Bank of America
We noted last night that heavy and large average trade size was going through after the cash market close in S&P futures and it seemed overnight we needed one more push to flush out some more chasers before today's less than euphoric macro prints (aside from CFNAI's market-centric index) stalled the Fed-induced excitement. Financials had their worst day of the year (worst performing sector 2 days in a row), down just under 1% as did the Tech and Energy sectors as Utilities were best once again. Volumes were up with ES at its 50-day average and NYSE volume second highest of the year as ES (the e-mini S&P 500 futures contract) slid 20 points or so from opening highs up near 1330. Equity and credit markets tracked on another closely all day (as did broad risk drivers) with a last-30-minutes ramp (once again on high average trade size) just for good measure taking ES back to Tuesday after-hours swing highs. The late swing up looked like a recovery from being modestly oversold relative to risk assets as TSYs, FX, and commodities all trod water as stocks pulled up 5-6 S&P pts into the close. TSYs all rallied on the day with 2s-10s all at week low yields and 30Y starting to catch up to the excitement at the end of the day (though 2s10s30s remains notably 'low' relative to ES currently). Gold and Silver continued to outperform (up around 3.5% on the week) and Copper held onto its gains while Oil dropped back below $100 after getting above $101 early in the day. The correlation of EURUSD and risk has re-emerged recently and post-Europe's close today, USD strengthened though EUR remained just above 1.31 as we closed.
- BOJ Should Be Allowed $643 Billion Fund to Buy Foreign Bonds, Iwata Says (Bloomberg)
- Banks Hoarding ECB Cash May Double Company Defaults (Bloomberg)
- China Police Open Fire on Tibetans as Protests Spread (Bloomberg)
- Sarkozy Presidential Rival Hollande Would Lower Retirement Age, Lift Taxes (Bloomberg)
- IMF takes tougher stance over Greek debt (FT)
- Iran threatens to act first on EU embargo (FT)
- PM says ‘no complacency’ on economy (FT)
- George Soros: How to pull Italy and Spain back from the edge (FT)
- Japan's NEC to slash 10,000 jobs (Reuters)
- Obama Planning Corporate Tax Overhaul (Bloomberg)
Scared by PM Volatility? Identify Severe Undervaluation Points in Gold & Silver v. Trying to Call Perfect BottomsSubmitted by smartknowledgeu on 01/26/2012 05:39 -0500
For a new investor in gold and silver, here is the most lucid piece of advice I can offer. Identifying severe undervaluation points in gold and silver, buying gold and silver assets during these times, and not worrying about interim short-term volatility, even if the immediate volatility is downward, is much more likely to impact your accumulation of wealth in a positive manner than trying to perfectly time market tops and bottoms in the highly manipulated gold and silver game.
In all, the President's speech was reminiscent of George Clooney’s in Ides of March. We’ve heard it all before, maybe with slightly different words: America lost 4 million jobs before I got here, and another 4 million before our policies went into effect, but in the last 12 months, we added 3 million job. We must reduce tax loopholes, and provide tax incentives to businesses that hire in America. We must reform taxes for the wealthy (though he signed an extension of Bush’s tax cuts.) We must train people for an apparent abundance of expert jobs. We need more clean energy initiatives. We created regulations (big sigh of relief he didn’t use the word ‘sweeping’) to avoid fraudulent financial practices. We will help homeowners. Wall Street must ‘make up a trust deficit.” Like Jamie Dimon cares. In other words, Obama gave Wall Street a pass, while waxing populace. Don’t get me wrong. I expected nothing different. I will continue to expect nothing different, when he gets a second term, given the lame field of contenders all around.
- Fears Mount That Portugal Will Need a Second Bailout (WSJ)
- EU to Have No Deadline for End of Greek Talks (Bloomberg)
- Japan economy predicted to shrink in 2011 (AFP)
- Japan’s Fiscal Pressure Intensifies as Tax-Boost Plan Insufficent: Economy (Bloomberg)
- Berlin ready to see stronger ‘firewall’ (FT)
- Obama Speech to Embrace U.S. Manufacturing Rebirth, Energy for Job Growth (Bloomberg)
- EU Hits Iran With Oil Ban, Bank Asset Freeze in Bid to Halt Nuclear Plan (Bloomberg)
- China's Oil Imports from Iran Jump (WSJ)
- Croatians vote Yes to join EU (FT)
- Japan’s $130 Billion Fund Unused in Biggest M&A Year in More Than Decade (Bloomberg)
- Buffett Blames Congress for Romney’s 15% Rate (Bloomberg)
The CDS index market remains one of the most liquid sources of hedges and positioning available (despite occasional waxing and waning in volumes) and is often used by us as indications of relative flows and sophisticated investor risk appetite. However, as Kamakura Corporation has so diligently quantified, the broad CDS market (specifically including single-names) remains massively concentrated. This concentration, evidenced by the Honolulu-based credit guru's findings that three institutions: JPMorgan Chase, Bank of America, and Citibank National Association, have market shares in excess of 19% each has shown little to no reduction (i.e. the market remains as closed as ever) and they warn that this dramatically increases the probability of collusion and monopoly pricing power. We have long argued that the CDS market is valuable (and outright bans are non-sensical and will end badly) as it offers a more liquid (than bonds) market to express a view or more simply hedge efficiently. However, we do feel strongly that CDS (indices especially) should be exchange traded (more straightforward than ever given standardization, electronic trading increases, and clearing) and perhaps Kamakura's work here will be enough to force regulators and the DoJ to finally turn over the rock (as they did in Libor and Muni markets) and do what should have been done in late 2008 when the banks had little to no chips to bargain with on keeping their high margin CDS trading desks in house (though the exchanges would also obviously have to step up to the plate unlike in 2008).
Is This Why They Won’t Prosecute? Top Justice Officials Represented Big Banks, Freddie, Fannie and MersSubmitted by George Washington on 01/21/2012 14:20 -0500
One big happy family ...
The debt ceiling, coporate taxes and health care.
- Fed Holds Off for Now on Bond Buys (Hilsenrath)
- Bonds Show Return of Crisis Once ECB Loans Expire (Bloomberg)
- Greek Debt Talks Enter Third Day After ‘Substantial’ Discussions (Bloomberg)
- Sharp clashes at Republican debate ahead of vote (Reuters)
- Lagarde Joins Warning on Fiscal Cuts Before Davos (Bloomberg)
- Investors exit big-name funds as stars fail to shine (Reuters)
- Payday lenders plead case to consumer agency (Reuters) - the EFSF included?
- EU Toughens Fiscal Pact Bowing to ECB Objections, Draft Shows (Bloomberg)
- Minister Urges Japan to Use Strong Yen (FT)
- China Eyes Pension Fund Boost for Stock Market (Reuters)
- China Manufacturing Contraction Boosts Case for Easing: Economy (Bloomberg)
And then there were four.
- RICK PERRY MAY DROP OUT OF PRESIDENTIAL RACE TODAY, CNN SAYS
It appears even Bank of America (which had a hilarious and brilliant $600 million Goodwill impairment today - on what? The fantastically prfoitable Countrywide acquisition) could not "help him out."
Of course, everyone is now expecting tonight's impromptu ABC "Career ending" interview with Mrs. ex-Gingrich, which may make it a trio. That may happen even despite Perry's imminent enrosement.
Bank Of America Beats EPS Estimates, Misses Net Of One Time Items, Reports Could Be Underaccrued By Up To $5 BillionSubmitted by Tyler Durden on 01/19/2012 07:36 -0500
The just reported Bank of America top and bottom line numbers were better than expected, coming in at $24.89 billion compared to estimates of $24.5 billion, and EPS of $0.18 vs $0.15. The actual Net Income number number was $2.0 billion and $2.7 billion pre tax. So far so good. But a quick skim through the presentation (attached below), indicates that the $0.18 number may be grossly inflated. Because when one excludes the various selected one time items highlighted in the quarter, which are as follows: Gain on sale of CCB shares-$2.9; Gains on exchanges of trust preferred securities - $1.2; Gains on sales of debt securities - $1.2; Representations and warranties provision - ($0.3); DVA on trading liabilities- ($0.5); Goodwill impairment - ($0.6); Fair value adjustment on structured liabilities - ($0.8); Mortgage-related litigation expense ($1.5), all of which it appears are part of the pretax number, the final EPS comes in at a much less impressive $1.3 billion pre tax, which at the company's indicated tax rate, would have been $1.0 billion after tax, or $0.10 EPS, a notable miss. Which likely means that the Revenue "beat" on an apples to apples basis would also have to be pro forma'ing a bunch of items, and likely would be a miss. But for that we will need to go through the several hundred page 10-Q, something which management is hoping the machines which will send its stock much higher in the pre-market session, will never do. Another notable item is that for the first time in a long time, the company's average deposit balances declined by 1.2% in Q4 from Q3, from $422.3 billion to $417.1 billion (as the rate on deposits fell from 0.25% to 0.23%). Not a good trend, but certainly to be expected following the snafu with the company's electronic banking website last quarter. Also troubling is that in Q4, the company's Home Equity Non-Performing Assets increase for the first time in years, from $2.4 billion to $2.5 billion: it seems the improvement in housing has plateaued. Finally, and most troubling, is that BAC reported that "Estimated range of possible loss related to non-GSE representations and warranties exposure could be up to $5B over existing accruals at December 31, 2011." The reason: a surge in New Claims in Q4 "primarily related to repurchase requests received from trustees on private-label securitization transactions not included in the BNY Mellon settlement." Which means another $5 billion out of Net Income due to underreserving. Because how much did BAC provision for Reps and Warranties in Q4? Why a 'whopping' $263 million. And how much is the potential full notional value of underreserved contingent liabilities? Why $755 billion only.
Tomorrow the BLS will announce that last week's initial claims number was revised to over 400K, the first time this important level has been breached, this time in an adverse fashion, in the past 2 months. But why is 400K important, and why do economists and pundits put impact on this particular number? Here is Bank of America with the explanation in the form of a historical matrix, correlating the historical relationship between these time series, highlighting the notable patterns observed in the past several decade, and what it all means for the big picture.
Literally seconds ago we noted how Bank of America will sell its first born to crash the market and get $600-800 billion in QE3 up and running by March. Sure enough, here is yet another desperate attempt to push this agenda, this time with the bank cutting tracking Q4 GDP estimates for the second time in two days, to 2.7%, from 3.5% earlier.