Bank of America

The Cop Is On the Take

"Now a legal quirk could bring a surreal ending to... foreclosure cases around the country: [borrowers] may get to keep their homes without ever having to pay another dime."

Regarding the major problem of the more domestic issue of economic recovery, unless we would agree, which we really shouldn’t, that making a small group of the population richer while the much larger rest is made poorer, is how we define ‘recovery’, we have no recovery. But it is still accepted and proclaimed like a gospel: our economies are in recovery. If you take a step back and watch things from a distance, it’s truly too silly to be true, but endless repetition of the same lines, be they true or not, has them accepted as being cast in stone. It’s like selling detergent. Of course it doesn’t hurt that people very much want to believe a recovery is here. The stories we are bombarded with 24/7 under the quite hilarious misnomer ‘News’ have been prepared, pre-cooked and pre-chewed for our smooth and painless digestion, and as such they contain only tiny little flakes of reality. They are designed to make us feel good, not understand the world around us. And, as Scott Minerd says, the economic future for your entire families will look utterly bleak. Because that recovery they talk about? It’s not for you.

- “Bubbles in credit” has jumped as the biggest concern (30%), having been third on the list in January’s survey,
- “Supply” has risen to be the second biggest concern (19%),
- “Geopolitical conflict” is the third biggest concern (14%), but this is down from being the top concern in January’s survey,
- "Deflation in Europe" (the second biggest concern two months ago), is now down in 7th place (just 3%).

"In the long run classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time. In fact, although U.S. equity prices are setting record highs, real median household incomes are 9 percent lower than 1999 highs. The report from Bank of America Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output. The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity."

Ukraine’s American Finance Minister has announced a broad restructuring plan with a wide range of severe haircuts for creditors, and she – well, obviously – wishes to include Russia in the group of creditors who are about to get their heads shaved. Russia sees the world as one in which multiple major powers can govern together. The US sees Russia as a power that must be defeated by any means necessary, and subdued. One of these worldviews must prevail in the end. Perhaps we won’t know which one that will be until the third power, China, raises its voice. What we do know is that Russia will back down only so far, and then it will no more.

Spending cuts for oil-directed drilling have dominated first quarter 2015 energy news but rig counts for shale gas drilling are too high. Investors should pay attention to this growing problem. Bank of America fears sub-$2 gas prices now that winter heating worries are over. Low natural gas prices affect the economics for gas-rich oil production in the Eagle Ford Shale and Permian basin plays as well as for the shale gas plays. Meanwhile, an orgy of over-production is taking place in the Marcellus Shale... Investors should carefully examine why shale gas players have not reduced rig counts more. Continued drilling in the Marcellus will crush natural gas prices further.

As the chart below shows, there very dramatic, and very glaring discrepancy between what BofA started experiencing one year ago (when we first noted it) when it comes to loan creation, and what the Fed represents every Friday in its weekly H.8 statement, has never been greater!

"Proactive central banks figure this out early and fight the inevitable slowdown by implementing QE and weaker currencies. They grab the other guy’s pizza slice. Their asset markets soar.  As Figure 5 shows, 70% of the world’s developed markets have inflation below 0.5% – almost as high as the depths of the 2008 financial crisis. So the USD8.6tn in central bank balance sheet expansion (from the Fed, ECB, BOE, BoJ, and PBoC, which amounts to 130% growth over Dec-07 to now) has been unable to get inflation going." - Bank of America

Following Friday's manic quad-witching melt-up in oil (and everything else), the exuberance (surprise surprise) is fading as fundamental reality is slapped back onto the face of the energy complex by Saudi Arabia. As Reuters reports, Saudi oil minister Ali al Naimi also said the kingdom was now pumping a record high 10 million barrels per day (bpd), and would only cut if non-OPEC countries cut production. The 'supply' weakness in crude has been tempered somewhat by a tumbling USD (EUR surging) for now (and also by news from Sinopec of major capex cuts).

Dear Chairman,
 
I would like one member of the FOMC to take the time to tell the American public the truth about the last seven years and monetary policy...

• Clinton Charity Tapped Foreign Friends (WSJ)
• Dollar Set for Worst Week Since ’13; S&P Futures Rise (BBG)
• Shale Producers Have Found Another Lifeline: Shareholders (BBG)
• BOJ Kuroda says no sign of 'currency war' brewing in world (Reuters)
• Fed Is Pushing and Pulling on Rates Riddle (WSJ
• Brent oil falls towards $54 on OPEC output, Iran (Reuters)
• Iran Talks Stall Over Ending of Sanctions (WSJ)

"The debt borne by the oil and gas sector has increased two and a half times over, from roughly $1 trillion in 2006 to around $2.5 trillion in 2014. As the price of oil is a proxy for the value of the underlying assets that underpin that debt, its recent decline may have caused significant financial strains and induced retrenchment by the sector as a whole. If the adjustment takes the form of increased current or future sales of oil, it may amplify the fall in the oil price.

Between 2007 and 2012, 200 of America’s most politically active corporations spent a combined $5.8 Billion on federal lobbying and campaign contributions. What they gave pales compared to what those same corporations got: $4.4 Trillion in federal business and support. Here is the visual representation of this stunning finding: for every dollar spent on influencing politics, the nation’s most politically active corporations received $760 from the government.

The prospects of a rate hike by the Fed are looking increasingly shaky and downright laughable, not just because the start to 2015 for the US economy has been the worst in "negative surprises" terms since Lehman, or because the Atlanta Fed Q1 real-time GDP forecast is about to go negative (consensus originally expected this print to be 3.5% if not higher), but because the last time this happened, the Fed launched QE2. What is "this"? Bank of America explains.