I think the goose is cooked (max saturation) seems like it either melts down , or emergency rate cuts back to zero would ensure hyperinflation mad max anyway . I'd rather let this beast melt down .
Emergency rate cuts back to zero...they've been "kicking the can down the road" for too long and started this war to temporarily fix liquidity.
I hear day after day, people not being able to take money out of the bank or even transact. Debit cards beginning to freeze everywhere. It's already happening, but the slow process of it makes people tolerant to the collapse...and i think that's what they want. They want it to fall apart slowly, not all at once.
Therefore, a rate cut would do such a thing. People going to stores and some are allowed transactions while others aren't (depending on the bank). By doing this they are able to get people used to what is really coming, and when it happens, people have already adjusted to the new reality.
Mannarino, you said in your video last week that "emergency rate cuts" would scare the market, and it would be highly unlikely that they would do this.
It seems like as of now, the FED will just pause rates, but this spins the narrative of keeping "rates higher for longer". Something that you have mentioned on this channel. However, keeping "rates higher for longer" will not solve the issue with liquidity, and perhaps make it worse. This would lead to more bank failures.
Is it possible that this is the silver lining the FED needs to cut rates?! Let's say the FED pauses again, then another bank goes down...i think the FED would have complete authority to use emergency tools to cut rates...whereas just cutting rates would scare this market, but being in a crisis, it would allow the market to adjust easier.
Afterall, they pulled this scenario off during the pandemic.
Bank of America is a very good case study for us to examine in order to get a broader and full understanding on bank shares in general and the problems with assessing them as a good or bad investment.
In simple terms, in a rising interest rate environment bank shares may be expected to do well. They are also expected to do well in normal sloping yield curve environment or at least a yield curve that is becoming more UN-inverted as we are seeing now.
But the large USA bank share prices have been struggling and some more than others – BOA being one of the worst.
(I will not discuss USA regional banks today as we are all aware of their problems earlier in the year, today we are only interested in the large banks).
BOA shares are down 17% in 2023, 20% on a one-year basis and are flat on a 5-year basis. (they did have a massive rally within that from Oct 2020 to end of 2021 they doubled – if you followed our AIB recommendation at the time you will know why, they have lost all those gains now).
For a rough comparison Morgan Stanley is only down 6% in 2023, flat over 1-year and id UP 70% over 5 years. JP Morgan is UP 24% over the past year.
So, BOA has struggled.
Yesterday they released results which could be regarded as strong.
The company earned $7.8 billion, up 10% from $7.1 billion a year earlier.
The earnings amounted to 90 cents per share. That beat the 83 cents expected by analysts.
Revenue rose 3% to $25.2 billion. That just beat expectations for $25.1 billion.
So, all good.
An investor may see these numbers and the interest rate environment and conclude this share price has been badly treated and is due to rise rapidly.
However, there is a sting.
It goes back to our discussion regarding who is holding all these losses on bonds that were bought years ago. As interest rates have gone up bond prices go down.
But banks, if they hold these bonds in their HTM book, their Held-To-Maturity book, do not need to mark to market these losses.
( As we know some regional banks ,due to losing deposits had to sell their bonds and crystalise the losses -thus bust)
BOA said it had unrealized losses of $131.6 billion on the bonds it plans to hold to maturity, up from $105.8 billion at the end of June. It doesn’t have to recognize the losses if it never sells the bonds, but it cannot invest or lend out that money at higher rates while it holds them.
BofA's HTM securities were $603 billion in Q3, down $40B vs. 3Q22.
Firstly, there is a huge opportunity cost of holding these bonds as it curtails the future growth prospects for the bank – BOA is holding more of these than other banks, so its share price has performed more poorly to reflect the diminished future potential earnings.
But secondly, if you were potentially pessimistic in nature ! you may wonder what happens if BOA or the financial system were to have problems (exactly like the reginal banks just had) and BOA had to liquidate some or all these bond holdings.
These unrealised current 131 $ billion of losses dwarf the bank’s $7.8B in quarterly earnings and represent an existential threat to the bank – but are not counted against earnings or regulated capital.(Also, if there were a run-on deposits or another crisis the losses would grow quickly).
I am not suggesting this WILL happen but just rather trying to point out that an investment in BOA suddenly seems much riskier (to some – others conclude there is nothing to worry about).
BOA said yesterday that it expects ZERO losses from its held-to-maturity book.
For Bank of America CEO to say he does not expect to "ever realise losses" on $600 billion in HTM securities means he has supreme confidence or explicit assurance from the Fed it will buy its impaired debt at par in the next crisis.
Some would say the risk of anything bad happening here is very low (Too Big To Fail) – but the stock is off 44% from its highs so some investors care, and we should too.
If you look at the earnings, GAAP profit then you may even conclude this bank is “cheap”.
But when you look at the overall picture there are very valid reasons for the underperformance.
There are losses hidden within the financial system – in this case, some would say BOA is running well currently and has nothing to fear as it will just hold these bonds to maturity.
But hopefully you can see an investment in any bank, holding large bond portfolios, is a bet that the status quo will prevail, that nothing bad will happen, and if it does the Fed or other Central Banks will step in and make these paper losses whole.
GM destroying the world market with the debt market sounds like a really boring bond villian activity. No one it never makes the main stream media. But GM your right. People are going to die , starve and kill because of this. Only the media won't say its debt but something else.
I think the goose is cooked (max saturation) seems like it either melts down , or emergency rate cuts back to zero would ensure hyperinflation mad max anyway . I'd rather let this beast melt down .
Emergency rate cuts back to zero...they've been "kicking the can down the road" for too long and started this war to temporarily fix liquidity.
I hear day after day, people not being able to take money out of the bank or even transact. Debit cards beginning to freeze everywhere. It's already happening, but the slow process of it makes people tolerant to the collapse...and i think that's what they want. They want it to fall apart slowly, not all at once.
Therefore, a rate cut would do such a thing. People going to stores and some are allowed transactions while others aren't (depending on the bank). By doing this they are able to get people used to what is really coming, and when it happens, people have already adjusted to the new reality.
You are 100% correct.
Mannarino, you said in your video last week that "emergency rate cuts" would scare the market, and it would be highly unlikely that they would do this.
It seems like as of now, the FED will just pause rates, but this spins the narrative of keeping "rates higher for longer". Something that you have mentioned on this channel. However, keeping "rates higher for longer" will not solve the issue with liquidity, and perhaps make it worse. This would lead to more bank failures.
Is it possible that this is the silver lining the FED needs to cut rates?! Let's say the FED pauses again, then another bank goes down...i think the FED would have complete authority to use emergency tools to cut rates...whereas just cutting rates would scare this market, but being in a crisis, it would allow the market to adjust easier.
Afterall, they pulled this scenario off during the pandemic.
watch https://www.youtube.com/watch?v=2MRVm_At4Mw
USA is toast
LFG. Crush it.
If you are going to be long the markets put protections in place. Day trade it or STAY OUT.. USE CAUTION...
Bank of America is a very good case study for us to examine in order to get a broader and full understanding on bank shares in general and the problems with assessing them as a good or bad investment.
In simple terms, in a rising interest rate environment bank shares may be expected to do well. They are also expected to do well in normal sloping yield curve environment or at least a yield curve that is becoming more UN-inverted as we are seeing now.
But the large USA bank share prices have been struggling and some more than others – BOA being one of the worst.
(I will not discuss USA regional banks today as we are all aware of their problems earlier in the year, today we are only interested in the large banks).
BOA shares are down 17% in 2023, 20% on a one-year basis and are flat on a 5-year basis. (they did have a massive rally within that from Oct 2020 to end of 2021 they doubled – if you followed our AIB recommendation at the time you will know why, they have lost all those gains now).
For a rough comparison Morgan Stanley is only down 6% in 2023, flat over 1-year and id UP 70% over 5 years. JP Morgan is UP 24% over the past year.
So, BOA has struggled.
Yesterday they released results which could be regarded as strong.
The company earned $7.8 billion, up 10% from $7.1 billion a year earlier.
The earnings amounted to 90 cents per share. That beat the 83 cents expected by analysts.
Revenue rose 3% to $25.2 billion. That just beat expectations for $25.1 billion.
So, all good.
An investor may see these numbers and the interest rate environment and conclude this share price has been badly treated and is due to rise rapidly.
However, there is a sting.
It goes back to our discussion regarding who is holding all these losses on bonds that were bought years ago. As interest rates have gone up bond prices go down.
But banks, if they hold these bonds in their HTM book, their Held-To-Maturity book, do not need to mark to market these losses.
( As we know some regional banks ,due to losing deposits had to sell their bonds and crystalise the losses -thus bust)
BOA said it had unrealized losses of $131.6 billion on the bonds it plans to hold to maturity, up from $105.8 billion at the end of June. It doesn’t have to recognize the losses if it never sells the bonds, but it cannot invest or lend out that money at higher rates while it holds them.
BofA's HTM securities were $603 billion in Q3, down $40B vs. 3Q22.
Firstly, there is a huge opportunity cost of holding these bonds as it curtails the future growth prospects for the bank – BOA is holding more of these than other banks, so its share price has performed more poorly to reflect the diminished future potential earnings.
But secondly, if you were potentially pessimistic in nature ! you may wonder what happens if BOA or the financial system were to have problems (exactly like the reginal banks just had) and BOA had to liquidate some or all these bond holdings.
These unrealised current 131 $ billion of losses dwarf the bank’s $7.8B in quarterly earnings and represent an existential threat to the bank – but are not counted against earnings or regulated capital.(Also, if there were a run-on deposits or another crisis the losses would grow quickly).
I am not suggesting this WILL happen but just rather trying to point out that an investment in BOA suddenly seems much riskier (to some – others conclude there is nothing to worry about).
BOA said yesterday that it expects ZERO losses from its held-to-maturity book.
For Bank of America CEO to say he does not expect to "ever realise losses" on $600 billion in HTM securities means he has supreme confidence or explicit assurance from the Fed it will buy its impaired debt at par in the next crisis.
Some would say the risk of anything bad happening here is very low (Too Big To Fail) – but the stock is off 44% from its highs so some investors care, and we should too.
If you look at the earnings, GAAP profit then you may even conclude this bank is “cheap”.
But when you look at the overall picture there are very valid reasons for the underperformance.
There are losses hidden within the financial system – in this case, some would say BOA is running well currently and has nothing to fear as it will just hold these bonds to maturity.
But hopefully you can see an investment in any bank, holding large bond portfolios, is a bet that the status quo will prevail, that nothing bad will happen, and if it does the Fed or other Central Banks will step in and make these paper losses whole.
Bring it on. Death to the stock markets.
But when....
They can always lie
No...no more. I can't take it! Let it die, please
watch good show 1 million a day goes to debt https://www.youtube.com/watch?v=2MRVm_At4Mw
Gregory - my dowser says "no".
Stabilized this bitch!
The next f/f in the world I imagine will accompany where the money goes darkest in the red.
GM destroying the world market with the debt market sounds like a really boring bond villian activity. No one it never makes the main stream media. But GM your right. People are going to die , starve and kill because of this. Only the media won't say its debt but something else.
I don't care how this plays out.
A FED hike will send bond yields through the roof, and bank failures will become real.
A FED pause will prolong the suffering, but real money won't work its way back into the market.
A FED rate cut will send this market downwards, so institutions can get back into buying long term.
Anyway this plays out, the market will initially fall...and im heavily in SPXS.
Trading wise, can't argue with that.
There will be real world pain. Make sure you're prepared for civil unrest, bank failures, supply shortages etc.
They won't. Powell is Fighting Yellen. No one will come our unscathed.