Tag: news

Following October and November’s disturbing declines in Producer Prices, which many misread as an indication that the Fed will delay tapering for a few months, today’s PPI reversed the recent drop, and posted a 0.4% jump for the headline number in line with expectations, following two months of declines and the highest print since June’s 0.6% sequential increase. And while the Foods PPI dropped by 0.6% in December, Energy prices jumped by 1.6% once again the highest monthly increase since June. But it was the core increase of 0.3%, the highest jump since July 2012 that caught everyone’s attention. So is inflation finally seeping back in the production channel? Not really: as the BLS reported, “Nearly half of the December increase is attributable to prices for tobacco products, which climbed 3.6 percent.” So bad inflationary news for smokers. For everyone else (who eats and drives hedonically) the status quo still remains.

Still at a 1.2% increase in headline PPI, compared to expectations of 1.1%, and November’s 0.7%, this was the first beat in annual producer price inflation expectations since June, and means that this data point will not deter the Fed from tapering more as it has warned it will likely continue to do.

Broken down by components:

The breakdown in finished goods PPI:

Leading the December rise in the finished goods index, prices for finished energy goods increased 1.6 percent. Also contributing to the advance, the index for finished goods less foods and energy moved up 0.3 percent. By contrast, prices for finished consumer foods decreased 0.6 percent.

 

Finished energy: Prices for finished energy goods climbed 1.6 percent in December, the largest advance since a 2.5-percent jump in June 2013. Over half of the rise in December can be traced to a 2.2-percent increase in the gasoline index. Higher prices for diesel fuel and home heating oil also were factors in the advance in the finished energy goods index. (See table 2.)

 

Finished core: The index for finished goods less foods and energy moved up 0.3 percent in December, the largest advance since a 0.5-percent rise in July 2012. Nearly half of the December increase is attributable to prices for tobacco products, which climbed 3.6 percent. Higher motor vehicle prices also contributed to the advance in the finished core index.

 

Finished foods: The index for finished consumer foods fell 0.6 percent in December following no change in November. Leading the decrease, prices for fresh and dry vegetables dropped 13.4 percent.

The real question remains: will Japan continue to export its deflation to the world, and the US, and if so is the recent jump just a one-time fluke?

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After 5 months of missed expectations, Empire Fed manufacturing beat expectations by the most since Feb 2013, spiking to the highest since May 2012. Most sub-indices were positive but it is perhaps worth noting that despite all this exuberance, over 70% of companies expected no improvement in employment and over 80% expected no improvement in the average workweek. While inflation is nowehere to be seen, it is interesting that the Empire Fed’s Prices Paid index spiked this month by the most since March 2012. Hope remains that Capex and Tech Spend will pick up as the outlook index rose by the most in 5 months (though remains historically low).

 

 

Charts: Bloomberg

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As equity markets revert to their new normal BTFATH, Japanese-Yen-pinned reality, we thought a gentle reminder of the longer-term state of the real (not financial) economy would prod more than a few into the realization of just how ‘encouraged’ they should be by the nominal high after nominal high that is gloated over day after day…

 

 

(h/t @Not_Jim_Cramer)

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If yesterday it was JPM’s turn to shock and awe everyone with its adoption of FVA and impress with its non-GAAP revenues, today it is the turn of Bank of America to confuse everyone with its traditionally indecipherable earnings release. So here is the punchline. BAC reported revenues of $21.7 billion which beat expectations of $21.14 billion, although more importantly EPS of $0.29 vs expectations of $0.27. So how did BAC generate the better than expected top and bottom line? Simple – the top line beat was driven by the bank’s return to an aggressive extraction of non-income income from loan-loss reserve releases, which in the current quarter rose to $1.246 billion, up from $900 million a year ago. Considering the Bank had non-GAAP pretax income of $3.8 billion, this amount to just about a third of its earnings.

 

This was driven by the bank charging offsome $1.6 billion offset by just $0.3 billion in provisions.

This is what the bank had to say about its loan loss releases:

The provision for credit losses declined $1.9 billion from the fourth quarter of 2012 to $336 million, driven by improved credit quality. Net charge-offs declined significantly to $1.6 billion in the fourth quarter of 2013 from $3.1 billion in the fourth quarter of 2012, with the net charge-off ratio falling to 0.68 percent in the fourth quarter of 2013 from 1.40 percent in the year-ago quarter. The provision for credit losses in the fourth quarter of 2013 included a $1.2 billion reduction in the allowance for credit losses, compared to a $900 million reduction in the allowance in the fourth quarter of 2012.

Additionally, the company paid only $406 million in reported taxes on pretax income of $3.845 billion, or a 10.6% effective tax rate. How does this compare to the historic average of 25%? Obviously, it’s much lower. But all is fair in sellside analyst love and making up non-GAAP numbers.

And finally, let’s not forget the elephant in the room: litigation reserves: at $2.3 billion this was the biggest one-time item in recent years.

Ok, so BAC would have missed wildly if it hadn’t dug into its bag of usual accounting tricks. But what about the organic business? Well, since banks traditionally make money not as hedge funds but as lenders, here is the bottom line: in Q4, just like with Wells, mortgage origination crumbled by a whopping 49%! This led to a $1.1 billion loss in the CRES group, a drop of $2.6 billion compared to a year ago.

As for how the bank’s trading operation fare this quarter, the answer : flat to down.

Here is what BAC had to say:

Net income of $0.2B

• Excluding DVA and U.K. tax charge, net income of $0.3B declined from both comparative periods as revenue improvement was offset by litigation expense

Excluding DVA, sales and trading revenue of $3.0B increased $483MM, or 19%, from 4Q12 and was consistent with 3Q13

• FICC revenue increased $292MM, or 16%, from 4Q12 and $47MM, or 2%, from 3Q13 as stronger results in credit and mortgage products offset weakness in rates and commodities
• Equities revenue increased $191MM, or 27%, from 4Q12 due to market share gains, higher market volumes and increased client financing balances, but declined 7% from strong 3Q13 results

Bottom line: virtually no change from a year ago.

Also of note. VaR declined from 100 a year ago to just 74.

Finally, as for how the bank sees its future, well: here are the bank’s employees at different points in time. The trend is clear.

Full presentation below:

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