Bank of America

The man whose fund is a pale shadow of his once invincible self, especially around the time he could tell Goldman which securities to short for him, with hapless and gullible Euros on the other side (but, hey, Goldman makes a market) continues to be the laughing stock of the market, following the latest 13F (with $13.9 billion AUM compared to $20.7 billion as Sept 30) release by Paulson. And considering the complete lack of liquidity in the market in Q4 (which is only getting worse now), the portfolio unwind of Paulson's holdings explains some very acute securities moves in November and December of 2011. Particularly the collapse in gold, which contrary to what economist Ph.D.s will tell you, was not due to technicals, or fundamentals, but due to Paulson dumping another 20% of his GLD, which is now just $2.6 billion as a share class, compared to $4.6 billion as of June 30, we for one can't wait for him to dump it all so that there is no more "Paulson overhang" in gold. Of course since this is a gold share class, it won't happen as long as Paulson & Co survives, but one can dream. What is far more laughable is that in the fourth quarter, Paulson dumped his entire Bank of America common stake (of which he had 64 million shares), his entire Citi common of 25 million shares (worth $627 million at Sept 30) and more than half of both his Capital One and SunTrust stakes, which went from $880 million to $401 million, and from $546 million to $210 million. He also cut almost his entire stake in Wells Fargo which went from $575 million to $96 million. That sure is some conviction in the always appropriately named "Recovery Fund." It is oddly ironic that precisely these stocks are the ones that have soared in Q1 as the Paulson overhang has been lifted.

While the star of multibillionaire Bill Gross may or may not be fading (the jury is still out on what the final outcome will be for the man who so far alone among his peers has dared to point out the lunacy in the Fed's actions), that of his far smaller and nimbler peer Jeff Gundlach of DoubleLine Capital has been rising rapidly, and at last check has his fund's AUMs at over $25 billion, a doubling in a few short months. Gundlach is conducting his periodic webcast live at 4:15pm Eastern (i.e., now) at the link below. Anyone can join in. And by the title of the presentaiton, it promises to be quite interesting. Click on the following Link for webcast or the image below.

The defining soundbite from the call Q&A: Regarding Bank of America - "It is wise to avoid banks. Not surprised BAC has gone up - just like NFLX - just like Italian bonds. Reduce risk right now, including, Bank of America."

These January jobs numbers make the Obama administration look good, at least relative to how it’s looked in the previous 12 months. However, they’re not reflecting as positively on two of Obama’s primary support groups: Wall Street and the US Federal Reserve.

It seems like it was only yesterday [technically it was September] that David Bianco "departed" his latest employee, Bank of America, where he landed following his "departure" from UBS back in 2007. Today, courtesy of Business Insider we learn that following an extended garden leave, or just a rather choppy job market, Bianco his finally found a new happy place: right in the cave of joy and happiness, also known as Deutsche Bank (aka the bank whose assets are about 80% of German GDP and which recently 'magically' recapitalized itself). Here he will be joined by the two other pillars of perspicacity - Binky Chadha and Joe LaVorgna. What to expect? Who knows - but lots of twisted humor is certainly in store. For the sake of simplicity we present some of the salient soundbites from Bianco and his colleagues over the past 5 years.

Most people read the headlines (and heard Obama tell us) today that the federal government and 49 state attorneys general reached a $25bn agreement with the five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses. It seems that many people are unclear on what the implications of the various aspects of the settlement are and so we present Bank of America's concise summary of the costs, commitments, penalties, and scope of the long-awaited agreement. Theoretically this by no means closes the book on bank litigation liabilities, as BofA discusses, but we note very mixed performance post the settlement announcement (which admittedly seemed well telegraphed) as WFC rallied modestly (+0.2% from the 10amET announcement), with Citi (-1.2% from the announcement), BofA (-0.85%), and JPM (-0.4%) underperforming.

Just over a week ago we highlighted the desperate plight of cash-strapped California. With a $3.3bn short-term 'hole', they were looking for cash-management solutions under every rock and hard place they could find. Today we hear that California joins the Obama bank foreclosure settlement enabling $18bn of bank-funded cash (implicitly via Federal Reserve/Government coffers) can flow to the left coast. Los Angeles alone will receive $4bn which while eventually wending its way down to the consumer (to be spent and implicitly spurring further economic activity or perhaps more likely to pay down other debt in this balance sheet recessionary environment), as Bloomberg asks, "Why should a taxpayer in Houston or Wichita bail out irresponsible California homeowners, banks and the state’s public employees’ retirement fund?" To add to California's 'aid', BofA has become the first bank to sign up for the 'Keep your Home' program where Federal dollars are given to banks to encourage them to reduce mortgage balances on struggling (over-levered and perhaps once greedy) California homeowners. Certainly it is a happy coincidence that perhaps a short-term cash crisis could be band-aided in the Golden State by this well-timed joining of California to the settlement.

Here comes the (re)crash and the search for shortable stock is on! The good thing about bankruptcy is that despite silly manilly market, bankrupt is bankrupt and the stock will act accordingly. Ask GGP/LEH investors.

Remember robosigning and the whole fraudclosure scandal? In a few days you can forget it. Because in America, the cost of contractual rights was just announced, and it is $25 billion: this is the amount of money that banks will pay to settle the fact that for years mortgages were issued and re-issued without proper title and liens on the underlying paper, courtesy of Linda Green et al. Why is this happening? Because staunch hold outs for equitable justice (at least until this point), the AGs of NY and California folded like cheap lawn chairs (we can't wait to find what corner office of Bank of America they end up in), but not before the one and only intervened. From the WSJ: "The Obama administration made a full-court press over the past four days to secure the support of key state attorneys general, including those from Florida, California and New York." Nothing like a little presidential persuasion to help one with overcoming one's conscience. Because in America the push to abrogate the very foundation of contractual agreements comes from the very top. But wait, there's more - just to wash its hands of the guilt associated with this settlement which shows once and for all that the Democratic administration panders as much if not more to the banking syndicate as any republican administration, as it announces one settlement with one hand, with the other the US will sue banks over the mortgage reps and warranties issue covered extensively here, in the most glaringly obtuse way to distract that it is gifting trillions worth of contingent liabilities right back to the banks, not to mention discarding the whole concept of justice. From the WSJ: "Federal securities regulators plan to warn several major banks that they intend to sue them over mortgage-related actions linked to the financial crisis, according to people familiar with the matter. The move would mark a stepped-up regulatory effort to hold Wall Street accountable for its sale of bonds linked to subprime mortgages in 2007 and 2008. At issue is whether the banks misrepresented the poor quality of loan pools they bundled and sold to investors, the people said." Wait, let us guess -that particular lawsuit will end up in a... settlement? Ding ding ding. We have a winner. All today's news succeed in doing is finally wrapping up any and all legal loose ends, so that banks can finally wrap all outstanding litigation overhangs at pennies on the dollar. And if at the end of the day, they find themselves cash strapped, why the US will simply loan them more cash of course.

Will A be the new AA+? Perhaps, if the S&P follows through with its latest threat. Bloomberg reports that, "the U.S., lacking a plan to contain $1 trillion deficits, faces the prospect of another rating cut in six to 24 months depending on the outcome of November elections, according to John Chambers of Standard & Poor’s. America has had an AA+ rating with a negative outlook since Aug. 5 when the New York-based unit of McGraw-Hill Cos. stripped the nation of its AAA ranking for the first time, citing the government’s failure to agree on a path to reduce deficits. The U.S. has a one-in-three chance of another downgrade, Chamber said today during an S&P sponsored Webcast. “What the U.S. needs is not so much a short-term fiscal tightening, but it has to have a credible medium-term fiscal plan,” said Chambers, managing director of sovereign ratings." Too bad the US doesn't even have a fiscal plan what it will do tomorrow, let alone in the "medium-term" courtesy of the most deadlocked political system ever. As for "credible" - forget it. And as was shown, if the first US downgrade from August 5, 2011 broke the US stock market, we can't wait to find out how the Citadel-controlled, FRBNY-blessed stock market will deal with this particular event. In other news, we are still waiting to hear from Moody's on both the US and France.

With the impending March 20th maturity GGBs trading at 1400% yield (or 36% of par), EURUSD trading at 1.31, and European financials (and Greek financials explicitly) all up considerably, one could be forgiven for confusion as to what is priced in and what is not. As Bank of America (BAML) noted earlier in the year, believe it or not, Greece remains a blind spot and that risks from Greece are not fully priced in. Summarizing the deep cuts that Greece is expected to make - the Troika is demanding fiscal measures of 2% of GDP in 2012 - BAML points out that while they believe a common ground can be found, the asymmetric risks of a disorderly default could weaken the EUR well below their projection of 1.25 in the first half of the year. Certainly, while Greek sovereign bond markets seem priced for inevitable default (as real cashflows still count in the credit markets), FX and equity markets seem to be jumping-the-shark of the crisis - Europe will be stronger without Greece and Fed will backstop inevitable crisis - and missing the interim crisis conditions (Lehman-moments) that will occur as tail-risk scenarios and social unrest (that LTRO seems to have assuaged for now in people's minds) could return rapidly across the entire region. With frustration growing between an impatient Troika (that faces total humiliation, moral hazard, and ugly precedents for others) and a stubborn April-election-facing political class in Greece (along with the inability of the PSI to get done for all the reasons we have discussed in the past - foreign law bonds, basis traders, hedged positions, hedge fund sovereign litigation arbs) it seems the Troika has the most to lose for now seemingly holding a gun to their own head (as once again a massive ECB intervention might be needed with all its knock-on effects on the Fed's balance sheet expansion).

A little over a year since the day that the world first learned about robosigning and the broader problem of fraudclosure, which is merely the functional equivalent of infinite rehypothecation of an underlying asset between a daisy-chain of lien holders, we get the first legal incursion into this farce. From Bloomberg we learn that:

• BANK OF AMERICA, WELLS FARGO, JPMORGAN SUED BY NEW YORK OVER MERS
• NY AG SUIT CITES FRAUDULENT FORECLOSURE FILINGS

In other words, kiss that foreclosure settlement goodbye. In the meantime, the  electronic momos keep taking BAC ever higher even as this news confirms that the bank is about to suffer a multi-billion impairment shortly.

European Indices are sliding following comments from EU’s Juncker that Greek PSI talks remain “ultra-difficult”, despite earlier gains following comments from the Chinese Premier considering further contributions to the EFSF and the ESM. The Basic Materials sector is outperforming others amid news of a possible merger between Glencore and Xstrata, causing shares in both companies to trade in strong positive territory ahead of the North American open Oil & Gas are one of the worst performing sectors in Europe today, with Royal Dutch Shell shares showing the biggest losses following disappointing corporate earnings. Elsewhere, S&P released a report suggesting Eurozone recession could end in late 2012, forecasting 1% GDP growth for the Eurozone in 2013, however these comments were not followed by significant European index movements. In terms of fixed income securities, Spain held a well received bond auction earlier in the session, with all three lines showing falling yields and strong bid/cover ratios.

Gold has risen to 8 week highs despite positive manufacturing data, higher factory activity in Germany, China and the US and the hope that a Greek debt restructuring solution is imminent. Demand for physical in Europe, Asia and internationally remains robust which is supporting gold. Investors will today watch the US weekly jobless claims data for the week ending January 28th. Adding to the very gold supportive interest rate backdrop, Japan's finance and economic ministers are putting pressure on the Bank of Japan to consider easing monetary policy even further. Negative yields on some bonds (such as TIPS) are very gold positive as is moves to let investors buy short term bills with negative yields. Gold is also being supported by central bank buying. Russia's gold and foreign exchange reserves rose to $504 billion in the week to Jan. 27 from $499.7 billion a week earlier.

Listen to the Landlord in Chief lay out his REO to LBO plan live and in stereo. Since everyone will end up paying for it, directly or indirectly, sooner or later it probably is relevant.

Ever want to know what a documentary that spits the truth about the rating agency scam and overall Ponzi would look like if it actually aired on international TV???