Bank of America

Bank Of America: "Today’s Stock Market Has Lost Some Of Its Ability To Reflect Underlying Economic Trends"

With Greenspan emerging from his crypt to confirm that he is now as clueless about everything as he was 15 years ago (although the absolutely zero reaction out of "stocks" to his statement that stocks are "very undervalued" is perhaps indicative that SkyNet may just be learning), it is appropriate to remind readers that this thing known as the "market" died some four years ago. What we have now is a vehicle with a "role in the policy fight to support spending" while "today’s stock market has arguably lost some of its ability to reflect underlying economic trends." Not our words - those of Bank of America's Ethan Harris, who, four years after the fringe blogs, finally "gets it."

Today's Pre-Ramp Preview

"Equity prices in the US and Europe have been hovering at multi-year highs. To the extent that this reflects powerful policy easing, equity markets may have lost some of its ability to reflect economic trends in exchange for an important role in the policy fight to support spending." This is a statement from a Bank of America report overnight in which the bailed out bank confirms what has been said here since the launch of QE1 - there is no "market", there is no economic growth discounting mechanism, there is merely a monetary policy vehicle. To those, therefore, who can "forecast" what this vehicle does based on the whims of a few good central planners, we congratulate them. Because, explicitly, there is no actual forecasting involved. The only question is how long does the "career trade", in which everyone must be herded into the same trades or else risk loss of a bonus or job, go on for before mean reversion finally strikes. One thing that is clear is that since news is market positive, irrelevant of whether it is good or bad, virtually everything that has happened overnight, or will happen today, does not matter, and all stock watchers have to look forward to is another low volume grind higher, as has been the case for the past two weeks.

Just Three Sticks

Three sticks and three chances for a poke in the eye. On the other hand they could be kindling for the fire or perhaps the first ingredients of alphabet soup. You see, this is what makes things so tough; we all stare at the same things, the same events and reach wildly different conclusions. The media hands out each stick as presented by the government, a corporation or someone else in a supposed leadership position. The somewhat wise can grasp that there are three sticks and not just one and the good minds recognize not only the three sticks but see that it can be made into the first letter of the alphabet. In this light then let us consider the recent proposal from the Federal Reserve Bank of Dallas. Under the banner of limiting the government’s support for the large U.S. banks in case one were to fail the Dallas Fed has proposed capping assets at $250 billion and of walling off investment banking from the bank...

Frontrunning: March 14

  • Dimon’s ‘Harpooned’ Whale Resurfaces With Senate Findings (BBG)
  • Greece and lenders fall out over firings (FT) - as predicted 48 hours ago
  • Dallas Fed Cap Seen Shrinking U.S. Banking Units by Half (BBG) - which is why it will never happen
  • Xi elected Chinese president (Xinhua)
  • Russia Bond Auction Bombs as ING Awaits Central Bank Clarity (BBG)
  • U.S. and U.K. in Tussle Over Libor-manipulating Trader (WSJ)
  • Chinese firm puts millions into U.S. natural gas stations (Reuters)
  • In Rare Move, Apple Goes on the Defensive Against Samsung (WSJ)
  • Berlin Airport Fiasco Shows Chinks in German Engineering Armor (BBG)
  • Ex-PIMCO executive sues firm, says was fired for reporting misdeeds (Reuters)
  • Bank of Italy Tells Banks in the Red Not to Pay Bonuses, Dividends (Reuters)

Overnight Futures Levitation Returns

If the last three days were spared an overnight ramp in US futures, today this has not been the case as the new carry pairs of choice, the USDJPY and EURJPY, have seen constant gradual levitation overnight, pushing the correlated US OTC markets higher and setting the stage for the tenth consecutive, and perfectly artificial, Dow Jones increase. It is notable just how broken the old direct EURUSD-ES correlation is in times when correlation desks can offset selling pressure by shorting Yen and obtain local funding. That said, even the USDJPY appears to have stalled out in the low/mid 96 range - it is unclear what the catalyst pushing the Yen much lower will be, as virtually all rhetorical ammunition used by the BOJ and its affiliates, has by now been well and truly used up, and the daily talkdown sessions are merely a regurgitation of previous talking points.

Surge In Trading Leverage Triggers Bank Of America Contrarian Sell Signal

Leverage, as measured by NYSE Margin Debt, rose a huge 31.6% year-on-year (YOY) and 10.2% month-over-month (MOM) to $364bn in January, compared to the July 2007 peak of $381bn. Net Free Credits at -$77.2mm (essentially cash balances in margin accounts) have plunged to levels (and at a rate) that BofAML believes generates a sell signal and typically result in market correction. The last time a (2-standard-deviation) sell signal like this was generated was on April 2010 and the S&P 500 subsequently corrected by 16% in two months. While the US equity market has not responded to at or near overbought or contrarian bearish sentiment levels very recently (remaining overbought for weeks) BofAML also notes a tactical sell signal was just triggered that is similar to those from September 14 and April 27, 2012 – both preceded market pullbacks.

Guest Post: Corporatism - State-Controlled Capitalism

The Dow is at a record high and so are corporate profits - so why does it feel like most of the country is deeply suffering right now?  Real household income is the lowest that it has been in a decade, poverty is absolutely soaring, 47 million Americans are on food stamps and the middle class is being systematically destroyed.  How can big corporations be doing so well while most American families are having such a hard time?  Isn't their wealth supposed to "trickle down" to the rest of us?  Unfortunately, that is not how the real world works. But now we have replaced capitalism with something that we like to call "corporatism".  In many ways, it shares a lot of characteristics with communism, and that is why nations such as communist China have embraced it so readily. Today, most big corporations are trying to minimize the number of "expensive" American workers on their payrolls as much as they can. Right now, the system is designed to continually funnel more money and more power to the very top of the pyramid.  The global elite are becoming more dominant with each passing day. The idea of a very tiny elite completely dominating all the rest of us goes against everything that America is supposed to stand for.  In the end, it will result in absolute tyranny if it is not stopped.

Blast From Dick Bove's Long And Illustrious Past

No, this is not about Dick Bove's Buy recommendation of Lehman days ahead of the bankruptcy, or what seems like his "Buy" rating on Bank of America since the end of World War II, or 4 years after Bove's birth. No: we have a special surprise for readers out of the overhyped banking analyst, who still inexplicably appears on various TV outlets, even if the anchors have a tough time remembering just what firm he is with these days. So, without further ado, here is Bove's take on the single worst merger in the history of the financial industry: that between Bank of America and the toxic mortgage factory Countrywide Financial.

Frontrunning: March 7

  • French unemployment rises again to highest since 1999 (Reuters)
  • BoJ rejects call for monetary easing (FT)
  • North Korea threatens pre-emptive nuclear strike against US (Guardian)
  • Firms Race to Raise Cash (WSJ)
  • Time Warner Will Split From Magazine Unit in Third Spinoff (BBG) - slideshows, kittens, "all you need to knows" coming to Time
  • U.S. economy, world's engine, remains in "neutral": Fed's Fisher (Reuters)
  • BOE Keeps QE on Hold as Officials Weigh More Radical Measures (BBG)
  • Jobs start to go as US sequestration cuts in (FT)
  • BofA Times an Options Trade Well  (WSJ)
  • Congress Budget Cuts Damage U.S. Economy Without Aiding Outlook (BBG)
  • Dell’s Crafted LBO Pitch Gets Messy as Investors Circle (BBG)
  • Dell says Icahn opposes go-private deal (Reuters)
  • Portugal Rating Outlook Raised to Stable by S&P on Budget Plan (BBG)
  • China’s Richer-Than-Romney Lawmakers Reveal Reform Challenge (BBG)

One Hundred And Eighteen Million Dollars An Hour

That is how much money the Federal Reserve Bank of the United States is creating as you wake, work or sleep. That is $85 billion a month and the stuff must go somewhere. It pours out like sugar upon the markets, each market, every market and it is no wonder that the American stock markets are hitting new highs. The spice must flow. I have been asked numerous times why the Fed’s balance sheet can’t be thirty trillion dollars and so the game continues. The answer is that it can be but, and a very big but, is that the debt of the United States would also be ten times the size it is now and it would have to be serviced by an economy that only has so many resources as the debt to GDP ratio of the country would be out of sight. The catch here is the amount of debt that would be created along with the creation of money and that is where the game halts or reverses the course. It would no longer be, and we are close to it now in my opinion, that the Fed is “the lender of last resort” but the only important lender in town.

Frontrunning: March 6

  • Kuroda to Hit ‘Wall of Reality’ at BOJ, Ex-Board Member Says (BBG)
  • Venezuelans mourn Chavez as focus turns to election (Reuters)
  • South Korea says to strike back at North if attacked (Reuters)
  • Milk Powder Surges Most in 2 1/2 Years on New Zealand Drought (BBG)
  • As Confetti Settles, Strategists Wonder: Will Dow's Rally Last?  (WSJ)
  • Pollution, Risk Are Downside of China's 'Blind Expansion' (BBG)
  • Obama Calls Republicans in Latest Round of Spending Talks (BBG)
  • Ryan Budget Plan Draws GOP Flak (WSJ)
  • Samsung buys stake in Apple-supplier Sharp (FT)
  • China Joining U.S. Shale Renaissance With $40 Billion (BBG)
  • Say Goodbye to the 4% Rule  (WSJ)
  • Traders Flee Asia Hedge Funds as Job Haven Turns Dead End (BBG)
  • Power rustlers turn the screw in Bulgaria, EU's poorest country (Reuters)

Merrill Of America Cuts JCP Price Target To $13 On Pending Revolver Draw

When we reported on JCPenney's horrendous quarterly results, we made the comments that when "speaking of [the] credit facility, JCP had no borrowings under its 2012 Revolver, and about $1.3 billion available net of L/Cs. Expect these numbers to change." The reason we pointed this out, is that the second a retailer goes from "unused Revolver" to "used Revolver", the bankruptcy deathwatch drums begin their steady beat. Indeed, it was only a matter of time before even the traditionally slow sellside brigade figured out that JCP's liquidity is horrifying and about to get much worse, and moments ago Bank of America downgraded JCP by $3 to a $13 price target on expectations of an imminent revolver draw. To wit: "JCPenney intends to self-fund its transformation, but we think it will need to draw down on the revolver as early as this quarter." This explains why Ackman is down another $60 million in the name at last check.

A 1994 Redux?

A prevailing theme that the pundits are trying to furiously push onto hapless lemmings in hope of forcing them out of bonds and into stocks, is that the current capital market is somehow comparable to that of 1994 and that the Fed rate hike of 1994 is imminent in our day and age too. Aside from the fact that the economy, or the market, is nothing like 1994, the subliminal suggestion is that the Fed may just pull a Greenspan, and proceed to hike rates one clear day, in the process sending the long-end soaring, so please dear lemmings: rotate greatly. So if one were to ignore the fact that for the Fed to hike it would imply that the $14 trillion in global central bank support would immediately start being withdrawn, and thus sending the S&P lower by over 1000 points, how does this particular fable work? Here is how Bank of America spins it.

Frontrunning: March 5

  • As ZH has been saying for months... Draghi Will Need to Push the Euro Down Some More (WSJ) ... but careful with "redenomination risk"
  • Senate Report Said to Fault JPMorgan (NYT)
  • EU Opens Way for Easier Budgets After Backlash (BBG)
  • China Moves to Temper Growth - Property Bubble Is a Key Concern (WSJ)
  • China bets on consumer-led growth to cure social ills (Reuters)
  • Italian president mulls new technocrat government (Reuters)
  • Grillo says MPS won't back technocrats (ANSA)
  • The Russians will be angry: Euro Chiefs Won’t Rule Out Cyprus Depositor Losses (BBG)
  • China Bankers Earn Less Than New York Peers as Pay Dives (BBG)
  • Investors click out of Apple into Google (FT)
  • Community colleges' cash crunch threatens Obama's retraining plan (Reuters)
  • Alwaleed challenges Forbes over his billions - Calculation of $20bn net worth is flawed, says Saudi prince (FT)
  • Guy Hands Dips Into Own Pockets to Fund Bonuses at Terra Firma (BBG)
  • North Korea to scrap armistice if South and U.S. continue drills (Reuters)