anti-fracking groups (FT)
- Lawmakers Skeptical GM Bosses Were Unaware of Defect (WSJ)
- Corinthian Colleges Warns of Possible Shutdown (WSJ)
- Taiwan's Quanta to start mass production of Apple's smartwatch in July (Reuters)
Bank of America believes the increasing geopolitical tensions in Iraq risk regional contagion, with the potential for negative spillover to global markets. If Iraq were to see further turmoil, in addition to the civil war in neighbouring Syria, we believe it could destabilize the region further, disrupt oil production and exports, and provide fertile ground for terrorist activity to extend its reach. They review the background of Iraqi turmoil, and discuss the political, economic and market implications in 10 questions; noting that the root of the problem is the central government’s non-inclusive and sectarian policies.
Now that virtually everyone has figured out what we first said in 2012, namely that in the New bizarro Normal, the best trading strategy - the only way to generate alpha in a world in which hedge funds no longer can - is going long a basket of the most shorted names, one has to wonder how any hedge fund replicating, 13F-chasing service can remain in business. After all, the last thing anyone wants to do is copycat hedge fund groupthink in a world in which hedge funds have underperformed the S&P 500 for 6 years in a row, especially a world in which one can buy the SPY with virtually no fees instead of paying some bloated billionaire 20% for the privilege of underperforming the Federal Reserve-managed S&P500. Still, there are those who, for some inexplicable reason, believe in the infallibility of hedge funds and chase every opportunity imitate those who make their money by collecting 2 and 20 not by generating alpha. For all these, the following charts are for you.
Now, for the first time, we have empirical proof that hedge funds are indeed on the verge of extinction. In its hedge fund quarterly note (which it clearly ripped off from Goldman), Bank of America has concluded what we said in the beginning of the decade: "Hedge Funds are less attractive post the financial crisis with lower alpha and less diversification benefits." Or, in other words, hedge funds (for the most part: this excludes those extortionists also known as activists who successfully bully management teams into levering up in order to buyback record amounts of stock, in the process burying their companies and employers when the next downturn arrives) no longer provide a service commensurate to their astronomical fees.
Today's financial markets make a mockery out of sanity and logic. The difference between what SHOULD happen and what IS happening is perhaps the greatest it has been in our investing lifetimes. If you're perplexed, flummoxed, frustrated, stymied, enraged, bored, irritated, insulted, discouraged -- any or all of these -- by the ever-higher blind grinding of asset prices over the past several years, despite so many structural reasons for concern, you have good reason to be.
First it was JPM and Bank of America, now it is Citigroup's turn to confirm that in the New Normal, and especially with no volume to speak of, banks are nothing but piggybank utilities for the government to extract cash from whenever it so desires. From Bloomberg:
- U.S. SAID TO SEEK MORE THAN $10 BLN IN CITIGROUP MORTGAGE PROBE
- U.S. PROBE RELATES TO CITIGROUP'S MORTGAGE-BOND SALES
However, Citi appears less than excited at the prospect of paying $10 billion to buy itself out of trouble. In fact, as the price of justice is being negotiated, Citi has offered only 40 cents on the dollar to tip the scales of what is right and wrong under the Eric Holder regime. Sadly for it, the government wants more.