Bank of America

The massive consolidation of wealth, combined with the removal of any limits on money in campaigns, has allowed for the purchase of our government. Americans know that something is wrong, deeply wrong. They see signs of the problem everywhere: income inequality, growing concentration and power of mega corporations, political donations/corruption, the absence of jobs with decent salaries, the explosion of the US prison population, healthcare costs, student loan debt, homelessness, etc. etc. However, the true causes and benefactors behind these problems are purposely hidden from view. What Americans see is Kabuki Theater of a functioning form of capitalism and democracy, but beyond this veneer our country has devolved into the exact opposite.

Remember when the "thesis" for Q2 growth was that just because Q1 was so horrible, Q2 will have to bounce back? Well, oops.

• At least 74 dead in crashes similar to those GM linked to faulty switches (Reuters)
• Obama Calls for $1 Billion Europe Security Fund; Will Increase U.S. Military Presence in Eastern Europe (WSJ)
• Euro Inflation Slowing More Than Forecast Pressures ECB (BBG)
• China accelerates as euro zone stumbles (Reuters)
• Russia says Ukraine situation worsening, submits U.N. resolution (Reuters)
• Secondary Sales Squeeze Investors (WSJ)
• Barclays Said to Start Cutting Jobs in Investment Banking Unit (Bloomberg)
• Backlash Grows on Release of Sgt. Bowe Bergdahl in Taliban Prisoner Swap (WSJ)
• For fallen soldiers' families, Bergdahl release stirs resentment (Reuters)
• PIMCO's Gross stares at record outflow (Reuters)

While we await today's US Manufacturing ISM number (expected to rise from 54.9 to 55.5), here is how some 23 of the world's most important countries fared in May in their manufacturing data. In brief: as the below table shows, out of the 23 countries that have reported so far, 8 reported improvements in their manufacturing sectors in May, while 15, or two-thirds, recorded a weakening in mfg data from April. That's the bad news, and an indication that the latest upswing in the global manufacturing economy may be ending. The good news: despite the modest decline, there were only 7 countries "contracting" or in negative territory (below 50) and 16 in positive. In particular, France, Korea, and Norway moved from expansion to contraction.

With real incomes stagnant and the cost of everything from food, school tuition and healthcare premiums skyrocketing for millions of Americans, it appears that borrowing against one’s home is once again a key source for consumption, if not survival, for the nearly extinct socio-economic demographic known as the middle-class. The Wall Street Journal reported yesterday that home-equity lines of credit (Helocs) had increased at a 8% rate year-over-year in 1Q14...The new American Dream.

• Vietnam, China trade accusations after Vietnamese fishing boat sinks (Reuters)
• SEC Set to Spur Exchange Trading (WSJ)
• Bank of Japan quietly eyes stimulus exit (Reuters)
• Japan Risks Low Growth Even as Easing Spurs Inflation (BBG)
• Hello Japan: Bond Market Message to Fed: Your 4% Rate Outlook Is Too High (BBG)
• Malaysia, UK firm release satellite data on missing MH370 flight (Reuters)
• Fighting rages in eastern Ukraine city, dozens dead (Reuters)
• Bad Credit No Problem as Balance-Sheet Bombs Rally 94%  (BBG)
• Draghi’s Asset-Backed Drive Rouses Academic Skeptics (BBG)
• For-Profit Colleges Face Test From State, Federal Officials (WSJ)

After the crisis, many expected that the blameworthy would be punished or at the least be required to return their ill-gotten gains—but they weren’t, and they didn’t. Many thought that those who were injured would be made whole, but most weren’t. And many hoped that there would be a restoration of the financial safety rules to ensure that industry leaders could no longer gamble the equity of their firms to the point of ruin. This didn’t happen, but it’s not too late. It is useful, then, to identify the persistent myths about the causes of the financial crisis and the resulting Dodd-Frank reform legislation and related implementation...."Plenty of people saw it coming, and said so. The problem wasn’t seeing, it was listening."

Remember the legend of the great rotation? Neither do we. But we do know that a Treasury fund inflow of $3.06 billion, the largest since at least 2010 according to Bank of America, coupled with an equity fund outflow of $7.1 billion, means just one thing: the great unrotation is raging. It does beg one question, however, with equity funds dumping in the past week, just who is actually left BTFATH? (Don't worry, that's rhetorical - we all have Kevin Henry and the HFT crew to thank for the ongoing endless manipulation of the rigged market).

• McDonald’s Workers Arrested at Protest Near Headquarters (BBG)
• U.S. Sends Troops to Chad to Hunt for Abducted Nigeria Girls (BBG)
• BofA Scrapping Market-Making Unit Amid Trading Scrutiny (BBG)
• Biggest attack in years kills 31 in China's troubled Xinjiang (Reuters)
• Intense Fighting Flares in Eastern Ukraine (WSJ)
• Fed Officials Tussle Over Labor Market Slack (Hilsenrath)
• Ikea Economics Lure Central Bankers Seeking New Tools (BBG)
• When Putin ordered up new hospitals, his associates botched the operation (Reuters)
• Norway’s $33 Billion Man Steps Up Search in Asia Real Estate Bet (BBG)

"They are without a doubt the worst organization I have ever dealt with. Keep suing them America! They deserve it!!" is the way one Bank of America client described the bank and the current actions that many of the mortgage banking business are undertaking will not improve the situation. As Reuters reports, many of the 20 million homeowners in America are being held hostage on their mortgage modification process by an extra clause being added to the docs: they could not say or print or post anything negative about the provider, ever. These "gag orders" are becoming more frequent and Consumer law defenders are concerned, ""If your servicer screws up, you can't say anything about it... the homeowner has no defense."

• Eric Holder proves he is no US banker puppet by smashing another foreign bank: BNP Falls as U.S. Probe Said to Cost More Than $5 Billion (BBG)
• Fuld Was Top CEO When Fed Last Raised as New Neutral Era Beckons (BBG)
• Tymoshenko loses her magic in Ukraine presidential race (Reuters)
• GOP Sees Primaries Taming the Tea Party (WSJ)
• Heard that one before: Russian troops preparing to leave Ukraine border area (Reuters)
• Vietnam riots land another blow on the global supply chain (FT)
• Heard that one before too: Bank of England minutes show some members closer to voting for rate rise (Reuters)
• BOJ Refrains From Easing With Signs Japan Weathering Tax Rise (BBG)
• Miner Freeport Pressured by Water Costs as Copper Prices Slide (WSJ)
• Talks to end Thai crisis inconclusive, new round called (Reuters)
• Japan Court Blocks Reactor Restarts (WSJ)

Despite the plethora of talking heads proclaiming credit markets as awesomely supportive of stocks - High-Yield bond spreads are flashing red... But that's not stopping investors piling into the worst of the worst. As Liberty Blitzkrieg's Mike Krieger notes, in an all too reminiscent scene from 2007 (MBIA CDS traded 11bps at one point then remember), investors have been buying up bonds with a triple-C-rating en masse.

Just as the Fed started the Taper large banks began ramping up their U.S. Treasury holdings.

China's or the UK's?

It was only in March when the Fed revealed its latest downward revision to 2014 GDP growth, when it announced (in the same report as the infamous "dots") that its GDP forecast "central tendency" was reduced from 2.8-3.2% to 2.8-3.0%. This was when the world was still expecting a Q1 GDP somewhere around 1.5%-2.0% (when the full severity of snow in the winter wasn't yet apparent), instead of the current consensus forecast around -0.6%. Which, when combined with the current Q2 GDP tracking forecast somewhere around 3.5%, means that for the Fed's projection to be accurate, second half growth will have to average between 4.2% and 4.6%! Said otherwise, at its June 18 meeting expect the Fed - whose forecasting record is absolutely abysmal - to "significantly" lower its GDP forecast. Because what bonds really needed was another buying catalyst...