Bank of America: Flash Crash in 2018, War to Follow

 

In its analysis for the first half of 2018, Bank of America is warning investors of a “flash crash” the likes of 1987, 1994, 1998. And  it warns that the central bank policies that have created the current conditions can’t be reversed, leading to an inevitable war to follow the crash.

In 1987, known as “Black Monday,” global stock markets lost huge portions of their valuations, ranging from 60 percent in New Zealand to 23 percent in the U.S. In 1994, the Great Bond Massacre saw global bond markets collapse, starting in the U.S. and Japan, resulting in treasury rates skyrocketing through the first nine months of the year.

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Deutsche: The Fed Has Created “Universal Basic Income For The Rich” And Now It Can’t Get Out

 

Two weeks after Aleksandar Kocic highlighted the moment in 2012 when the market stopped caring about newsflow and reality, and, in a word “broke” with pervasive complacency setting in regardless of macro uncertainty…

… Deutsche Bank’s post modernist master of stream-of-consciousness narrative is back with a new essay dissecting his favorite topic, the interplay between the Fed and markets, the so-called “umbilical limbo” that connects the two in the form of ultraeasy monetary policy and QE in general, and more importantly, the narrative that the Fed has spun over the past ten years, which while supportive of risk assets, has concurrently resulted in what Kocic calls a “permanent state of exception” from normalcy as a result of the Fed decision to defer the financial crisis indefinitely. Continue reading

Bank of America: “The Most Dangerous Moment For Markets Will Come In 3 Or 4 Months”

 

Two weeks after BofA’s Michael Hartnett previewed (and timed) not only the “Great Fall” of stocks, but also explained that the Fed and global central banks are now in the business of making the “rich poorer“, he is out with a new note which looks at the Fed’s latest U-turn, which has unleashed the latest market buying spree, warning that “further upside in risk assets will create problems later in the year” (for three reasons he lists out), and concludes that “ultimately, we believe the extremely strong performance by equities and bonds in H1 is very unlikely to be repeated in H2.” Hartnett then goes back to his original thesis that the Fed will no longer pursue its primary mandate of pushing stocks (i.e. wealth effect and confidence) higher because it is “now politically unacceptable for the Fed and any other central bank to stoke a bubble on Wall St.”

As a result, “monetary policy will have to tighten to raise volatility, reduce Wall St inflation, and reduce inequality. There are two ways to cure inequality: you can make the poor richer, or you can make the rich poorer. The Fed will reduce its balance sheet in the hope of making Wall St poorer.

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FDIC: Bank of America owes us half a billion dollars

Bank of America is being accused of stiffing the FDIC, the government agency that insures people’s deposits against a bank failure.

The FDIC filed a lawsuit in federal court on Monday demanding that Bank of America pay $542 million it owes to the regulator’s deposit insurance fund.

“Because Bank of America refuses to pay, the FDIC seeks relief from this Court,” the suit in federal court in Washington said. Continue reading

The Fed Sends A Frightening Letter To JPMorgan, Corporate Media Yawns

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Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system.

A rational observer of Wall Street’s serial hubris might have expected some key segments of this letter to make it into the business press. A mere eight years ago the United States experienced a complete meltdown of its financial system, leading to the worst economic collapse since the Great Depression. President Obama and regulators have been assuring us over these intervening eight years that things are under control as a result of the Dodd-Frank financial reform legislation. But according to the letter the Fed and FDIC issued on April 12 to JPMorgan Chase, the country’s largest bank with over $2 trillion in assets and $51 trillion in notional amounts of derivatives, things are decidedly not under control. Continue reading

What Happens When the U.S. Dollar Is No Longer A Hedge Fund Hotel?

Risks for a further squeeze lower for the greenback, says Bank of America.

In the wake of last week’s dovish decision from the Federal Reserve, investors have been throwing in the towel on the U.S. dollar.

But Bank of America Merrill Lynch’s proprietary positioning data suggests there’s still another major shoe to drop for the greenback. In a note to clients, FX Strategists Myria Kyriacou and Athanasios Vamvakidis illustrate that hedge funds’ long position in the U.S. dollar remains substantial relative to the past 12 months and to other investors. Continue reading

The War On Paper Currency Begins: ECB Votes To “Scrap” 500 Euro Bill

Please see the source for all relevant charts and “tweets”.

 

Update: in case there was any doubt about the ECB’s true intentions, we just got the official “denial”:

  • DRAGHI: ANY ECB ACTION ON EU500 NOTE IS NOT ABOUT REDUCING CASH

Translation: the ECB action is only about reducing physical cash, some 30% of it to be specific. Continue reading

Glencore Collapse Could Be Even Worse Than Feared

Editor’s Note: We’re sharing this update on Glencore’s collapse with you because it’s shaping up to be even worse than Michael originally thought. Glencore still poses a “Lehman Brothers”-level risk to the global economy – but it’s now clear the world’s biggest commodities trader is on the hook for hundreds of billions in “shadow debt” that it simply refuses to address. This crisis is one small step away from upending our financial system, so here’s what you need to know…

A lot of powerful voices have joined me in warning about the potential threat that Glencore Plc. (LON: GLEN) poses to global financial markets. Bank of America, for instance, has published a report on the true size of the fallout. As you’ll see in a moment, it’s staggering.

But since we talked about Glencore late last month, something insane has happened: The stock has gone up.

But not for any good reason. The company has not righted the ship. The surge is only due to short-sellers covering their positions. Continue reading

EU Exit Will Now Be “Threat To Those Who Don’t Behave The German Way,” BofA Says

While the Greek “compromise” deal may have averted an outright economic collapse in Greece in the short-term (although one would be hard pressed to describe the current situation on the ground as anything other than a depression) and may for the time being allow EU officials to cling to the notion that the euro is “indissoluble,” the fraught negotiations that took place over the weekend in Brussels laid bare for all to see the unbridgeable gap between EMU nations.

If there were any doubts about who runs the show, German FinMin Wolfgang Schaeuble erased them on Sunday by pushing through a term sheet that effectively strips Greece of its sovereignty on the way to seizing state assets and relegates its people to perpetual debt servitude. If this is the meaning of a currency “union”, it’s not entirely clear why any state would want to be a part of it. Continue reading

China “Crosses Rubicon” With Stock Bailout; BofA Says PBoC Risks “Hurting Its Credibility”

Earlier today in “Panic: China Central Bank Steps In To Bailout Stocks As Underwater Traders Pray For A Rebound,” we noted (without much surprise) that the PBoC has officially taken the plunge. Late on Sunday, the China Securities Regulatory Commission announced that China’s central bank is set to inject capital into China Securities Finance Corp which will in turn use the funds to help brokerages expand their businesses and reinvigorate stocks. Translation: China’s central bank is now underwriting brokers’ margin lending businesses. Continue reading

Bank of America: Markets Are in a ‘Twilight Zone’ and It’s Time to Hold More Cash and Gold

You can’t find a bigger warning of lately than what just came from BoA.

 

In a note sent out this morning, Bank of America Merrill Lynch has a warning for investors:

Investors remain trapped in “The Twilight Zone”, the transition period between the end of QE and the first rate hike by the Fed, the start of policy normalization…until (a) the US economy is unambiguously robust enough to allow the Fed to hike and (b) the Fed’s exit from zero rates is seen not to cause either a market or macro shock (as it infamously did in 1936-7), the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns and flash crashes. For this reason we continue to advocate higher than normal levels of cash, adding gold and owning volatility in mid 2015. Given extremities of liquidity, profits, technological disruption, regulation, income inequality…potential for a cleansing drop in asset prices cannot be dismissed. Most likely catalysts: Consumer, Rates, A-shares, Speculation, High Yield.

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BANK OF AMERICA: ‘This Is Not A Fluke’ — The Fed May Have To Ramp Up QE Again

“This is not a fluke: almost all of the underlying determinants of inflation point to weakness,” writes BofA Merrill Lynch economist Ethan Harris in a note to clients today.

For all of the talk of rising government bond yields and predictions for when the Federal Reserve will taper back its bond buying, Harris says, deflation is still a bigger risk than higher inflation – and disinflation could cause the Fed to actually ramp up QE if it continues. Continue reading

Bank of America issues `bond crash’ alert on Fed tightening fears

The 1994 bond shock – and seared in the memories of bond-holders – ricocheted through global markets. It bankrupted Orange Country, California, which was caught flat-footed with large bond positions. It set off the Tequila Crisis in Mexico as the cost of rolling over `tesobonos’ linked to the US dollar suddenly jumped.

Bank of America said the “Great Rotation” under way from bonds into equities closely tracks the pattern of 1994, with bank stocks leading the way. Continue reading