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If yesterday it was JPM's turn to shock and awe everyone with its adoption of FVA and impress with its non-GAAP revenues, today it is the turn of Bank of America to confuse everyone with its traditionally indecipherable earnings release. So here is the punchline. BAC reported revenues of $21.7 billion which beat expectations of $21.14 billion, although more importantly EPS of $0.29 vs expectations of $0.27. So how did BAC generate the better than expected top and bottom line? Simple - the top line beat was driven by the bank's return to an aggressive extraction of non-income income from loan-loss reserve releases, which in the current quarter rose to $1.246 billion, up from $900 million a year ago. Considering the Bank had non-GAAP pretax income of $3.8 billion, this amount to just about a third of its earnings. Additionally, the company paid only $406 million in reported taxes on pretax income of $3.845 billion, or a 10.6% effective tax rate. How does this compare to the historic average of 25%? Obviously, it's much lower.  In fact, if BAC had used its historic tax rate of 25%, the EPS "beat" of $0.29 would have become a $0.25 miss. But all is fair in sellside analyst love and making up non-GAAP numbers.

These names can fall farther than investors ever think once the downside momentum kicks in......

What's not to "Like"?

Moments ago shots were fired when a (French) bank broke the unspoken Omerta code among sellside bankers: it downgraded another bank in a time when the S&P is just shy its all time highs (downgrading banks when the market is tumbling is usually a-ok). The note came from SocGen's Andrew Lim, whse thesis is rather simple: "Valuation too expensive in light of regulatory and revenue challenges."

Are current underwriting practices overly stringent? Yes and no. With the exception of the sub-prime era, underwriting has never been easier. At the same time, it has never been more difficult for many qualified borrowers to get a loan. This strange phenomenon is among the unintended consequences of ill-guided public policies. 

When risk vanishes, so does creativity.

We leave it to everyone's supreme amusement to enjoy the Maestro's full non-mea culpa essay, but we will highlight Greenspan's two most amusing incosistencies contained in the span of a few hundred words. On one hand the former Chairman admits that "The financial crisis [...] represented an existential crisis for economic forecasting. The conventional method of predicting macroeconomic developments -- econometric modeling, the roots of which lie in the work of John Maynard Keynes -- had failed when it was needed most, much to the chagrin of economists." On the other, his solution is to do... more of the same: "if economists better integrate animal spirits into our models, we can improve our forecasting accuracy. Economic models should, when possible, measure and forecast systematic human behavior and the tendencies of corporate culture.... Forecasters may never approach the fantasy success of the Oracle of Delphi or Nostradamus, but we can surely improve on the discouraging performance of the past." So, Greenspan's solution to the failure of linear models is to... model animal spirits, or said otherwise human irrationality. Brilliant.

"We are deeply sorry for this whole affair," said Wal-Mart's China president after the world's largest retailer recalled donkey meat sold at some outlets in China after tests showed the product contained the DNA of other animals - including fox. "It is a deep lesson (for us) that we need to continue to increase investment in supplier management," repeat-offender Wal-Mart added as Reuters reports the tainted "five-spice" donkey meat may mean "wealthy shoppers will start to lose the trust [in Wal-Mart's brand] they had before." Donkey meat is a popular snack in some areas of China, but as one bemused customer noted, oddly, "Isn't fox meat more expensive than donkey meat anyway?"

The unelected central planners at the Federal Reserve have decided that the time has come to slightly taper the amount of quantitative easing that it has been doing.  When this news came out, it sent shockwaves through financial markets all over the planet.  But the truth is that not that much has really changed.  The Federal Reserve will still be recklessly creating gigantic mountains of new money out of thin air and massively intervening in the financial marketplace.  It will just be slightly less than before.  However, this very well could represent a very important psychological turning point for investors.  It is a signal that "the party is starting to end" and that the great bull market of the past four years is drawing to a close.  So what is all of this going to mean for average Americans?  The following are 8 ways that "the taper" is going to affect you and your family...

Two years ago, the CME announced USD/CNH futures trading enabling speculation (and hedging or risk transfer) of offshore Chinese Renminbi and the writing on the wall of the dollar's demise grew clearer. On the other side of the world this week, a couple of gentlemen that few people have ever heard of signed an agreement that has massive consequences for the global financial system. It was a Memorandum of Understanding signed by representatives of the Singapore Exchange and Hong Kong Exchange. Their aim – to combine their forces in rolling out more financial products denominated in Chinese renminbi. This is huge...

"Twas the Friday before the Friday before Christmas..." and as the year end rapidly approaches the mainstream consensus is that 2014 will be another bouyant year for the stock market despite the impact of a potential Federal Reserve tapering.  The optimistic view is an easy one.  While it isn't popular, or fun, to look at the non-bullish view it is nonetheless important to consider the risks that could potentially lead to a larger than expected loss of investment capital.  There is one simple truth about financial markets and investing:  what goes up must come down.   It is the downside risk that is most damaging to long term investment returns.  Therefore, this week's "Things To Ponder" is a sampling of views and thoughts on what to watch out for as we enter the new year.

• Wall Street Exhales as Volcker Rule Seen Sparing Market-Making (Bloomberg)
• GM to End Manufacturing Down Under, Citing Costs (WSJ)
• U.S. budget deal could usher in new era of cooperation (Reuters)
• Ukraine Police Back Off After Failing to Stop Protest (WSJ)
• First Walmart, now Costco misses (AP)
• Dan Fuss Joins Bill Gross Shunning Long-Term Debt Before Taper (BBG)
• China New Yuan Loans Higher Than Expected (WSJ)
• China bitcoin arbitrage ends as traders work around capital controls (Reuters)
• Blackstone’s Hilton Joins Ranks of Biggest Deal Paydays (BBG)

• Nelson Mandela: 1918-2013 (Reuters)
• South Africans Flock to Nelson Mandela’s Home to Mourn His Death (BBG)
• Hillary Clinton or Joe Biden? Obama says won't choose between them for 2016 (Reuters)
• Fukushima water tanks: leaky and built with illegal labor (Reuters)
• Sears Holdings Files to Spin Off Lands' End Business (WSJ)
• Way cleared for landmark global trade deal (FT)
• U.S. Oil Prices Fall Sharply as Glut Forms on Gulf Coast (WSJ)
• German Factory Orders Decline in Sign of Uneven Recovery (BBG)
• FCC Unlikely to Bless a Comcast-TWC Deal: Regulator (WSJ)

David Woo's earlier discussion of the 'maximum' fair value for Bitcoin, we thought his colleague Ian Gordon's view on the advantages and disadvantages of the virtual currency were worth noting. Woo believes Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers. As a medium of exchange, Bitcoin has clear potential for growth, in his view, but its high volatility, a result of speculative activities, is hindering its general acceptance as a means of payments for on-line commerce...

In every organization, including the Chinese Communist Party, there are forces of movement and forces of order.  The forces of movement have moved into ascendancy in China and this was signaled by establishment of the special economic zone in Shanghai and the program emerging from recent Third Plenary Session.  However, the uncertainty over implementation kept domestic and foreign investors cautious.