Bank of America
Pershing Square's Q2 13F is out and it seems that Bill Ackman's fund has had a few notable changes in its holdings, most notable of which is the addition of 146.5 million shares of Citi. Alas, it may be too little to late to jump on the John Paulson Recovery fund (we are waiting for that particular 13F to be released any minute). At least the white haired manager did not get into Bank of America, which has been in gradual freefall mode for the past 2 months. Pershing also added a new position in ADP, which amounts to 8.3 million shares, added a little in Kraft, while selling nearly his entire Yum position, as well as offloading a token amount of Target. GGP was flat at 24 million shares.
- China favors Euro over Dollar as Bernanke alters path.
- China's stocks rally on economic outlook, led by shippers, energy shares.
- Crude oil trades near a one-month low after Japan's economic growth slows.
- HK govt tightened mortgage lending rules, to increase supply of land to help cool prices.
- Japan economy surpassed by China as GDP is less than estimated.
- Japanese economy slows unexpectedly; annualised growth for quarter only 0.4%.
- Wheat futures advance, erasing losses, as Russia lowers harvest estimate by 38%.
Just another dumb program that puts cash in the big bank's pockets.
Visualizing The Past Of The Treasury Yield Curve, And Deconstructing The Great Confusion Surrounding Its FutureSubmitted by Tyler Durden on 08/15/2010 14:19 -0500
The chart below shows the UST yield curve over the past 20 years: as is more than obvious, every single point left of the 10 Year is at record tights. The only question on everyone's lips is where do we go from here. And that is where the confusion really hits. The confusion is further intensified by the sudden collapse in the 2s10s and the 2s10s30s butterfly. The odd thing here is that a flattening move as violent as recently seen in these two curves, has historically preceded a rise in the Federal Funds rate as can be seen in the chart to the right, before the Fed began tightening in 1999 and in 2004. In other words a flattening has traditionally been a leading indicator to an economic improvement (as liquidity extraction tends to go side by side with a pick up in inflation and thus economic growth). Alas, this time around, a tight monetary policy is the last thing on the Fed's mind, and the economy is only starting to demonstrate it is rolling over into a second and more violent recessionary round. In essence, the Fed's interventionist intention of purchasing the entire curve (including the long-end), as recently announced by the FRBNY, has completely dislocated all leading signaling by the curve itself. As a result, speculation is now rampant as to what may or may not happen. A case in point are the divergent opinions of Bank of America and Morgan Stanley. While the former Merrill Lynch is advocating an outright 10s30s flattener, Morgan Stanley is sticking to its guns and continues to push for a steeper curve: this in spite of the collapse in the 2s10s from a records steepeness of almost 290 bps in May, to under 220 bps as of Friday's close: the over 25% collapse is enough to blow up most of the funds who had positioned themselves for further steepness. At least Morgan Stanley is consistent. Yet both banks urge clients to hedge their trades and provide creative ways to do so, as both realize the likelihood of being wrong, now that the Fed is openly the biggest market participant, is probably higher than the inverse.
Another Revision Of The Q2 GDP Number By JPM: Firm Now Estimates That The Real Economic Performance Was 1.3% (From 2.4%)Submitted by Tyler Durden on 08/10/2010 11:34 -0500
Last week we noted that JPM's Michael Feroli estimated that due to a major downward revision of inventory build of non-durable goods, which the BEA had overaccounted for, the GDP print of 2.4% released two Fridays ago was actually 1.7%. Today, the stripping of the GDP print from upward biased data continues, and Feroli once again whacks the GDP number, which he now sees at 1.3%, or essentially 50% of the actual released number. This is again due to BEA's overoptimism, as today's data on wholesale inventory buildout was also far lower than the unrealistic BEA assumption (will the BEA ever underestimate a number? any number?). JPMorgan's conclusion: "The June data released so far suggests Q2 GDP is tracking closer to a 1.3% annual rate of increase, well below the 2.4% in the initial release." By the time all the overoptimistic assumption are eliminated, Q2 GDP will end up negative, and Goldman's 1.5% estimate of GDP growth in H2 will prove to be, as we expected, overoptimistic. Of course, this number is not revised for all the governmental Keynesian transferism, without which GDP would would be double digit negative. We leave it up to you to figure out what this means for Q3 growth now that there is no fiscal stimulus, and if the Fed does not launch QE2, there will be no monetary stimulus until late September 21 at the earliest.
Shock And Yawn: BofA's David Bianco Proves He Is "Smarter" Than Goldman By Raising His S&P EPS EstimatesSubmitted by Tyler Durden on 08/10/2010 10:41 -0500
Jan Hatzius' recent downgrade of the US economy, and the subsequent downgrade of the S&P by such formerly gruntled optimists as Goldman's David Kostin, has completely failed to register with permabullnut gallery. Case in point: the Bank of America strategist who was supposed to replace David Rosenberg, yet has become his own satirist caricature, David Bianco, has decided to go completely the other way, by actually rising not only his 2010 S&P estimates, but also 2011, and even, hilariously, 2012, this despite other such landed economist Ph.D's (from reputable institutions) as the San Fran Fed warning that there is a "significant" risk of a double dip in 2 years (yes, that's the Fed warning about a re-recession, not some rational, realistic, coherent human being), thus once again proving that his true worth is whatever CNBC pays him for his daily appearances in the Cheerleader Session block (which has now dropped out of Nielsen tracking due to complete lack of public interest in vapid propaganda). And for those who claim idiocy can not be captures in words, we disagree. To wit "Some dismiss our target because a deflationary shock could collapse current EPS. Others argue that EPS will be flat for years. We disagree; we think exceptionally low interest rates support real estate values and EPS will grow through foreign investment. The S&P has the best of the DM and EM world, low rates and healthy growth." Speechlessness ensues. What follows is propaganda so scary, it is good. If Bianco really believes this, we hope BofA provides free psychiatric sessions for its employees.
In an advance look at how the Q2 trading season turned out for Bank Holding Hedge Funds, some of which even accept your deposits to fund their 100x leveraged steepener trades, we have the first detailed 10-Q report out of Bank of America. Granted, the bank has a bunch of chimps running its trading operation and is thus not nearly indicative of the crack prop trading gurus at firms like Goldman and MS, due to not quite streamlining the whole prop-flow synergy bit while it had time (incidentally BofA is now looking for a seller for its prop operation) but the Fed and the government (or the Goved JV as it is known by those who suckle on its discount window teat) have made it so even a room full of chimps with Bloomberg terminals will pretty much generate trading perfection no matter what they do. So it comes as a shock that in the quarter following BofA's trading perfection days (which would be completely normal from a statistical point of view in a hyperbolic Universe, where superstrings don't need 10 dimensions, and where particle physicists are actually not superfluous), the bank has reported just 81% profitable trading days. Even scarier, the bank actually reported a day in which it lost $102 million, an event that has not occurred in over 60 days.
It's been a long, hot summer for hedge funds and things aren't looking up. Why are so many hedge funds struggling?
According to Charlie Gasparino, Goldman Sachs may soon begin discussions on spinning off parts or the whole of its massive Private Equity arm. From Fox Business: "One of the first casualties of financial reform and its restrictions on banks’ ownership of private equity and hedge funds may soon take place at Goldman Sachs as senior executives there begin serious discussions about spinning off at least a piece of the firm’s massive private equity arm, FOX Business has learned." Intuitively this makes sense: while BHC investments in hedge fund are far more liquid, due to the very nature of the business, when it comes to the 3-7 year investment horizons for private equity, the regulatory uncertainty may be too much for PE LPs to handle, as a result reducing a firm like Goldman's competitiveness when submitting a go-private bid over competing offers (even when accounting for discount window access and zero cost of capital). "Senior executives at Goldman are worried that the mandates of financial reform, namely the so-called Volcker Rule, which severely limits how much a bank can invest in such funds, will create enormous uncertainty and prod investors to flee their investments, or prevent the firm from raising money in the future, this person said."
I just got off the horn with the Ruling Elite. We had an emergency conference call and to tell you the truth, they ain’t happy. You little people are not responding the way you are supposed to. A significant portion of you are not getting more optimistic because they tell you to. Instead of just reading the headline on Bloomberg that durable goods orders skyrocketed in June, you actually read the details that said durable goods orders plunged. It is getting difficult for the ruling elite to keep the masses sedated and dumbed down. These damn bloggers, with their facts and critical thinking, are throwing a wrench into the gears. Obama and his crack team are working round the clock to lock down the internet, but it will take time. Not that they are totally dissatisfied. They’ve been able to renovate their penthouses and purchase new mansions in the Hamptons with the billions in bonuses you supplied through TARP. The $1.2 trillion supplied by your children and grandchildren to buy up toxic mortgages off their balances sheets was a godsend. They will never call you suckers, to your face.
You may have heard from the media lately that President Obama hates business, despises businessmen, and is derailing the economic recovery with his anti business policies. A close examination of the hard data delivers a different conclusion. Is Obama actually a closet pro-business president?
Moody's Puts Too Big To Fail Banks On Outlook Negative Over Laughable Concerns Barney Frank May Just Let Them FailSubmitted by Tyler Durden on 07/28/2010 06:39 -0500
Ironically, Moody's whose own business model is now kaput courtesy of Donk (but managed to get a 6 month rolling SEC reprieve for the time being), has an unfavorable opinion on banks as a result of the just passed worst, and most corrupt legislature known to humankind. : "Moody's Investors Service today affirmed the long-term and short-term ratings of Bank of America (BAC), Citigroup (Citi), and Wells Fargo (WFC) while at the same time changing the outlook to negative from stable on their ratings that currently receive ratings uplift as a result of Moody's assumption of systemic support (including their senior debt and deposit ratings). The outlook change is prompted by the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) -- a law that, over time, is expected to result in lower levels of government support for U.S. banks. "Since early 2009, Bank of America, Citigroup, and Wells Fargo's ratings have benefited from an unusual amount of support," said Sean Jones, Moody's Team Leader for North American Bank Ratings. This support has resulted in debt and deposit ratings that range from three to five notches higher than that indicated by the banks' unsupported, intrinsic financial strength. "The intent of Dodd-Frank is clearly to eliminate government -- i.e. taxpayer -- support to creditors," said Mr. Jones. To achieve this, the law attempts to strengthen the ability of regulators to resolve complex financial institutions, while at the same time strengthening the supervision and regulation of such institutions to reduce the likelihood that they will need to be resolved in the future."
A New Spin on Bank Fraud: Banks Defrauding Their Invesors, Auditors and Regulators, Which Also Helps Delinquent MortgageesSubmitted by Reggie Middleton on 07/28/2010 05:52 -0500
Now we know how those banks were able to post improving credit metrics last quarter!
The classic paradigm for thinking of the “American experience” involves the use of a “melting pot” or “patchwork” metaphor. The basic idea is that the US is a single entity comprised of a wide variety of ethnic/ social groups. This metaphor in turn is used to support the view that the US is a Democracy: a place where “your vote counts” no matter who you are.
However, to me, an examination of the real socio-political hierarchy in the US reveals that this entire “patchwork” ideology is a myth perpetuated in order to convince the general populace that they somehow matter or have an impact on the US political structure and proposed legislative policy
In yet another confirmation that the only sure way to make money in the current market is to bet against Goldman's sellside research is the revelation (indeed, reminder) that the primary cause of the firm's now well-known Q2 trading loss, namely the bet that volatility would decline, is precisely what its Top Recommended Trade for 2010 was. During yesterday conference call, David Viniar disclosed that "as a result of meeting franchise client and broader market needs, we had a short equity volatility position going into the quarter. Given the spikes in volatility that occurred during the quarter, equity derivatives posted poor quarterly results." Ironically, on December 2, 2009, as part of its report "Exciting... with Risks" which we previously disclosed, the firm came out with its Top 8 Recommended Trades for 2010, the first of which was the following: "Short S&P 500 Dec10/Dec11 Forward Starting Variance Swap, at 28.20, Target 21. At current levels, forward variance suggests that the coming years will be as volatile as 2009. But this year was the eighth most volatile year on record, and our recent work on the 2004-template—and our models linking macro outcomes to volatility—suggests that even in a sluggish recovery, volatility can continue to decline. While near dated volatilities remain only moderately elevated, the upward-sloping term structure has kept forward variance higher—and well above where it ‘belongs’." In other words, Goldman recommended selling vol, yet it only did so as a flow counterbet after a customer did precisely the opposite of what Goldman was pitching.