Bank of America
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.
For months in a row, the core propaganda meme seeking to drag lambs into the ponzi, has been one of "ignore Europe - it is irrelevant." Naturally this "narrative" was primarily spread by expendable C-grade media elements whose careers will promptly terminate once this latest episode of artificial "decoupling" is over, as we have been warning for months (at a cost to the S&P of over 200 points). And judging by today's US Trade Balance, which came in at a whopping $47.8 billion on expectations of $45 billion, the widest gap since June, which was driven due a plunge in European exports as the European economy is shriveling in the grips of what is about to be a doozy of a recession, it may be time to polish those resumes as the inevitable decoupling approaches with every passing hour. Yet one of the best comments on what Europe really means for the world comes from none other than Bank of America. While we have discussed previously that BAC is doing its best to crush the market and to precipitate QE3, thus like everyone else, always having an agenda in its message, what it is saying is spot on. And it is as follows: "Europe matters, according to the most oft-heard arguments, because of its size and the euro’s reserve currency status. The Euro area’s systemic relevance (both in trade and financial terms) means that its governance crisis is a global menace. This narrative portrays Europe as a self-contained shock emitter, with the rest of the world cast as innocent bystander. Rather, much like the Lehman bust, the current Euro area crisis may be a symptom of faulty globalized finance. Europe is rightly being held to account for fiscal mismanagement, but there may be bigger cracks in the background." Spot on, and it gets even worse, which we urge everyone who still doesn't grasp the linkages between Europe and the US to read on.
- China’s Forex Reserves Drop for First Quarter Since 1998 (Bloomberg) - explains the sell off in USTs in the Custody Account
- Greek Euro Exit Weighed By German Lawmakers, Seen as Manageable (Bloomberg)
- Greek bondholders say time running out (FT)
- Housing policy to continue (China Daily)
- Switzerland’s Central Bank Returns to Profit (Reuters)
- US sanctions Chinese oil trader (FT)
- Obama Starts Clock for Congress to Vote on Raising Federal Debt Ceiling (Bloomberg)
- Turkey defiant on Iran sanctions (FT)
- ECB’s Draghi Says Weapons Working in Debt Crisis (Bloomberg)
- Greece to pass law that could force creditors in bond swap (Reuters)
Analyst surveys have now risen to the level of fact, as we all know. Thus Bloomberg and other news outlets feature detailed reports about the opinions of the Sell Side community as though these musings were burned into stone tablets with the fire of the Holy Spirit.
As Zero Hedge reported first, the US is once again, in just 5 short months (see chart), back at the debt ceiling, with just $25 million in new debt issuance dry powder, or in other words, no space of more debt absent resorting to the same "technique" last seen in late July when the Treasury plundered from government retirement accounts in order to accommodate new debt, such as yesterday's issuance of 3 Year bonds, and today's 10 Year bonds. And as The Hill reported yesterday, Obama is expected to request that Congress allow the incremental and final $1.2 trillion debt expansion (of the $2.1 trillion total) within a few days. So it is all on autopilot right? Wrong. As Bank of America explains below, it is very likely that the US will not have a debt ceiling hike for at least a few weeks, meaning that while a debt hike will ultimately come, it will very soon be all the song in dance, potentially overtaking the GOP drama, coupled with the pillaging of government retirement accounts yet again and likely leading to more rating agency action as the US debt fiasco is once again brought front and center. And the last thing the market needs is to experience the August 2011 collapse which brought it to 2011 lows and sent it gyrating for 400 DJIA points daily, in essence breaking the market as noted previously. And the worst news is that even with $1.2 trillion in new debt capacity, the total amount is guaranteed to not last through 2013, and should tax withholdings dip as trends are already indicating on adverse year over year comps, the $1.2 trillion in new debt may be exhausted as soon as September, which at this point may be the only thing that derails an Obama reelection if indeed he is running against "Wall Street."
Markets are moving positively across the board today following comments from Fitch, dampening speculation that France may be downgraded from its Triple A status. Fitch’s Parker commented that he does not expect to see France downgraded at all throughout 2012. However he added that there are continuing pressures for France from national banks and EFSF liabilities, Parker also reinforced German confidence stating that Germany’s Triple A rating is safe. Markets were also experiencing upwards pressure from strong French manufacturing data performing above expectations and successful Austrian auctions today, tightening the spread between France and Austria on 10-year bunds.
Whether it is strong-USD-based forward revenue reductions for US corporations, rear-view mirror-based fuel-cost implicit tax-cuts, or unsustainable savings rate reductions, the recent US data has created a plethora of 'this time is different' decoupling theorists. We discussed David Rosenberg's perspective on this unsustainability last week and now his old employer (Bank of America) is notably out with a rather negative note on the chances of this 'local' European problem becoming a global issue and impacting US growth through both trade and financial linkages. In their view, we will see a steady deceleration in growth this year while the consensus sees a pick up and by the spring these negative revisions (from sell-side economists) will weigh heavily on stock markets and support bonds. They sum it up succinctly: 'Enjoy the recent price action while it lasts.'
Back in mid-May just after the market had topped for the year, in a post titled "The Great QE Unwind Compression Trade(s)" we told readers to "focus purely on Utilities and Consumer Staples as the long leg in a compression trade, while shorting Industrials and Consumer Discretionary, leaving Financials alone (John Paulson's projections of Bank of America hitting $30/share by the end of 2011 notwithstanding)." Granted Financials were by far the worst performing trade of the year although with the possibility of a Fed bailout around every corner, it was imprudent to be short the sector (rather going long various unique opportunities such as MBIA proved to be a 100% return in months if not weeks). Instead, we referred to precious metals, namely gold, as a natural hedge against any potential Fed (and global central planner) stupidity. So how did anyone who followed our 2011 advice do? Well - the above three suggestions represented three of the five best performing sectors in the year (with the shorts not offsetting any gains). As can be seen below. Which we merely bring up to those who, counterfactualy, desire to brand this site as some fringe lunatic goldbug asylum. Which we are not saying it isn't: we urge most people to stay out of stocks entirely: the possibility of another flash crash is always present. For those for whom capital preservation is of paramount importance, precious metals are the way to go. But we realize there are those for whom career risk means being involved in stocks, and we realize that they represent a substantial portion of our readership. Which is why we try to be of use to everyone who comes here.
Looking for a reason why the surge of BAC has been abruptly halted after hours? Look no further - as predicted earlier, when we commented on the periodic reincarnation of the always false global refi rumor which served among other things to push BAC higher by almost 10%, the rumor was found to be false... all over again. In other words no refi, no benefit to TBTF, and all of today's gains are based on what Bloomberg noted was a report issued yesterday by a Jaret Seiberg, who until recently was an employee of MF Global, and has since been acquired with his entire Washington Research Group by none other than Guggenheim partners, which just happens to be run by former Bear Stearns exec Alan Scwhartz. From Bloomberg, here is the official denial (which came literally seconds after market close):
- White House Has No Plan for Mass Home Refinancing, Person Says
Incidentally, even if the rumor was true, here is JMP explaining why it would have no real impact on Bank of America
How many of those millions of dollars in cars does the "Foreclosure King" still have? How is he able to stay so warm and cozy in his castle on the intercoastal in Ft.Lauderdale staring out at his 100 foot yachts and where is the Florida Bar in all this?
If there is one piece of data that should make you scrap all optimistic forecasts for 2012 year end S&P price targets and EPS forecasts, it is the following chart from Morgan Stanley which shows the relative contribution of financial stocks to the change in full S&P earnings (combined they account for 26.3% of the change from the actual $883.5 billion to $970.6 billion). Specifically we are looking at Bank of America, which with a forecast surge in Earnings from ($2.5) billion to $10 billion accounts for 14.1% of the entire change in S&P earnings forecasts. And since the S&P is simply the Earnings number multiplied by some multiple, all consensus views that have 1400 as their 2012 year end forecast rely on bank of America to account for nearly 20 S&P points! The US market has now devolved to such a sad state when the most insolvent of all US banks has to carry nearly the bulk of earnings growth in 2012. At least with Apple they produce something - unfortunately in BAC's case it is only legal fees for the avalanche of endless litigation against them.
The catalyst so many have been waiting for, and the nearly 30 million shorts dreading, has arrived. From Judge Eileen Bransten: "ORDERED that MBIA Insurance Corporation’s motion for partial summary judgment is granted to the extent that MBIA Insurance Corporation (“MBIA”) must establish for its claim of fraud that misrepresentations by the defendant(s) induced MBIA to issue insurance policies on terms to which it otherwise would not have agreed and that MBIA is not required to establish a direct causal link between defendant(s) misrepresentations and MBIA’s claims payments made pursuant to the insurance policies at issue; and it is further ordered that MBIA's motion for partial summary judgment is granted to the extent that MBIA must establish for its claim for breach of the Insurance Agreement against Countrywide Home Loans that CHL's breach of warranties in the issued insurance policies' transaction documents increased the risk profile of the issued insurance policies and MBIA is not required to establish a direct causal connection between proven warranty breaches by CHL and MBIA's claims payments made pursuant to the insurance policies at issue, and it is further Ordered that MBIA's motion for partial summary judgment is granted to the extent that MBIA may seek rescissory damages upon proving all elements of its claims for fraud and breach of representation and/or warranty." In short, this is core catalyst that Manal Mehta expected and which BTIG envisioned to justify its $22.50 price target. It is also the judgment that will make Bank of America's case law life a living nightmare going forward (naturally following repeated failed attempts at appealing). Lastly, any and all shorts in the name may have their work cut out for them.
Chart Of European Emergency Liquidity Back At Record Levels, And Why Bank Of America Is Long French CDSSubmitted by Tyler Durden on 12/21/2011 12:17 -0500
Yesterday we charted the combined ECB balance sheet which showed that it had hit an all time record of €2.5 trillion, exclusing today's operation (to the stunned surprise of all those who scream that the ECB should be printing more, more, more). Today, we focus exclusively on the various forms of unsecured liquidity measures, such as today's 3 Year LTRO, because as the following chart from Bank of America shows, European emergency liquidity provisioning post today's liquidity bailout brings the total to €873 billion and is just shy of its all time record of €896 billion, a number which we expect will be taken out as soon as the next liquidity provisioning operation. In other words, European liquidity in euro terms, has virtually never been worse. And as today's additional drawdown of Fed swap lines indicates, the USD liquidity crunch is getting worse not better (confirmed by the rapid deterioration in basis swap levels). Perhaps the fact that not only is nothing fixed, but things are about as bad as they have ever been explains why Europe closed blood red across the board, and also why Bank of America continues to push for an outright crash in all risk (and some were doubting our earlier analysis that BAC is outright yearning for a market crash): To wit from Bank of America's Ralf Preusser: "The tender results do not however change either our longer term cautious outlook on growth, or the periphery. We remain long 5y CDS protection on France, at 210bp (target 300bp, stop loss 175bp)." So let's see: BAC is shorting the EURUSD, which implies they are pushing for a market drop, and now they want French CDS to soar? Who was it that said the megabanks do not want a crash?
In Renewed Push For QE3, Bank Of America Says EURUSD Squeeze Has Run Course, Sets New Short With 1.2510 TargetSubmitted by Tyler Durden on 12/21/2011 08:57 -0500
It is no secret that US banks are pushing hard for a big market dump: after all that is the only thing that could unleash QE either in Europe, or far more likely, in the US. Whether that means the Fed will much more aggressively monetize US or, as discussed yesterday European debt, remains unclear, but one thing is certain: US and European banks for the most part loathe the LTRO as it simply delays the day of printing and buys the banks time they don't need and can't afford. Which is why Bank of America, as it is the most exposed to a world without QE, was the first to jump in and demand the market crash itself, by presenting an FX note saying the EURUSD "squeeze has run its course" and is proceeding to sell the EURUSD at 1.3045 with a target of 1.2510. Whether or not the EURUSD gets there is irrelevant. What matters is that, as expected, the push for QE will be renewed with far greater vigor by the very entities that are supposed to benefit from the LTRO as paradoxically the banks now have to scramble to offset the favorable, if very short term, impact from the LTRO because they know it achieves nothing and the only savior is and has always been Ben.