Bank of America

Bank of America

Little Excitement Following NASDARK Day

It was a quiet overnight session, in which the Nikkei was catching up to USDJPY weakness from the past two days, while China dipped once more despite the NDRC's chief economist stating China may cut RRR or conduct more reverse repos in H2 to maintain stable credit as loan growth slows down (or in other words things go back to normal). In Europe ECB's Nowotny decided to undo some of Draghi's recent work when he said that "good economic news" removes the need for a rate cut which in turn pushed the EURUSD higher (and European exports lower), even as former Cyprus central bank Orphanides said the Euro crisis may flare up after the German elections. In the UK Q2 GDP came in slightly stronger than expected at 0.7% vs 0.6% Exp. letting the GBP outperform since a need for the BOE to ease, at least in the short run, is becoming less pertinent. In amusing news, Moody’s late yesterday put six largest U.S. banks on review as it considers the effect of evolving bank resolution policies under Dodd-Frank and international regulations. As such GS, JPM, MS and WFC may be cut.

Bank Of Amerca Downgrades JCP Unsecured Notes On Dimishing Liquidity

While we recognize that JCPenney currently has adequate liquidity, we anticipate that this liquidity will diminish in FY14. We estimate that JCPenney will produce negative free cash flow of $399 million during 2H13 and produce negative free cash flow of $394 million in FY14. We believe that the company still has potential options to increase its liquidity, including selling equity or modest  sale/leasebacks. We believe that liquidity of $1.5 billion at year end is sufficient, but leaves little room for error in a turn-around. Therefore, we are reducing our rating on all JCP Sr Unsecured Notes to UW-70%.

Frontrunning: August 21

  • Obamacare, tepid U.S. growth fuel part-time hiring (Reuters)
  • Cameron was behind UK attempt to halt Snowden reports (Reuters), Britain defends detention of journalist's partner (Reuters)
  • Goldman Options Error Shows Peril Persists One Year After Knight (BBG)
  • China expresses 'shock' as Japan's nuclear crisis deepens  (Reuters)
  • Inquiry into China insurance firm rattles industry (Caixin)
  • Cheaper rivals eat into Apple’s China tablet share (FT)
  • Exporting fast food: Subway Targets Europe With as Many as 1,000 New Outlets in 2014 (BBG)
  • Reserve Bank of India boosts liquidity to ease pressure on banks (FT)
  • Justice Department Plans New Crisis-Related Cases (WSJ) - Holder doing his cutest attempt to pretend the TBTProsecute aren't
  • Syrian Opposition Alleges Gas Attack, Which Government Denies (WSJ)

Guest Post: What Is Going To Happen If Interest Rates Continue To Rise Rapidly?

If you want to track how close we are to the next financial collapse, there is one number that you need to be watching above all others.  The number that we are talking about is the yield on 10 year U.S. Treasuries, because it affects thousands of other interest rates in our financial system.  When the yield on 10 year U.S. Treasuries goes up, that is bad for the U.S. economy because it pushes long-term interest rates up.  When interest rates rise, it constricts the flow of credit, and a healthy flow of credit is absolutely essential to the debt-based system that we live in. 

10 Year Bond Shakedown Continues: Rate Hits 2.873%

It's all about rates this largely newsless morning, which have continued their march wider all night, and moments ago rose to 2.873% - a fresh 2 year wide and meaning that neither Gross, nor the bond market, is nowhere near tweeted out. As DB confirms, US treasuries are front and center of mind at the moment.... the 10yr UST yield is up another 4bp at a fresh two year high of 2.87% in Tokyo trading, adding to last week’s 20bp selloff. As it currently stands, 10yr yields are up by more than 120bp from the YTD lows in early May and more than 80bp higher since Bernanke’s now infamous JEC testimony. We should also note that the recent US rates selloff has been accompanied by a rapid steepening in the rate curve. Indeed, the 2s/10s curve is at a 2 year high of 250bp and the 2s/30s and 2s/5s are also at close to their highest level in two years.

Bill Black On The DoJ's Seven Biggest 'Fails' In The BofA Lawsuit

The Department of Justice’s (DOJ) latest civil suit against Bank of America (B of A) is an embarrassment of tragic proportions on multiple dimensions. We're "only" going to explore seven of its epic fails here.  The two most obvious fails (except to most of the media, which failed to mention either) are that the DOJ has once again refused to prosecute either the elite bankers or bank that committed what the DOJ describes as massive frauds and that the DOJ has refused to bring even a civil suit against the senior officers of the banks despite filing a complaint that alleges facts showing that those officers committed multiple felonies that made them wealthy by causing massive harm to others.  Those two fails should have been the lead in every article about the civil suit. There are many more...

Stock Market Bubbles And Record Margin Debt: A (Repeating) History Of Ignoring All Warnings

It is well-known that as part of the S&P500's ascent to new records, investor margin debt has also surged to all time highs, surpassing for the past three months previous records set during both prior, the dot com and the housing, stock market bubbles. And as more attention has shifted to the topic of speculator leverage once more, inquiries into the correlation between bets upon bets and stock performance are popping up once more, in this case in a study by Deutsche Bank titled "Red Flag! - The curious case of NYSE margin debt." Of particular note here is a historical comparison of margin-debt warnings that have recurred throughout history but especially just before major stock bubble crashes, such as in the period 1999/2000, 2007/2008 and of course today, which have time and again been ignored. Here is what was said then, what is being said now, and what is ignored always.

Fake Chinese Trade Data Pushes Fake US Futures Higher

Overnight, just as Japan was threatening to roll risk over even more (at the end of the day, or rather night, it did, sliding over 200 point bringing the two day total plunge to nearly 800 points) China reported trade numbers which were "better than expected" even though the net GDP contribution from the overall surplus was actually less than expected at $17.8 vs $27.1, which in turn pushed US futures solidly into the green. Ironically, while the China data was enough to give the US a solid green momentum it was not enough to give the China market a green close. Recall that this is the same data that forced Goldman to admit in January that "China is cooking the books"... the same data that prompted a Bank of America report analyzing the Chinese data to say the following: "One important question in investors' mind is whether we can trust the quality of these trade statistics because they seemed to be significantly distorted between October 2012 and April 2013.... we believe the quality of trade data was improved a lot. Using our adjustment method for fake trade..." Of course BofA "believes it", and it is only fitting: fake Chinese trade data to push the fake US stock market higher.

Frontrunning: August 7

  • Libor Settlements Said to Ease CFTC’s Path in Rate-Swaps Probe (BBG)
  • Manhattan Homes Under $3 Million Never Harder to Buy (BBG)
  • Just two years late: Abe Pledges Government Help to Stem Fukushima Water Leaks (BBG)
  • Chesapeake drops energy leases in fracking-shy New York (Reuters)
  • Hedge Fund Magnetar Won't Face Charges Tied to Mortgages (WSJ)
  • U.S. envoy leaves Cairo after talks declared over (Reuters)
  • Credit-Crisis Oracle Rajan to Head India’s Central Bank (BBG)
  • Bank of England Changes Policy Tack (WSJ)

Obama Victory Lap On Housing "Recovery" Speech - Live Webcast

Ready to unveil his cunning plan for getting the GSE monkey off his back, President Obama is in Phoenix, Arizona today to discuss "restoring security to homeownership." Ironic really that he is giving this speech in the epicenter of the new bubble in housing (Phoenix home prices +23% YoY) as he offers up a "better bargain for the middle class" which seems to mean a 'promise' that home prices will never fall again. Moar intervention, moar unintended consequences of capital mis-allocation, and moar un-affordability for the average middle-class person in Arizona now the bubble is reblown. Grab the popcorn, this will be good - as Obama explains the upside for private investors to take on that first loss piece of the mortgage market (in a rising rate environment with home prices bubbling).

Frontrunning: August 6

  • Washington Post Company Chairman and CEO Donald Graham talks about the sale, what it means for the future of The Post (WaPo)
  • Private-equity firms are adding debt to companies they own to fund payouts to themselves at a record pace (WSJ)
  • U.S., U.K. Urge Citizens to Leave Yemen (WSJ)
  • India Names Rajan Central Bank Governor as Rupee Plunges (BBG)
  • Family Offices Chasing Wealthy’s $46 Trillion in Assets (BBG)
  • UK 'bad bank' repays $2.9 billion to taxpayers in first half (Reuters)
  • Sony rebuffs Daniel Loeb’s push for entertainment spin-off (FT)
  • Public Pensions Up 12% Get Most in 2 Years as Stocks Soar (BBG)
  • Hidden Billionaire Found With Food Fortune in California (BBG)
  • Fonterra under fire over milk scare; more product recalls (Reuters)
  • Crédit Agricole Profit Rises After Greek  (WSJ)

Guest Post: Trying To Stay Sane In An Insane World - Part 2

This insane world was created through decades of bad decisions, believing in false prophets, choosing current consumption over sustainable long-term savings based growth, electing corruptible men who promised voters entitlements that were mathematically impossible to deliver, the disintegration of a sense of civic and community obligation and a gradual degradation of the national intelligence and character. There is a common denominator in all the bubbles created over the last century – Wall Street bankers and their puppets at the Federal Reserve. Fractional reserve banking, control of a fiat currency by a privately owned central bank, and an economy dependent upon ever increasing levels of debt are nothing more than ingredients of a Ponzi scheme that will ultimately implode and destroy the worldwide financial system. Since 1913 we have been enduring the largest fraud and embezzlement scheme in world history, but the law of diminishing returns is revealing the plot and illuminating the culprits. Bernanke and his cronies have proven themselves to be highly educated one trick pony protectors of the status quo. Bernanke will eventually roll craps. When he does, the collapse will be epic and 2008 will seem like a walk in the park.