Barack Obama is funding the anti-Trump movement through a series of backdoor deals and policies. Wall Street may be surprised to learn that it is also helping bankroll the anti-Trump ‘resistance’ whether they wanted to or not. Wall Street is fighting policies which would heavily favor it, including corporate tax cuts and the repeal of Obama-era banking and health-care regulations. We have the Obama administration to thank for the harsh anti-Trump movement by far left groups, according to an article by the New York Post. The Obama administration’s massive shakedown of Big Banks over the mortgage crisis included unprecedented back-door funding for dozens of Democratic activist groups who were not even victims of the crisis. At least three liberal nonprofit organizations the Justice Department approved to receive funds from multibillion-dollar mortgage settlements were instrumental in killing the ObamaCare repeal bill and are now lobbying against GOP tax reform, as well as efforts to rein in illegal immigration. An estimated $640 million has been diverted into what critics say is an improper, if not unconstitutional, ‘slush fund’ fed from government settlements with JPMorgan Chase and Co., Citigroup Inc. and Bank of America Corp., according to congressional sources. The payola is potentially earmarked for third-party interest groups approved by the Justice Department and HUD without requiring any proof of how the funds will be spent. Many of the recipients so far are radical leftist organizations who solicited the settlement cash from the administration even though they were not parties to the lawsuits, records show. ‘During the Obama administration, groups committed to ‘revolutionary social change’ sent proposals and met with high-level HUD and Justice Department officials to try to get their pieces of the settlement pie,’ Cause of Action Institute vice president Julie Smith told The Post. -New York Post
This post was published at shtfplan on September 25th, 2017.
Following on the story of how aggressive cross-selling requirements spurred employees to abuse customers and commit fraud at Wells Fargo, this week the Massachusetts Secretary of the Commonwealth William Galvin accused Morgan Stanley of ‘dishonest and unethical conduct’ within the state and Rhode Island relating to employee contests that were run to push securities-based loans onto customers from January 2014 to April 2015. See Morgan Stanley unit accused of high pressure sales tactics: ‘This complaint lays bare the culture at Morgan Stanley that bred the high-pressure effort to cross-sell banking products to its brokerage customers without regard for the fiduciary duty owed to the investor,’ Galvin said in a statement. ‘This contest was relatively local, but the aggressive push to cross-sell was company wide.’ There should be no shock in any of this. Anyone who has dealt with an investment bank the past few years will have experienced cross-selling first hand. Employees are trained to recommend customers with any apparent resources (assets or income) to one of the bank’s army of ‘advisors’. Cross-selling is the business model of today’s finance sector. It has been the motivation for merging different product and advisory firms since the 1990′s when Glass Steagall (1933) divisions between deposit taking and product sales were eroded and then rescinded in 1999. This chart shows the massive consolidation since 1995 which has created the 4 largest US banks today: Citi, JP Morgan, Bank of America and Wells Fargo.
Possibly the defining business trend coming out of the financial crisis has been a ‘startup boom.’ Everyone is building an app or starting their own business it seems. This image, however, may be just an illusion, according to Michelle Meyer, US economist at Bank of America Merrill Lynch. Both the formation of firms (for example, McDonald’s as a whole) and establishments (an individual McDonald’s restaurant), have dropped off precipitously since the financial crisis and remained low. This is important, according to Meyer, because new businesses typically hire faster and produce higher levels of productivity than firms that have been around for a while. Thus the decline in business formation can explain some of the labor market’s postrecession problems, and is at least part of the reason for the steep drop in productivity. Additionally, Meyer says, it can end up affecting the nation’s gross domestic product. Here’s Meyer (emphasis added):
Japan’s biggest banks are running out of room to sell their government bond holdings, pushing the central bank closer to the limits of its record monetary easing. Japan Post Bank Co. and the nation’s three so-called megabanks have almost halved their sovereign bond holdings to 114 trillion yen ($1.1 trillion) since March 2013, the month before the Bank of Japan began buying the securities on an unprecedented scale to end deflation. Government notes held by Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. are approaching the level where further reductions would involve securities they need as collateral. ‘Banks are the first port of call’ as the BOJ seeks to boost its JGB holdings by 80 trillion yen annually, said Shuichi Ohsaki, the chief rates strategist at Bank of America Merrill Lynch in Tokyo. ‘But they’re losing capacity to cut beyond those that are reaching maturity.’ Finding willing sellers is a headache for Governor Haruhiko Kuroda as the central bank prepares to review policy at next month’s board meeting, amid growing concern among economists that he has few tools left to revive the economy. Record bond buying has already saddled the BOJ with more than a third of outstanding sovereign notes, draining liquidity from the market and making it more volatile.
The stock market went haywire about a year ago. The Dow crashed more than 1,000 points, the S&P 500 was down 120 points, and the Nasdaq was down 393 points shortly after the market open on August 24. And for a time, the blame for the sudden and unexplained move was a group of funds called risk parity fund. Risk parity funds build portfolios around risks: They target a certain exposure to volatility, rather than, say, equities or bonds. That means that when volatility spikes, they sell automatically and indiscriminately. That’s why they were in the spotlight back in August 2015. The complaint was that the sudden rise in the stock-market volatility forced them to sell, increasing volatility further. Well, everyone should be paying close attention to these funds again, according to Bank of America Merrill Lynch. The equity derivatives strategy team at the US bank put out a note on August 9 that is full of technical language, but boils down to this: There are risks building up in the risk parity world. From the note:
It’s getting harder for corporate debt investors to avoid the volume of negative yielding bonds that are now pouring into credit markets. Investors are holding about 465 billion euros ($512 billion) of investment-grade company bonds with yields below zero, an eleven-fold increase on the start of the year, according to Bank of America Merrill Lynch data. While this means they’re effectively paying for the luxury of holding the debt, that’s still better than buying into the safest government bonds, where yields are even lower. The dilemma facing investors is down to the European Central Bank’s asset-purchase stimulus program that’s pushed yields so low that buying some government bonds guarantees a loss. With the ECB setting deposit rates even deeper into negative territory, parking money there is a less viable alternative. Even though some short-dated indexes show corporate debt yields have dipped below or are approaching zero, the securities remain relatively attractive. ‘Investors are going into these assets more because of capitulation,’ said Geraud Charpin, a portfolio manager at BlueBay Asset Management LLP in London, which oversees about $58 billion. They’re buying ‘because cash is too expensive to hold in most European jurisdictions, rather than because they genuinely like the asset and are genuinely increasing their appetite for risk.’
Despite the post-Brexit market rally, fund managers have gotten even more wary of taking risks. The S&P 500 has jumped about 8.5 percent since the lows hit in the days after Britain’s move to leave the European Union, but that hasn’t assuaged professional investors. Cash levels are now at 5.8 percent of portfolios, up a notch from June and at the highest levels since November 2001, according to the latest Bank of America Merrill Lynch Fund Manager Survey. In addition to putting money under the mattress, investors also are looking for protection, with equity hedging at its highest level in the survey’s history. Tail risk hedging
Most of what passes for modern monetary policy is nothing more than one assumption piled upon another (and then another, and so on). Taken for granted for so long, rarely are these unproven precepts ever challenged to justify themselves to the minimal standard of internal consistency, let alone prove discrete validity by parts. The latest is ‘helicopter money’, another sham in a long line of them proffered by at least one central bank today because it knows, as the others, nothing they have done has worked. The fact that the world is even discussing the helicopter option should instill great skepticism as a first impulse, not more rabid faith. The way this latest scheme is being described is exactly the same as quantitative easing was really not that long ago. Clearly the expectation for it is rising, as Bloombergreported today that, ‘Nearly one-third of clients and colleagues surveyed by Citigroup Inc. think that so-called helicopter money could be on its way within a fortnight.’ Forty-three percent in the same survey believed that the ‘market’ was expecting it. To do what? That is the question that is never asked because it is just accepted by economists and their media that the helicopter, as QE, will perform as designed even though the last almost decade has proven beyond doubt that never happens. Separately, Bank of America Merrill Lynch Chief Investment Strategist Michael Hartnett opined that helicopter money would be the best option to bring money into risk assets, a common goal of monetary stimulus, particularly of the unconventional variety. Stocks are at record highs, and had made them regularly following QE3. And it didn’t have any impact on the economy whatsoever. The most charitable supposition is that it might have been worse (jobs saved rather than created) had stocks more accurately reflected even earnings rather than unhinged forward versions of them. Even that is dubious, because the entire idea of monetarism is nothing more than assumptions never before tested in the real world. QE sounded nearly fool-proof in the laboratories of Ivy League universities; put into action it has left many pining instead for something else.
Corporate Canada is nursing a monumental junk-debt hangover that’s unlikely to let up until the end of the year. Driven by energy and mining industries that leveraged up during the commodity boom, Canadian companies have racked up a record of at least $69.6 billion of high-yield debt, including $61.3 billion of U. S. dollar-denominated bonds, according to Bank of America Merrill Lynch data. That’s a 133 percent increase from five years ago, according to Bloomberg calculations. While some commodity prices have rebounded into a bull market, they’re still well off their peaks and issuers are expected to be cautious as they continue to repair their balance sheets and gird for less buoyant times ahead. Canadian high-yield issuance in the U. S. market has totaled just $3.55 billion this year, down 56 percent from last year, and down from a peak of $10.1 billion over the same period in 2014, according to data compiled by Bloomberg. ‘Issuance dropped off as we’ve gone through this slowdown in commodity pricing, both on the oil-and-gas side and on the mining side,’ Glenn Gibson, global head of credit capital markets at Toronto-Dominion Bank’s TD Securities unit, said by phone from New York. ‘There is a pent-up issuance opportunity that we probably are going to see in the back-end of 2016 or certainly into 2017.’
Saudi Arabia faces a vicious liquidity squeeze as capital continues to leak out the country, with a sharp contraction of the money supply and mounting stress in the banking system. Three-month interbank offered rates in Riyadh have suddenly begun to spiral upwards, reaching the highest since the Lehman crisis in 2008. Reports that the Saudi government is to pay contractors with tradable IOUs show how acute the situation is becoming. The debt-crippled bin Laden group is laying off 50,000 construction workers as austerity bites in earnest. Societe Generale’s currency team has advised clients to short the Saudi riyal, betting that the country will be forced to ditch its long-standing dollar peg, a move that could set off a cut-throat battle for global share in the oil markets. Francisco Blanch, from Bank of America, said a rupture of the peg is this year’s number one ‘black swan event’ and would cause oil prices to collapse to $25 a barrel. Saudi Arabia’s foreign reserves are still falling by $10bn (6.9bn) a month, despite a switch to bond sales and syndicated loans to help plug the huge budget deficit.
Bond investors are taking bigger risks than ever before. Yields on $7.8 trillion of government bonds have been driven below zero by worries over global growth, meaning money managers looking for income are pouring into debt with maturities of as long as 100 years. Central banks’ policy is exacerbating matters, as the unprecedented debt purchases to spur their economies have soaked up supply and left would-be buyers with few options. While demand has shown few signs of abating, investors are setting themselves up for damaging losses if average yields rise even a little from their rock-bottom levels. Based on a metric called duration, a half-percentage point increase would result in a loss of about $1.6 trillion in the global bond market, according to calculations based on data compiled by Bank of America Corp. This year alone, the danger of owning debt has surged by the most since 2010, raising concerns from heavyweights such as Bill Gross. It’s also left some of the world’s biggest bond funds, including BlackRock Inc. and Allianz Global Investors, at odds over the benefits of buying longer-dated bonds.
Are stocks, on the whole, too expensive or too cheap? There are about as many ways to answer that question as there are investors in the market. But based on one particular measure of market valuation, theS&P 500 is overvalued by 72 percent. That measure would be the comparison between the S&P’s total market capitalization (that is, the value of all the shares of the companies in the S&P) and the U. S. gross domestic product (which measures the value of the economic activity that has occurred within America’s borders within a certain time period). Going back to 1964, the S&P 500′s market cap has been 57 percent of annual US GDP on average. If one excludes the tech bubble, that number falls to 53 percent. As of the end of March, however, the stocks contained within the S&P are collectively worth 99 percent of GDP, more than 70 percent above the average level. Bank of America Merrill Lynch’s equity and quant strategy team, which presented the above numbers in a report Thursday, noted that the S&P/GDP is just one of a bevy of metrics suggesting that ‘the market is expensive vs. history.’ They show that other, better-known indicators such as the S&P’s forward price-to-earnings ratio also suggest overvaluation, albeit to a lesser extent.
When the next corporate default wave comes, it could hurt investors more than they expect. Losses on bonds from defaulted companies are likely to be higher than in previous cycles, because U. S. issuers have more debt relative to their assets, according to Bank of America Corp. strategists. Those high levels of borrowings mean that if a company liquidates, the proceeds have to cover more liabilities. ‘We’ve had more corporate debt than ever, and more leverage than ever, which increases the potential for greater pain,’ said Edwin Tai, a senior portfolio manager for distressed investments at Newfleet Asset Management. Loss rates have already been rising. The potential for them to climb further may mean that in general junk bonds are not compensating investors enough for the risk they are taking, said Michael Contopoulos, high yield credit strategist at Bank of America Merrill Lynch. The average yield on a U. S. junk bond is now around 8.45 percent, according to Bank of America Merrill Lynch indexes, about the mean of the last 10 years. In bad times, corporate bond investors on average lose about 70 cents on the dollar when a borrower goes bust. In this cycle, that figure could be closer to the mid-80s, Bank of America strategists said. Those losses would be the worst in decades, according to UBS Group AG’s analysis of data from Moody’s Investors Service.
Under the auspices of “protecting clients from criminal activity,” JPMorgan Chase has decided to impose capital controls on . As WSJ reports, following the bank’s ATM modification to enable $100-bills to be dispensed with no limit, some customers started pulling out tens of thousands of dollars at a time. This apparent bank run has prompted Jamie Dimon to cap ATM withdrawals at $1,000 per card daily for non-customers. Most large U. S. banks, including Chase, Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. have been rolling out new ATMs, sometimes known as eATMs, which perform more services akin to tellers. That includes allowing customers to withdraw different dollar denominations than the usual $20, typically ranging from $1 to $100. The efforts run counter to recent calls to phase out large bills such as the $100 bill or the 500 note ($569) to discourage corruption while putting up hurdles for tax evaders, terrorists, drug dealers and human traffickers.
This post was published at Zero Hedge on 04/04/2016.
The S&P 500 may have surged 10 percent since its Feb. 11 low, but a Bank of America-Merrill Lynch strategist is warning the bounce is on very shaky ground. Publicly traded companies have seen negative earnings growth two quarters in a row and there are no fundamental underpinnings for the rally, Savita Subramanian, BofAML’s head of U. S. equity and quantitative strategy, said on CNBC’s ‘Fast Money’ this week. ‘We are in a profits recession. There (are) no two ways around it,’ said Subramanian, whose S&P 500 price target of 2,000 is among the lowest on Wall Street. She is also concerned about how Federal Reserve monetary policy could affect stocks. ‘You have the Fed embarking on a long, slow tightening cycle. Tightening into a profits recession doesn’t sound like anything to throw a big party about,’ she said. The result? Widening credit spreads and the capital markets basically shutting down, Subramanian said.
The ailments afflicting Turkey’s economy that have triggered a surge in bad loans look poised to get worse before they get better. Non-performing loans at the nation’s lenders climbed to 3.18 percent of total credit in January, the sixth straight monthly increase and the highest proportion in almost five years, according to data this week from the Ankara-based Banking Regulation and Supervision Agency. Bank of America Merrill Lynch and Commerzbank AG said in February corporate distress is deepening in Turkey, making it harder for companies to pay down debts.
Yesterday we reported that the ECB has begun contemplating the death of the 500 EURO note, a fate which is now virtually assured for the one banknote which not only makes up 30% of the total European paper currency in circulation by value, but provides the best, most cost-efficient alternative (in terms of sheer bulk and storage costs) to Europe’s tax on money known as NIRP. *** That also explains why Mario Draghi is so intent on eradicating it first, then the 200 bill, then the 100 bill, and so on. We also noted that according to a Bank of America analysis, the scrapping of the largest denominated European note “would be negative for the currency”, to which we said that BofA is right, unless of course, in this global race to the bottom, first the SNB “scraps” the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard “scholar” and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would “deter tax evasion, financial crime, terrorism and corruption.”
This post was published at Zero Hedge on 02/16/2016.
A group of hedge funds, convinced they have found the next Big Short, are looking to bet against bonds backed by subprime auto loans. Good luck finding a bank willing to do the trade. Subprime Loans Money managers have looked at betting that subprime auto securities will tank for many of the same reasons that investors wagered against risky mortgage bonds in the run-up to the financial crisis: Loan volume has mushroomed in the last few years, lending terms have become looser and delinquencies are ticking higher. Mary Kane, an asset-backed securities analyst at Citigroup Inc., wrote in a note late last month that the bank has received ‘an explosion of calls’ in recent weeks, after the movie ‘The Big Short’ portrayed a group of traders that profited from the collapse of subprime home loans. The demand now is coming from hedge funds that trade everything from stocks to bonds, analysts said. But many banks, including Bank of America Corp. and Morgan Stanley, are not interested in making the bet happen for clients, according to representatives of the firms. Some said they fear that helping clients wager against car loans would be bad for their reputation, and that new capital rules and other post-crisis regulations would make the transactions difficult or even impossible to put together. ‘Most trading desks just don’t take that kind of risk now,’ said Mike Edman, a former Morgan Stanley executive who helped invent credit derivatives that helped Wall Street banks bet against subprime mortgage bonds.
Starting last July, the share prices of the biggest banks on Wall Street have been on a steady downward trajectory. That trend heated up yesterday with Citigroup and Bank of America both dropping over 6 percent by the close of trading. Goldman Sachs and Morgan Stanley were down by over 4 percent. All four of the banks set new 12-month lows in intraday trading. A strong argument can be made that much of the public’s lack of confidence in these complex banking and gambling behemoths is a result of the dark curtain that has been drawn around their operations. Evidence is piling up that government regulators of Wall Street no longer see themselves as the protectors of the people but as the protectors of Wall Street’s secrets. The American historian, Henry Steele Commager, once wrote that ‘The generation that made the nation thought secrecy in government one of the instruments of old world tyranny and committed itself to the principle that a democracy cannot function unless people are permitted to know what their government is up to.’ In that vein, on his very first day in office, January 21, 2009, as the U. S. economy was in tatters from the greatest era of Wall Street corruption in the history of the nation, President Obama promised the American people a new era of transparency. Two months later, under the President’s orders, the U. S. Attorney General’s office issued detailed guidelines on how government agencies were to respond to public and press requests for documents under the Freedom of Information Act (FOIA). We’ve been living in a dark hole ever since when it comes to Wall Street. Yesterday, we reported on the Federal Reserve defying a Congressional subpoena over a Federal Reserve leak of market-moving information to a company whose business model involves sniffing out tidbits of information from government sources and selling it to hedge funds and Wall Street banks. The Fed has stonewalled this House committee for a year.
The 2016 financial stock rout worsened Tuesday as the country’s biggest investment banks plunged almost 5 percent amid a gathering storm of economic and financial threats. Goldman Sachs Group Inc. sank the most since November 2012 to lead the Dow Jones Industrial Average to a 295-point loss, while Citigroup Inc., Bank of America Corp. and Morgan Stanley slid 4.7 percent or more. The KBW Bank Index declined 3.2 percent to extend its bear-market plunge since July to 23 percent. Tuesday’s losses worsened the second-biggest share decline to start a year in two decades for American financial stocks and followed similar losses in Europe after.