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What Keeps BofA Up At Night?

Tyler Durden's picture




 

The onslaught of 2012-Outlooks continues to unmercilessly suggest bullish biases in most risk assets, particularly higher quality equities and credit, and while almost as ubiquitously noting the binary nature of outcomes in the medium-term and significant downside potential. Most of the upside/downside biases reflect heavily on Europe's outcome which in turn seems to have the majority forecasting recessionary contraction being 'stabilized' by a round of quantitative easing by the ECB. BofA's Global Asset Allocation group notes, however, as the Fed has recently discovered, QE alone may be enough to stabilize a situation but a credible plan for growth is harder to achieve. Furthermore, in a topsy-turvy potentially chaotic manner, they point out that the market's expectation of QE has been enough to calm waters (or more aptly levitate markets) leaving policy makers with little choice now for fear of the instability created by not delivering what Mr.Market (as we have been noting for weeks - pressure for a 'crash' from the likes of Deutsche Bank) demands or expects. But away from European disunity, if that is possible, BofA's key global risks include a worse-than-feared-EU-recession, Mid-East unrest, US fiscal tightening, and a China hard landing but given their perspective on the extreme levels of bearishness, they prefer to hedge upside risk from their correctly cautious view.

 

From Bank Of America's 2012 Global Asset Allocation Macro Outlook

Our economists forecast a recession in Europe in 2012...

...softened by a round of quantitative easing from the ECB

The willingness of central banks to act was shown on 30th November 2011 as six OECD central banks plus the PBoC coordinated their interventions. With the Eurozone slipping into recession and inflation poised to drop, some of the objections to QE will likely be removed. Our EU rates strategist, Ralf Preusser, believes that the ECB can introduce QE without breaking their price stability mandate if the Eurozone faces disinflation or even deflation. A round of QE from the ECB is now widely anticipated by markets, in our view. In fact, we believe that failure to deliver QE could generate so much market turmoil that policy makers could soon find themselves with little choice. But as the Fed has found in recent months, QE alone may be enough to stabilise a situation but a credible plan for growth is harder to achieve.

 

 

Key global risks include a worse than fear EU recession...

 

The coordinated action from central banks on 30th November 2011 highlights the global concerns over a disorderly unraveling of the EU crisis. If the stalemate persists and Europe fragments it likely means a deep recession in Europe as well as significant slowing of global growth. European banks are major investors in Asia (Table below) and a sharp contraction of liquidity would have global consequences. Even under our baseline scenario where Europe finds a solution to the sovereign crisis, the long run effect of deleveraging is significant. Fiscal austerity and the “paradox of thrift” will drag on trade and investment for some time, creating downside risk to global economic growth in coming years.

 

 

…Mid-East unrest, US fiscal tightening & China hard landing

 

Beyond Europe other issues may be equally damaging. The tensions in the Middle East, as well as the rise of anti-Western sentiment in Iran, are symptomatic of heightened geopolitical risks. Syria scores particularly poorly compared to other nations in the region on measures of political and economic vulnerability (Chart below).

 

 

Although Syria is of relatively minor importance to the global oil market compared to Libya, the geopolitical ramifications of a conflict in Syria are worrying. The vested interests of power players such as Turkey, Iran, Saudi Arabia or Israel could complicate matters too, increasing the risk of a proxy war in Syria. With large volumes of production at risk in countries with vested interests in Syria, a broader Syrian conflict could rattle Middle East security and global oil markets, exacerbating oil price volatility.

 

This leaves the global economy exposed to a damaging spike in energy prices should the situation deteriorate.

 

Meanwhile in the US, the polarisation of politics was clearly demonstrated by the failure of the super-committee to agree a deficit reduction plan. Our US economists expect austerity measures to kick in fully only after the presidential election.

 

 

If Congress do not extend measures due to expire this year, such as payroll tax cuts, this creates around 100bp drag on GDP in 2012. The sunsetting of other stimulus (e.g. Bush tax cuts, etc.) adds further headwinds to the 2013 outlook. Bond markets have been patient so far with the US, largely as the focus is on Europe, but the deficit issue in the US remains a key concern.

 

Finally, a sharp deterioration of credit quality or liquidity in China would surely rekindle fears of a hard landing.

 

...But there is always an upside tail risk that growth picks up

 

While we anticipate a slow and bumpy recovery, the extreme levels of bearishness prompt us to hedge the upside risks in our otherwise cautious view.

 

 

It appears evident that it is sentiment not data that drives markets right now...

 

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Tue, 12/06/2011 - 03:50 | 1950116 ceilidh_trail
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Extreme levels of bearishness even as many are talking up the Santa Claus rally?

Tue, 12/06/2011 - 05:13 | 1950202 Michael
Michael's picture

You know, if they let Ron Paul become POTUS they would have a concrete chance to evaluate the power they think they actually wield. If they're not just pussies, they should just let Dr Paul become president without offing him prematurely, in order to test the actual skill strength they think they possess over the true American people with a man like Paul in charge. 

Tue, 12/06/2011 - 07:51 | 1950301 Oh regional Indian
Oh regional Indian's picture

Michael, RP is not going to be Prez. Not going to happen. He is a herring, a lightening rod. Much like that little guy back then who ran the big companies.

Truth? Even RP can only give the tip of the iceberg to people.

And all I saw in thsi report was hard landings and tightening. Not pretty. Here in India, the latest destabilizer to join the Walmartization of India is censoring FB and other social media against things hurtful to the leaders.

It's coming and no politics is going to save it/US.

ORI

/the-plan/

Tue, 12/06/2011 - 08:48 | 1950359 SevensGarlic
SevensGarlic's picture

 

Michael, you bring up some interesting points....but the people in charge have an agenda that is not about testing the waters or giving any kind of chance for their power structure to be pulled apart. The Global elite actually have a bit of a timeline they are working towards for their master Lucifer. Where ZH concentrates on showing how these guys are destroying the financial system, the 'elites' have a very specific reason for this....they need to create such debts servitude, currency and inflation chaos and war wongogering fear to have the masses be willing to accept the 'solution' they will present (which will be cloaked in peace and prosperity but with some very serious strings attached). 

If you understand the hype surrounding the 'New Age' concepts of 2012 ascension, ascended masters, consciousness shift yadda yadda BS and see that this movement is an important part of the end game agenda/deception (Lucis Trust, previously known as Lucifer Publishing, owned by Rockefellers, publishers some of the most important works of New Age writers Blavatsky and Bailey.....Teilhard de Chardin, one of the most influential voices in New Age was a Jesuit, basically the organization right at the top of the pyramid who are only now sharing top power with the Illuminati families). You can't have Lucifer nurturing the creation of this deceived New Age group for decades upon decades (in modern form) expecting big changes and the 'universal Christ' to start popping up if he wasn't going to put on a decent show for them.....he can't just leave all his deluded minions disappointed, right! The people in the New Age are being positioned to become a main group in supporting the changes/solution that will be offered to us, to help legitimize the 'solution' (that it has a degree of ready public support behind it). 

The elites are going to do everything in their power to not give Ron Paul a chance to expose/dismantle their game because with the New Age movement Lucifer has a near and impending timeline he has to keep with them to keep their cheer and delusion up. If Luci can't do that then he is probably goanna have to wait another 25+ years for the Banksters to build up another controlled/staged financial crisis to create enough chaos that the world will be desperate enough to accept him as the 'savior' to their problems...and Luci hates to wait! 

 

Tue, 12/06/2011 - 10:23 | 1950627 i-dog
i-dog's picture

+1. Nice summary. But they're going to have to get their skates on and regain control of Europe before the London Olympics, or that 25-year wait beckons....

3Q2012 is going to be very "interesting".

Tue, 12/06/2011 - 17:27 | 1952704 SevensGarlic
SevensGarlic's picture

Thanks. What is it about Europe that you still think they have to regain control over? Surely Europe would be effectively on their knees already know except for the continued kicking the can down the road proceedings that are just to build up that last bit more of control from debt servitute/austerity packages to control the population, and to control the timing of when they decide to pull the rug out for maximum fear creation in 2012. 

London Olympics may prove interesting watching indeed with potential to use opening ceremony event as a time to do a bit of an occult annointing ceremony for the huge TV audience.

agreed, 3Q should be interesting time...I am hearing that any Iran-Israel conflict (and proxy ally war) is more likely to be put off until this time if not slightly later in an attempt to falsely create  (in their minds) what they perceive to be Gog-Magog battle to falsely fulfilled prophecy of various religions (Gog-Magog is not one between countries and occurs later on in the events timeline, that is why it is false), to aid in 'end game agenda' of bringing in their 'universal christ'

Tue, 12/06/2011 - 03:54 | 1950126 non_anon
non_anon's picture

beating a deadhorse

Tue, 12/06/2011 - 04:01 | 1950134 ebworthen
ebworthen's picture

What will happen to poor BOA and the other corrupt banks and institutions when the vaunted consumers run out of debt moeny the governments are counting on them to spend (which they also expect them to dutifully send in to the Treasury and IMF to pay for the bank debt)?

OOOPS

Tue, 12/06/2011 - 04:04 | 1950139 BKbroiler
BKbroiler's picture

A YTD chart of BAC tells you all you need to know.

Tue, 12/06/2011 - 04:06 | 1950141 i-dog
i-dog's picture

 

"It appears evident that it is sentiment not data that drives markets right now..."

No. It is blatantly obvious manipulation with vapour-thin volumes (other than HFT churn). There are no "markets".

Tue, 12/06/2011 - 04:05 | 1950143 A Man without Q...
A Man without Qualities's picture

What keeps BofA up at night?

Putbacks, reps and warranties fraud cases, second lien mortgage risks, Attorneys General settlements....

What keeps Moynihan up at night?

Half a bottle of scotch...

 

They've enough to keep them busy without worrying about anyone else...

Tue, 12/06/2011 - 04:07 | 1950145 wandstrasse
wandstrasse's picture

OMG.. are year-end bonuses in danger?? PRINT!! PRIIIINT!!!!

Tue, 12/06/2011 - 04:33 | 1950172 Coldfire
Coldfire's picture

In these trying times it is vitally important to the survival of the Republic to pretend that BAC could find its ass with both hands and a telescope.

Tue, 12/06/2011 - 04:42 | 1950177 ED
ED's picture

viagra

Tue, 12/06/2011 - 05:13 | 1950201 El Gordo
El Gordo's picture

Isn't it interesting that all forecasting these days merely reflects speculation as to what the government will or won't do, and no emphasis at all on what actual economic activity might develop (or fold if there is any left).  That signals to me that it is already over.  Some day, we may begin to rebuild what was once the most prosperous and most envied nation on the earth, but for now looks like we are toast. 

Tue, 12/06/2011 - 05:34 | 1950213 evolutionx
evolutionx's picture

APRES NOUS LE DELUGE

A deluge of an unprecedented magnitude is both inevitable and imminent. The consequences of the economic and political mismanagement will have a devastating impact on the world for a very long time. And the consequences will touch most corners of the world in so many different areas; economic, financial, social, political and geopolitical.

 

http://www.mmnews.de/index.php/english-news/7423-apres-nous-le-deluge

Tue, 12/06/2011 - 05:48 | 1950225 vegas
vegas's picture

One word: Angelo

 

http://vegasxau.blogspot.com

Tue, 12/06/2011 - 06:15 | 1950243 sabra1
sabra1's picture

cliton collected 50k per month from MF Global:

http://www.humanevents.com/article.php?id=47938

Tue, 12/06/2011 - 06:43 | 1950262 nathan1234
nathan1234's picture

Maybe the thought of nightmares prevents them from sleep, thereby keeping them awake.

Or maybe they expect a collapse anytime- so they keep awake.

I guess they dont have a conscience problem that keeps them awake since they have no conscience at all.

Tue, 12/06/2011 - 06:57 | 1950265 slackrabbit
slackrabbit's picture

I would say Europe and China.

The china news just keeps getting worse. E.g. cotton imports have dropped, so the bad news is moving from the realestate to the textile sector.

As for Europe, nuff said.......pretty much time to get out of everything

Tue, 12/06/2011 - 07:00 | 1950268 bob_dabolina
bob_dabolina's picture

Shorting Irish bonds seems like a good deal here, don't even see the need arb it here. 

Tue, 12/06/2011 - 07:06 | 1950270 ZippyDooDah
ZippyDooDah's picture

"unmercilessly suggest bullish biases"

 "while almost as ubiquitously noting the binary nature of outcomes"

 


Jeez Louis, somebody needs a basic writing course, Tyler.

Tue, 12/06/2011 - 07:07 | 1950272 spankfish
spankfish's picture
What Keeps BofA Up At Night?

"What Keeps BofA Up At Night?"  Things that go bump in the night?

Tue, 12/06/2011 - 08:03 | 1950308 I am Jobe
I am Jobe's picture

Where is Krugman? He is bullish as always. Time to Colonize Mars.

Tue, 12/06/2011 - 08:39 | 1950351 Robslob
Robslob's picture

 

 

"US fiscal tightening" .....hahahahahahahahahahahahashaha.......ZERO RISK

Tue, 12/06/2011 - 09:30 | 1950468 LongSoupLine
LongSoupLine's picture

 

 

Q. What keeps BoA up at night?

 

A. The fact they can't sell their own stock until the next day.

 

 

Tue, 12/06/2011 - 12:14 | 1951016 haskelslocal
haskelslocal's picture

Easing was eased in 2011 simply to wean society off the moral hazard of endless relief. As the plan has been, the spickets will be pumped full bore 2012 leading to a guranteed election year pubicity blitz.

Fri, 03/30/2012 - 01:20 | 2302772 ricky123
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