Lett's jump straight into this, shall we? This is the state of the US, as of right now versus the comparable period last year...

fredgraph 5 f648a

A quick description of what we see...

  • Unemployment rate very recently peaked at an all-time high, then eventually fell to a level that matched the highest unemployment on record after 21 weeks of damage.
  • Federal debt is at an all-time high, both in nominal terms and real terms, and still climbing at a breakneck, record pace
  • GDP has fallen more, and faster than any time on record, and is still plunging. Real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.

gdp2q20 adv chart 19de1

  • Meanwhile, the US monetary base has spiked both more sharply and farther than at any other time on record. That's right, sharp monetary inflation at the same time that we are having a sharp drop in GDP and productive output - at the same time that we are seeing record government debt, at the same time we are seeing record unemployment.

The stock market should be in the shitter right now, but....

fredgraph 6 e9e86

The broad market averages fell, then spiked high, sort of like the unemployment numbers. So, practically every number is bad, GDP, employment, federal debt, monetary  inflation... The only way the stock market could spike in such a situation is through dramatically stronger earnings, right?Well, let's take a look.

In the energy sector, we have Chevron. This is its earnings history leading into the worst depression this country has ever seen....

dssdfs b886e

Yet look at its P/E graphed along time.... What?!?!!?!?

Chevron 92da5

Yeah, I know!

How about Apple, who sells some of the most expensive computer and cell phone equipment available going into a depression....

aapl 8615c

How about Nvidia, who sells chips into those most expensive cell phones and computing things available going into a depression?

nvidia 38beb

This entire 16 page deck, as well as a host of other insightful analysis and commentary is available to BoomBustBlog subscribers here.

 

 

Bloomberg reports America’s $20 Trillion Debt Pile Is Getting Cheaper as It Grows

The U.S. government is paying less as it borrows more, one reason investors appear more comfortable than

Congress about funding another leg of stimulus. Interest payments in the federal budget declined about 10% in the first 11 months of this fiscal year, when America was running up its biggest deficit since World War II. Over the next few years, servicing the national debt will be cheaper than any time in the past half-century when measured against the size of the economy, according to the Congressional Budget Office.

 The concerns that pundits have regarding the US record debt stockpile is unfounded - at least for now and the near future. Take note that although nearly every government expense category has spiked from last year, one of the biggest actually shrank - net interest expense. 

lewaegq 3b63d

The CBO forecasts this cost savings to be extrapolated into the future as well. Of course, in today's highly politicized environment, I think it is wise to take many potentially conflicted data sources with a  healthy dose of skepticism. Alas, the logic behind their forecasts holds up (chart sourced from Bloomberg LP)....

safdsf 2219d

What Bloomberg, nor any other media outlet fails to inform us of is that the US is economically defaulting on its debt at the same time that it is paying a lower interest rate. That's right, what the US is doing is actually an economic default on it obligations to is investors. It is not a technical, legal or accounting default since the US is paying its debt service on time. What it is NOT doing is paying back the economic value of what it has borrowed, plus interest. Although this scenario is not laid bare in the charts above, it is plain as pie in the chart below. 

uyguyg 18410

What does all of this mean? Well, in a nutshell, it means that rates will not be going up anytime soon. If rates do go up, then debt service risks becoming untenable. 

It also means that one should expect the US to continue printing money at this ungodly clip until true, "organic" economic activity actually recovers at a reasonable pace. That will not happen this year, and is likely not to happen in full next year either. There's a risk that the year after that or more may be moot as well.

With the USD, being devalued, and interest rates dropping closer to zero as the Federal budget looms larger among historically unprecedented unemployment and corporate earnings that are dropping (even with the accounting "massaging" that's taking place - see  and Analysis of JP Morgan's Terrible, Horrible, No Good 2nd Quarter of 2020 - Why Am I the Only One?) guess where the equity markets will go relative to gold? See ""

This chart is the base of the entire argument of holding gold as an currency reserve. First, look at the trend of each component/line.

    • The economic world has been upended during the popping of the 2007 bubble.
    • In 2009, the Fed has doubled in balance sheet through quantitative easing, thereafter increasing it by ~700% more through today. It has added more than 30% to its balance sheet in just the last two months.
    • The broad money supply has jumped 49% in the last 6 months.Monetary inflation is at its highest level, ever, and half of the annualized inflation rate of Zimbabwe.
    • US borrowing has increased by 300% over the largest period of borrowing in the modern history of this country. There has never been a period where the US has borrowed more, or borrowed as fast.
    • Gold has tracked this monetary debasement (inflation) closely, now near an all-time high

In closing, remember there's a strong chance that . Buy your VeGold digital, fully redeemable gold here

Bloomberg reports "New York Homebuyers Are Searching Everywhere But Manhattan": Contracts to buy (demand) Manhattan co-op apartments declined 26% in August from a year earlier, while pending condo deals plummeted 38%, while new listings (supply) in the borough surged -- by 68% for co-ops and 30% for condos.

 I warned of this months ago. First of all, this is a real deal depression, not a mere recession...

This real estate crash is exacerbated by dense metro areas such as Manhattan, but it will be truly global in nature... 

And it will encompass much more than just residential real estate....

This will hit NYC particularly hard, and no, there will not be a material recovery near term - V-shaped or otherwise, and the malaise will be here past the invention or a COVID vaccine.

The unemployment problem is real, and persistent...

Which easily reveals the Anatomy of the Nastiest Real Estate Crash Ever...
 

The metrics behind this real estate crash are not only undeniable, they are truly unprecedented!

 If you don't believe me, simply look at the lengths the nation's largest bank has gone through to hide its true credit debacle, already!

 No, it's not just JP Morgan, either. Look at Bank of America, the nations largest mortgage lender....

 

Figure 13: 30+ Day Delinquency Rate w/COVID Emergency Deferrals, As Adjusted by Veritaseum Research (in %)

Now, back to the Bloomberg story: 

The story was different outside Manhattan. Shoppers fanning out from the city’s business core, in search of more space for working and learning from home, pushed up demand pretty much everywhere else last month (except Manhattan).

  • Contracts to buy single-family houses in Greenwich, Connecticut, almost tripled from a year earlier to 136 deals. The greatest increase in demand was in the range of $1 million to $1.99 million, with 50 contracts, up from 13 in August 2019.
  • In Westchester, single-family contracts jumped 57% to 780. Even condos fared well, with deals climbing 24%.
  • In the Hamptons, there were 278 signed deals for single-family homes, more than double last August’s rate.
  • Brooklyn saw a near tripling of co-op deals, with 138. Most were for properties priced under $1 million. Condo contracts jumped 33% to 200.

Now, what's wrong with this story? That boom is short term and transient in nature. Those videos and articles I included above clearly make that evident, but there are two portions in particular that should really stand out. Unemployment is truly out of control...

fredgraph 2 6b3ea

In 2007, housing prices started falling precipitously, and unemployment spiked as a result of financial markets crashing in sympathy, liquidity drying up and financial institutions locking up. Now, unemployment and unemployment claims have spiked 1.5x to 7x that of 2008, and it is employment that allows buyers to pay mortgages and put down payments in for housing, not to mention pay rents. 

The effects are already very evident. Look at Bank of America, when we rejigger their reported numbers for the economic truth.

 BOA's actual 30+ day consumer loans delinquency amount stood at USD31.2 billion in Q2 2020 compared to reported 30+ day delinquency amount of USD1.4 billion. More alarming is that BOA's allowance for loan losses in Q2 2020 is USD9.2 billion, which is only 30% of the actual delinquent amount. Figure 10: 30+ Day Delinquency Rate w/COVID Emergency Deferrals, As Adjusted by Veritaseum Research (in USD billions) Source: Veritaseum Research

 Source: Veritaseum Research

 

Look at JP Morgan, when we do the same.

 asdfadf e58a3

In both big bank cases, not only are the true credit metrics dramatically (I mean many multiples) worse than the banks are reporting, but they are dramatically and woefully under provisioning for these losses as well - dramatically and woefully. 

Do you think it is just Reggie Middleton et. al being pessimistic? Well, look at what Bank of America reported for their 30 day delinquencies, compared to what we calculated...

Figure 12: 90+ Days or More Delinquency Rate – As Reported (in USD millions)

Source: Bank of America Earnings Release, 2Q 2020

The above data is as reported in BofA’s earnings release. But if we delve in, we can see a completely different picture of the delinquency rates of credit cards. The actual, economic delinquency rates have a considerable difference than the reported one. On March 16th 2020, BOA enacted the Client Assistance Program where it offers assistance to 66 million consumers and small business clients in response to the unprecedented challenges of COVID-19, allowing the clients to defer payments. BOA has processed approximately 1.8 million total deferrals, and as of July 9th, the Bank still has 1.7 million deferrals. The deferrals represent USD29.8 billion of consumer balances. If we add back this deferral amount to the reported delinquency amount of credit cards a completely different, and in our professional opinion – a considerably more revealing, honest and informational, scenario in delinquency rates comes out. The actual 30+ days and delinquency rate is 37.1% compared to the reported 30+ days delinquency rate of 1.7%. That is a difference of nearly 2,200%! Misleading, to put it lightly. Figure 13: 30+ Day Delinquency Rate w/COVID

Emergency Deferrals, As Adjusted by Veritaseum Research (in %)

Source: Veritaseum Research

One of us are lying, no? If you had to guess which one, who would you choose? Here's and experiment. Let's look at the numbers of a not-for-profit entity that has no incentive to use prestidigitation to makes it's numbers look something other than they are and see who it agrees with. Bloomberg reports: FHA Mortgage Delinquencies Reach a Record, Led by New Jersey

Federal Housing Administrationmortgages -- the affordable path to homeownership for many first-time buyers, minorities and low-income Americans -- now have the highest delinquency rate in at least four decades. 

That's about how we see it as well.

The share of late FHA loans rose to almost 16% in the second quarter, up from about 9.7% in the previous three months and the highest level in records dating back to 1979, theMortgage Bankers Associationsaid Monday. The delinquency rate for conventional loans, by comparison, was 6.7%.

 Sounds about right. Actually, it's a but below the big banks numbers, but hey...
 

Millions of Americans stopped paying their mortgages after losing jobs in the coronavirus crisis. Those on the lower end of the income scale are most likely to have FHA loans, which allow borrowers with shaky credit to buy homes with small down payments.

For now, most of them are protected from foreclosure by the federal forbearance program, in which borrowers with pandemic-related hardships can delay payments for as much as a year without penalty. As of Aug. 9, about 3.6 million homeowners were in forbearance, representing 7.2% of loans, the MBA said in a separate report. The share has decreased for nine straight weeks.

Housing has held up better than expected in an otherwise shaky economy, with record-low mortgage rates fueling sales of both new and previously owned houses. With job losses mounting and Congress slow to act on a fresh stimulus package, that momentum could be threatened.

How long do you think that will last with unemployment STILL at a level unseen in the history of this country and a government that can't consistently agree on bailout packages, that will (if agreed upon) inflate the USD to unforeseen levels AND indebt this country to a level that even world wars haven't caused.

New Jersey had the highest FHA delinquency rate, at 20%. The state also had the biggest increase in the overall late-payment rate, jumping to 11% in the second quarter from 4.7%. Following were Nevada, New York, Florida and Hawaii -- all states with a high proportion of leisure and hospitality jobs that were especially hard-hit by the pandemic, the MBA said.

Yep!

But the current spike in delinquencies is different from the Great Recession, thanks in part to years of home-price gains and equity accumulation, according to Marina Walsh, vice president of industry analysis for the bankers group.

But she represents the banking industry, hence she would say that wouldn't she? Just like the bank accounts said that they have <1% 30 day delinquency rates. It's called "the new truth", or was that "fake news"? I simply can't keep track anymore. Oh, and to put this localized NY thing into perspective: In 2017: New York State's GDP was over $1.5 trillion, 8 percent of the U.S. total.

For those who are interested, explore our tokenized gold and silver products along with out associated research - designed to assist you in weathering that dollar inflation thingy.

See , then enter here https://dapp.veritaseum.com/. Find relevant research here https://dapp.veritaseum.com/#/research

 

  1. Introduction

Bank of America ("BOA or the Bank"), the 2nd largest Bank in the US by asset size, has exceeded its earnings expectation and reported a net income of USD3.53 billion in Q2 2020. However, the net revenues reported for Q2 2020 is USD22.5 billion, barely edged out analysts' estimates of USD22 billion. Net income of the Consumer Banking segment is reported at USD71 million in the 2Q 2020, which has drastically declined from USD1.8 billion recorded in Q1 2020. Federal Governments' emergency rate reductions have curbed the Bank's net interest income. The Bank has reported a net interest income of USD10.85 billion in Q2 2020, which has declined from its previous quarter as well as last year's period value. However, the non-interest income has increased and reported an income of USD11.48 billion compared to USD10.64 billion in Q1 2020 and USD10.90 billion in Q2 2020. Net interest yield rate stood at 1.87% in Q2 2020 compared to 2.33% in Q1 2020. The Bank has maintained a provision of USD5.12 billion for credit losses in Q2 2020.

BOA is feeling the effects of COVID-19 more acutely as its business is more consumer-focused. The plunge in “real” economic activity” and “actual” economic value of BOA has placed downward pressure on the Bank's consumer banking segment, which is tied to the health and financials of millions of American consumers and borrowers. Hence, BOA is considered as the most sensitive of the large banks by analysts when it comes to fluctuation in interest rates.

Let us get a detailed view of its earnings.

Net Income

BOA has reported a net income of USD3.5 billion in Q2 2020 compared to a net income of USD7.3 billion in Q2 2019. Net income of the Bank's major segment, i.e., Consumer Banking, has declined drastically in Q2 2020 and reported a net income of USD71 million compared to USD3.3 billion in Q2 2019. This is primarily due to Federal Governments emergency cut in interest rates as well as rising unemployment. The Global Wealth & Investment Management segment reported a net income of USD624 million in Q2 2020, which has also declined from the USD1.08 billion in Q2 2019. The Global Banking and Global Market segment's net income in Q2 2020 have declined from the same quarter previous year but has increased from the previous quarter's income. Net income of Global Banking and Global Market segments reported at USD726 million and USD1.90 billion in Q2 2020 compared to USD136 million and USD1.71 billion in Q1 2019. Other net income has increased to USD216 million in Q2 2020, from a net loss of USD493 million in Q1 2020 and USD9 million in Q2 2019.

Figure 1: Bof A Segment-wise Net Income Trend (in USD millions)

 

Source: Bank of America Earnings Release, 2Q 2020

Net Interest Income & Non-Interest Income

BOA reported a net interest income of USD10.85 billion in Q2 2020 compared to USD12.19 billion in Q2 2019. The net interest income has declined with interest rate cuts by the Federal Reserve. However, non-interest income has increased to USD11.48 billion in Q2 2020 from USD10.90 billion in Q2 2019, primarily because of an increase in underwriting income and financial advisory services.

Figure 2: B of A Net Interest Income & Non-Interest Income (in USD millions)

Source: Bank of America Earnings Release, 2Q 2020

Profit Provisioned for Credit Losses

BOA reserved 72% of its pre-provision profit as a provision for credit losses. The Bank has provisioned 97% of total Consumer Banking segment profit for credit losses followed by Global Banking segment with a provision of 65.3% of the pre-provision profit. The Bank has reserved 14.1%, 3.9% and 3.7% pre-provision profit of Global Wealth & Investment Management, Global markets and other segments, respectively.

Figure 3: B of A Profit Provisioned for Credit Losses (in %)

 

Source: Bank of America Earnings Release, 2Q 2020

Return-on-Equity (ROE)

BOA's ROE has declined to 5.3% in the Q2 2020 from 11.0% in Q2 2019. The drastic decline in the Consumer Banking profit has impacted the ROE of the Bank.

Figure 4: B of A Return-on-Equity(in %)

 

Source: Bank of America Earnings Release, 2Q 2020

Net Interest Margin

The net interest margins is an indicator of the Bank's ability to lend money at an interest rate higher than the interest rate it pays on its deposits. The emergency cut of interest rate by the Fed has put downward pressure on its net interest margins. Notably, net interest rate margin of BOA has declined from 2.4% in Q2 2019 to 1.9% in Q2 2020.

 

Figure 5: BofA Net Interest Margin (in %)

Source: Bank of America Earnings Release, 2Q 2020

Balance Sheet Interest Rate Analysis

Earning Assets

The interest rate of BOA declined in Q2 2020. The interest rate of trading assets declined primarily because of a significant decline in the interest rates of Federal deposits, time deposits and short-term investments and Federal securities borrowed under the agreement of reselling in Q2 2020. The interest rate of commercial assets has declined primarily because of a decline in interest rates of the commercial real estate sector. The interest rate of the Consumer Banking segment declined with the decline in the interest rates of home equity sector.

Figure 6: Earning Assets Interest Rate Analysis (in %)

Source: Bank of America Earnings Release, 2Q 2020

 

Interest-bearing liabilities

The rates of interest-bearing deposits of BOA have also declined in Q2 2020. The interest rates of short-term borrowings and other interest-bearing liabilities have significantly declined and reached -10% in Q2 2020. The interest rates of total interest-bearing liabilities have declined to 1.61% in Q2 2020 from 0.41% in Q2 2019.

Bank of America is, in real time, refuting the erroneous assumption that inter-bank interest rates cannot go below zero because a lender would prefer to hold on to its money and receive no return rather than pay someone to borrow the money. This may be true for uncollateralized loans, but a lender may be willing to pay interest if the securities offered as collateral on a loan allow it to meet a delivery obligation (D’Avolio 2002; Jones and Lamont 2002), i.e. treasuries or certain equities. These are the treasury FTDs (fail-to-delivers) for the month of June. Which bank do you think is proximal to these FTDs on the 11th of June?

Figure 7: Interest Rate Analysis of Interest Bearing Deposits (in %)

Source: Bank of America Earnings Release, 2Q 2020

Funding and Liquidity

BOA's liquidity position in Q2 2020 has improved from Q2 2019. In Q2 2020, the Bank's liquidity position stood at USD2,776 billion.

Figure 8: Funding and Liquidity (in USD billion)

Source: Bank of America Earnings Release, 2Q 2020

 

Global Liquidity Sources include cash and high-quality, liquid, unencumbered securities, inclusive of US government securities, US agency securities, US agency MBS, and a select group of non-US government and supranational securities, and other investment-grade securities, and are readily available to meet funding requirements as they arise. Federal Reserve Discount Window or Federal Home Loan Bank borrowing capacity is excluded from the source.

Commercial Credit Exposure by Company

Credit exposure is the measurement of the maximum potential loss to a lender if the borrower defaults on payment. It is a calculated risk to doing business as a bank. The global pandemic has significantly affected industries, resulting in lost revenues and disrupted supply chains on account of lockdown measures and there residual effects. Industries such as real-estate, retailing, consumer services, food beverage and tobacco, transportation, consumer durables and apparels, vehicle dealers and automobile and components are highly susceptible due to lockdowns and restriction measures. BOA has a significant amount of credit exposures to these sectors.

 

 

Particulars

Commercial Utilized

Total Commercial Committed

June 30th 
2020

March 31st 
2020

June 30th 
2019

June 30th 
2020

March 31st 
2020

June 30th 
2019

In USD billions

           

Asset managers and funds

64.2

75.6

70.2

100.8

111.5

108.0

Real estate

74.2

76.0

66.9

96.1

95.8

89.7

Capital goods

47.7

48.3

39.6

85.7

85.5

75.1

Finance companies

40.7

46.1

39.1

63.8

66.6

62.9

Healthcare equipment and services

39.7

40.7

35.4

63.8

58.7

57.1

Government and public education

43.8

45.2

42.4

56.0

56.3

54.4

Materials

28.8

30.7

27.9

52.4

53.3

52.3

Retailing

29.6

33.5

26.5

49.8

49.5

47.9

Consumer services

34.2

34.8

25.8

48.3

46.3

47.2

Food, beverage and tobacco

24.6

28.0

25.4

46.2

47.8

45.6

Commercial services and supplies

24.7

25.6

22.2

38.1

36.8

37.8

Energy

17.0

18.3

15.0

37.4

38.0

37.4

Transportation

26.3

28.2

24.8

35.5

36.5

34.5

Utilities

13.3

14.5

12.1

30.0

31.7

31.3

Individuals and trusts

20.5

20.1

18.9

28.4

28.7

25.8

Global commercial banks

25.1

31.3

28.4

27.5

33.5

31.4

Media

14.5

13.6

12.1

26.4

24.5

24.8

Technology hardware and equipment

10.3

12.8

9.4

22.5

23.8

21.7

Consumer durables and apparel

10.9

12.6

10.3

21.1

20.5

20.0

Software and services

11.7

11.3

10.4

21.0

19.8

19.7

Vehicle dealers

15.4

18.3

17.7

19.8

21.2

20.8

Automobiles and components

12.4

11.8

7.8

18.6

17.3

15.0

Pharmaceuticals and biotechnology

6.8

6.3

6.1

17.6

19.6

16.5

Insurance

6.8

7.9

6.1

14.2

15.3

13.2

Telecommunication services

7.9

10.1

8.9

13.6

15.9

15.3

Food and staples retailing

6.4

6.8

5.9

10.6

10.7

9.8

Financial markets infrastructure (clearinghouses)

4.9

7.1

9.7

7.3

9.5

11.4

Religious and social organizations

5.4

4.4

4.0

7.2

6.1

5.9

Total commercial credit exposure by industry

667.7

719.9

628.8

1,059.5

1,080.7

1,032.5

 

BOA's total committed commercial credit exposure as on June 30, 2020 stood at USD1,060 billion, and total utilized commercial credit exposure stood at USD668 billion. BOA has the highest credit exposure in ‘asset managers and funds’ segment (expect this to get drawn upon when leveraged long or short positions go awry), followed by the ‘real estate’ sector (‘nuff said) and ‘capital goods’ market (straight consumer exposure during and economic depression).

As of June 30 2020, the total committed credit exposure of ‘asset management’ sector stood at USD101 billion out of which USD64.2 billion credit has been utilized. BOA's total committed credit exposure in the real estate sector (the hardest hit sector by the pandemic) stood at USD96.1 billion in Q2 2020 out of which USD74.2 billion is utilized.

Non-Performing Loans (NPLs)

BOA reported total non-performing loans of USD4.4 billion in Q2 2020 compared to NPLs of USD4.2 billion in Q2 2019. The Bank’s NPLs has increased with an increase in the NPLs of commercial loans.

Total NPLs in the consumer loan segment has declined in Q2 2020 and reached USD2.2 billion from USD3.0 billion in Q2 2019. The NPLs declined primarily because of a decline in NPLs of home equity loans as the Bank has charged-off a significant portion of loans during the one-year period.

Figure 9: Non-Performing Loans – Consumer Loans  (in USD billion)

Source: Bank of America Earnings Release, 2Q 2020

 

However, Commercial sector NPLs increased in Q2 2020. The total commercial NPLs in Q2 2020 stood at USD2.2 billion compared USD1.2 billion in Q2 2019 (an 83.3% YoY increase). The Commercial sector NPLs increased with the increase in the US commercial, Non-US commercial and commercial real estate sector. The NPL related to commercial, Non-US commercial and commercial real estate sector stood at USD1.2 billion, USD387 million and USD474 million in Q2 2020 compared to USD820 million, USD122 million and USD112 million in Q2 2019 respectively.

 

 

Figure 10: Non-Performing Loans – Commercial Loans  (in USD billion)

Source: Bank of America Earnings Release, 2Q 2020

 

Loan Delinquency rate and Charge-off

BOA, in its 2Q 2020 results reported 30+ days loan delinquency rate of 1.7% in the Consumer Banking segment (credit cards). The delinquency rate of credit card loans have not changed much throughout the last five quarters and even declined in Q2 2020.

Figure 11: 30+ Days or More Loan Delinquency Rate – As Reported (in %)

 

Source: Bank of America Earnings Release, 2Q 2020

A similar scenario is seen in the 90+ days or more credit card delinquency rates also. The loan delinquency rate of 90+ days or more has also declined in Q2 2020 from its previous quarter's level. In Q2 2020, the Bank has reported 90+ days or more delinquency rate of 0.93%.

 

 

Figure 12: 90+ Days or More Delinquency Rate – As Reported (in USD millions)

 

Source: Bank of America Earnings Release, 2Q 2020

 

The above data is as reported in BofA’s earnings release. But if we delve in, we can see a completely different picture of the delinquency rates of credit cards. The actual, economic delinquency rates have a considerable difference than the reported one.

On March 16th 2020, BOA enacted the Client Assistance Program where it offers assistance to 66 million consumers and small business clients in response to the unprecedented challenges of COVID-19, allowing the clients to defer payments. BOA has processed approximately 1.8 million total deferrals, and as of July 9th, the Bank still has 1.7 million deferrals. The deferrals represent USD29.8 billion of consumer balances.

If we add back this deferral amount to the reported delinquency amount of credit cards a completely different, and in our professional opinion – a considerably more revealing, honest and informational, scenario in delinquency rates comes out. The actual 30+ days and delinquency rate is 37.1% compared to the reported 30+ days delinquency rate of 1.7%. That is a difference of nearly 2,200%! Misleading, to put it lightly.

Figure 13: 30+ Day Delinquency Rate w/COVID Emergency Deferrals, As Adjusted by Veritaseum Research (in %)

Source: Veritaseum Research

 

BOA's actual 30+ day consumer loans delinquency amount stood at USD31.2 billion in Q2 2020 compared to reported 30+ day delinquency amount of USD1.4 billion. More alarming is that BOA's allowance for loan losses in Q2 2020 is USD9.2 billion, which is only 30% of the actual delinquent amount.  

Figure 10: 30+ Day Delinquency Rate w/COVID Emergency Deferrals, As Adjusted by Veritaseum Research (in USD billions)

Source: Veritaseum Research

  1. Conclusion

The US economy has been experiencing a significant and unprecedent material slowdown over the past few quarters due to the global pandemic, COVID-19 in combination with the deflation of a drawn out bubble that’s been blowing for over a decade. The pandemic has affected businesses with lost revenue and disrupted supply chains on account of lockdown measures. Industries such as Retailing, Consumer Services, Food Beverage and Tobacco, Transportations etc. are the worst affected and are highly susceptible. BOA has a significant amount of credit exposures in these sectors, signifying a huge impact on its earnings.

However, BOA in its Q2 2020 earnings has surpassed the earnings expectations and reported a net income of USD3.5 billion. The Bank's Consumer banking segment was hugely affected by the emergency interest rate cuts by the Federal Government and reported a net income of USD71 million. The Bank has reported USD11.5 billion non-interest income which has increased in this quarter primarily because of an increase in underwriting income and financial advisory services. However, the ROE and the net interest margin of BOA has declined in Q2 2020.

BOA has a provisioned 72% of its pre-provision GAAP earnings for credit losses in Q2 2020. The Bank's liquidity position has improved from the previous quarter and stood at USD2,776 billion. The Bank's NPLs were reported at USD4.4 billion.

The Bank's delinquency rates have declined and have reported a delinquency rate of 1.7% in Q2 2020. This is mainly because the Bank has enacted the Client Assistance Program under which it has allowed its clients to defer payments and excluded the total deferral amount of USD29.8 billion. Although this may adhere to GAAP (generally accepted accounting principles) guidelines, it is tantamount to prestidigitation and misdirection. This provides a misleading picture of the Bank’s financials. When we add back the amount set under the program, the delinquency rate increases to 37.06%. This indicates a big wave of defaults expected to come in the next few quarters, of which BofA is woefully under-provisioned for. Although BofA is in particularly bad shape in the is regard, it is not alone. JP Morgan, the largest bank in the US by assets, and arguably one of the better managed banks, is in the exact same predicament, using the exact same parlour tricks to hide the credit quality damage to tis balance sheet. Reference “Analysis of JP Morgan's Terrible, Horrible, No Good 2nd Quarter of 2020 - Why Am I the Only One?

US Price inflation is dead near term (except for food). M2 spiked higher than ever before (this is extreme monetary inflation, boosting gold), but that money never circulated to main street as shown by the drop in velocity. All of this, while consumption absolutely collapsed - by a record. This is STAGFLATION!

[if IE 9]>

Meanwhile... CNBC reportsPowell says GDP could shrink more than 30%, but he doesn’t see another Depression. But, the Fed's own website says that if we exhibit a drop of GDP of more than 10%, we're already in a depression. Powell is expecting up to more than three times that. We all know the Fed will pull out all stops to reverse the GDP drop and deflationary pressures. If you don't know that, Powell reminded us all of it today: Powell to tell Congress the Fed will use all tools to fight the downturn.

Ladies and gentlemen, "the downturn" is the most significant the vast majority of people have seen in their lifetimes - if not everyone. The Fed's reaction is to print much, much more money than has ever been printed in the history of this country. Consider the dollar debased - but few can see the results because the world needs to buy dollars to pay their global bills... For now!

The Fed will do whatever it can to make that little red line turn higher, including spiking the money supply past anything this country has ever seen, as well as...

[if IE 9]>

Buying everything that is not nailed down, and then start pulling nails. Take note that the we've had the biggest deficit (as % of GDP) this country's ever seen. Also note that we've borrowed more money than we've every borrowed. And coincidentally, the Fed's balance sheet has spiked more than this nation has ever seen. What a coincidence! I forgot to add, all of this has occurred in the last 2 to 3 months!

Imagine what the absolute decimation of the $USD will do to the most steady asset priced in USD...  Well, the same thing that will happen when priced in the euro and the pound (and the yuan and the yen, and...)

<![endif]-->

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering Massive Giveaways to Their Retail Clients

Manhattan landlords, who have seen retail occupancy plummet after boosting rents to record levels, are trying to avoid big price cuts. Instead, they’re writing checks for things like interior redesigns and moving expenses to keep storefronts from going empty.

Tenant-improvement allowances haven’t been typical in the Manhattan retail market. But now the concessions, which can pay for anything from lighting and displays to a complete overhaul, are becoming a key component in some new leases, particularly for large, flagship stores in high-profile areas, such as Madison Avenue and Fifth Avenue, according to Steve Soutendijk, an executive director at brokerage Cushman & Wakefield Inc. 

“We’re seeing tenant-improvement and concession packages that retail landlords never, ever contemplated before,” he said.

The sweeteners signal that the balance of power is tilting toward merchants in Manhattan after a relentless surge in rents during the past five years. Landlords facing rising vacancies are more willing to negotiate with retailers, who have gotten battered by the rapid rise of e-commerce and have shied away from committing to costly, long-term leases.

Here's a sampling of my recent warnings on this subject:

  • Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"
  • Paid Subscribers: Insight Into Expected Q4 2016 Results
  • Ten Years Since BoomBustBlog Was 1st Published & That Initial Research Still Relevant Today

It's not as if this pattern is not both obvious or repetitive. Any of our long time followers should know that we tore GGP apart in 2007 and 2008, they filed for bankruptcy shortly thereafter. There are literally thousands of pages of research on this and many other companies in our paid archives from back then Paying subscribers, see Home > Research Reports > Real Estate > Commercial Real Estate. Here are some direct links: Our Commercial Real Estate Research sub-Category - Commercial Real Estate  and  Reggie Middleton says GGP will collapse & the type of investigative analysis you won't get from your brokerage house (554 KB) . This was a masterpiece (about 700 pages, all told. These historical pieces will be coming in handy, because we're back where we started from. 

. For $11 per month you get to pick my brain in groud discussion through this site. Our higher tiers allow you to direct research and get access to me and my staff over the phone.

Subcategories

Page 1 of 2

PRICE OF VEGOLD

  • Latest

  • Recommend

Loading
Loading
Cron Job Starts