Tag Archives: PIMCO

Business, Finance, Occupation & Industry

Does Obama Hate Bank of America?

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By Matt Koppenheffer, The Motley Fool

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In the final stretch of the 2012 election, President Obama was heckled by some of his opponents for taking out a $15 million loan from Bank of America .

What did the loan represent? Depending on who you ask and which side of the political aisle they sit on, there are plenty of answers. I’d argue that the reality was probably neutral: The campaign needed a short-term loan, and the money from B of A was there and at a reasonable price.

What the loan almost certainly didn’t represent was any sort of presidential soft spot for the “too big to fail” bank. Asked by ABC’s George Stephanopoulos back in 2011 about whether Bank of America’s highly controversial debit-card fee could be stopped, the president responded:

Well, you can stop it because if you say to the banks, “You don’t have some inherent right just to, you know, get a certain amount of profit if your customers are being mistreated. That you have to treat them fairly and transparently.”

Which is wrong for a variety reasons. But that’s a discussion for another time.

Looking back at it though, I got curious: What is Bank of America to the president? A useful lending institution, or a handy political punching bag?

Banking institutions in general weren’t the president’s biggest allies during the most recent campaign. None of his top contributors came from the world of finance. Meanwhile, Mitt Romney‘s top five (hat tip to OpenSecrets.org) looked like this:

  • Goldman Sachs : $1 million
  • Bank of America: $1 million
  • Morgan Stanley : $911,055
  • JPMorgan Chase : $833,096
  • Wells Fargo : $674,076

President Obama did pocket some campaign cash from B of A, but that $257,397 was a fraction of what went to Romney.

And while the president tapped B of A for a campaign loan, his personal finances lie elsewhere. According to his 2011 financial disclosure (again, courtesy of OpenSecrets.org), he has multiple accounts — including a private client account — with JPMorgan. He has another checking account and a 30-year mortgage with Northern Trust . And he has retirement and education savings in Vanguard, Calvert, and PIMCO.

When we put it all together, we can say the following: President Obama doesn’t bank personally with Bank of America, but he is willing to give them business. He received some campaign support, but not nearly as much as his opponent received. And he doesn’t have a whole lot to say specifically about the bank, but he’s ready to jump on it when politically expedient. 

Which, if we shoved that through a word-crunching sausage maker, probably yields a very un-shocking conclusion. That is, that the president doesn’t have much of a tightly held opinion on B of A except to the extent that it helps his ends. What are his ends? When it comes to B of A, I’d say it boils down to helping the economy get back on track, and making the banking sector appear to be adhering to and benefiting from the industry changes that have come about during his administration. 

Sure, you …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

The Newest Assault on Bank of America's Profits

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By Amanda Alix, The Motley Fool

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When it comes to buyer’s remorse, the purchase of Merrill Lynch by Bank of America in 2009 probably doesn’t come close to that of the Countrywide acquisition a year earlier. The Merrill buyout has spawned its share of losses, however, and the recent blessing of the lawsuit settlement terms reached last September by B of A and a group of institutional investors is, at $2.4 billion, a princely sum that will hit the bank’s bottom line like a slap — and, it’s not the only legal morass still facing the superbank.

2008: A bad year for acquisitions
Investors claimed that they were kept in the dark regarding Merrill’s sorry fiscal state of affairs at the time of the purchase, as well as the plan to award over $3.6 billion in bonuses to executives. Later testimony by former CEO Ken Lewis lent credence to this claim, and the $50 billion deal that stockholders approved wound up costing B of A $9 billion in debt offerings, a fourth-quarter loss of nearly $16 billion, and triggered another $20 billion taxpayer bailout. At least the transaction only cost $18.5 billion, rather than the original $50 billion, when it closed in January 2009.

Unfortunately, this is not the only lawsuit pending against B of A pertaining to Merrill Lynch: Insurance giant Prudential has filed a claim in federal court in New Jersey claiming fraud on $2 billion worth of securities sold from 2004 to 2007 — and leveling racketeering charges against the bank, to boot.

A never-ending stream of legal hassles
Those familiar with Bank of America are well-acquainted with its myriad legal problems, many caused by toxic mortgages produced by Countrywide — very nicely laid out here. Peers face problems in this arena, too. JPMorgan Chase recently celebrated a win in claims filed against it by Belgian bank Drexia over $1.6 billion in soured mortgage loans, it but still faces putback claims on mortgage-backed securities valued at more than $140 billion, as well as the $33 billion complaint filed against it by the Federal Housing Finance Agency.

Wells Fargo was sued last fall by the U.S. government over a decade’s worth of shoddy mortgage production. In addition, the bank has also been sued by homeowners who claim that Wells supplied no relief to borrowers who participated in Wells-acquired Wachovia’s “Pick-a-Payment” program, despite a judge’s instruction to provide assistance.

As for Bank of America, it still faces two onerous lawsuits, neither of which has been moving in a favorable direction for the bank. One is the lawsuit brought by investors including Blackrock and PIMCO, which was settled back in 2011 for $8.5 billion, but has now been reopened because of findings by the plaintiffs that B of A acted more in its own interest than that of investors when modifying mortgages. If the settlement is not affirmed by a judge, the bank may wind up owing much more.

The other is the battle in which it is embroiled with mortgage insurer MBIA …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

1-Star ETFs Poised to Plunge: iShares Barclays 3-7 Year Treasury Bond?

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By Brian Pacampara, Pacampara, The Motley Fool

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool’s free investing community, the iShares Barclays 3-7 Year Treasury Bond ETF  has received the dreaded one-star ranking.

With that in mind, let’s take a closer look at IEI, and see what CAPS investors are saying about the ETF right now.

IEI facts

   

Inception

January 2007 

Total Net Assets

$2.1 billion

Investment Approach

Seeks investment results that correspond generally to the price and yield performance of the Barclays U.S. 3-7 Year Treasury Bond Index. The underlying index measures the performance of public obligations of the U.S. Treasury that have a remaining maturity of greater than or equal to three years and less than seven years.

Expense Ratio

0.15%

1-Year / 3-Year / 5-Year Returns

2.7% / 4.8% / 4.2%

Dividend Yield

0.8%

Alternatives

SPDR Barclays Capital Intermediate Term Treasury 

PIMCO 3-7 U.S. Treasury Index ETF 

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 81% of the 97 members who have rated IEI believe the ETF will underperform the S&P 500 going forward.

Just yesterday, one of those Fools, All-Star TerryHogan, succinctly summed up the IEI bear case for our community:

This thing is yielding 0.8%. And in order to expect capital gains, you need bond yields to go down. While there is still some room to go before we’re negative, there’s not much. I think bonds will underperform from these yield levels. I don’t think interest rates are skyrocketing any time soon, but they really can’t go much lower.

If you want market-thumping returns, you need to protect your portfolio from any undue risk. Luckily, our special report on ETFs highlights three funds that are poised to soar in the next recovery. It’s 100% free, but won’t last forever, so click here to access it now.

Want to see how well (or not so well) the stocks in this series are performing? Follow the TrackPoisedTo CAPS account.

The article 1-Star ETFs Poised to Plunge: iShares Barclays 3-7 Year Treasury Bond? originally appeared on Fool.com.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool’s disclosure policy always gets a perfect score.

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Source: FULL ARTICLE at DailyFinance

News, Politics, Government

Cypriot gov't, auditors differ on bank needs

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Cyprus‘ finance minister says the government‘s estimates of how much the country’s ailing banks need in rescue money still “differ greatly” from those of international auditors.

Vassos Shiarly said Monday that auditors PIMCO and Deloitte recommend that the banks receive enough money to be able to survive a ‘worst-case’ economic crash scenario. That would require much more money than the government believes is necessary.

The auditors’ report on the banks was submitted Saturday, but the exact amount won’t be released until Cyprus finalizes a bailout with the other 16 countries that use the euro and the International Monetary Fund, likely in March.

A preliminary bailout deal puts banks’ needs at up to €10 billion ($13.64 billion), raising concerns that the tiny country won’t be able to pay back the money.

Source: FULL ARTICLE at Fox World News

News, Politics, Government

Opportunity in Every Difficulty

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By Pamela Rosenau, Contributor Ray Dalio, the founder of Bridgewater Associates, was recently quoted saying, “If you know where you are, you know what your allocation will be.”  As we have now entered the first few weeks of 2013, we have read a flurry of predictions by market strategists, economists, and portfolio managers.  My main observation would echo the thoughts of Michael Lewitt of The Credit Strategist, “the lesson for portfolio managers is that we should stop worrying about things we can’t predict (such as the timing of the inevitable market dislocations to which current monetary and fiscal policy failures will lead) and instead focus on structuring our portfolios to be strong enough not only to withstand such events but even to profit from them.”  So how do we determine where we are currently?  I take note of a few things; firstly, Washington has been “de-risked.”  As Richard Bernstein points out, Washington has become a “sideshow” and “investors might be better served by focusing on fundamentals rather than politics.  History shows well that corporate profits and valuations and not Washington, ultimately drive equity returns.”  Secondly, some investors remain in denial about a reallocation to equities.  Citigroup equity strategist Tobias Levkovich states that some investors have missed the fact that equities have generated better returns than bonds over the past four years.  He adds that many pension managers and endowments are having difficulty achieving 6-8% like returns and “a shift back towards stocks appears very probable, but some pension benefit consultants and actuaries may need to wait for five-year numbers in early 2014 to get over the hump.”  Additionally, the bears appear to be capitulating.  Mohamed El-Erian of PIMCO recently stated on CNBC that the “new normal” (i.e. the period of low growth and high unemployment) may soon be over.  A rising GDP may force the Fed to reign in their asset purchases as they have let the market know that there is no QE infinity.  Essentially, a large opportunity remains in equities as the thirty year bond bull market appears to be coming to an end.
Source: FULL ARTICLE at Forbes Latest

News, Politics, Government

There Is Too Much Risk Tolerance in the Markets

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By Robert Lenzner, Forbes Staff I have been surprised by week after week of higher stock prices even after the 15% run-up during 2012. Investors seem to be discounting the adverse economic ramifications of reducing government spending by $1.2 trillion and the the President’s signal he means to increase taxes by closing loopholes. The most absurd sign of this new optimism is PIMCO‘s resident genius, Mohammed El-Erian’s prognostication that “The New Normal” — his very own personal warning about an age of low growth and high unemployment– is now apparently going to be replaced by far more abnormal growth, gains in employment, maybe a continued bull market as money moves from fixed income into equities. No, I reckon we should rather pay attention to the “aggressive transactions indicating the presence of risk tolerance in the markets,” according to Oaktree Capital Management’s Howard Marks in his January “cold-shower” letter. Here are Marks’ best examples for “errors of the herd”- “the brevity of financial memory,”- “the role of cycles and pendulums.” 1. During 2012 some $812 billion of new issue leveraged finance was done, eclipsing by 20%- or $160 billion– the former record amount of such risky stuff set in 2007– which was a not so early warning signal of the 2008 meltdown. 2.The scary amount of leverage is best measured by the deals arranged by private equity firms, KKR, Blackstone, Carlyle, TPG, Apollo et al. Over the past 6 months these wheelers and dealers have been employing almost record amounts of debt–debt equal to 5.5 times the EBITDA, income before interest, taxes, depreciation and amortization– of the companies they have acquired. Just to get the proper perspective on this activity– consider the revelation by Carlyle’s David Rubinstein in October, 2008 just how dangerous it was that the average debt to EBITDA in the private equity world of 2007 had risen to 6.2 times. Carlyle immediately began to cut back and try to liquidate some investments. 3. Companies are borrowing scads of money for the purpose of paying cash dividends to their shareholders– a kind of arbitrage with tax advantages– unrelated to the company’s earning power. 4. The phenomenon of CLO‘s– the ravaging monsters of 2008’s meltdown are making a comeback. I challenge the public and the rating agencies to assure me these are prudent investments for insurance companies, mutual funds, maybe even hedge funds. You want to issue a Triple C bond of very low credit safety; it’s doable because so many investors are reaching for yield. Remember reaching for yield? I can tell you all those European, Japanese and Middle Eastern banks still suing the rating agencies would like to have their money back from the foolish investments they made just over half a decade ago. As Marks so grittily puts it; “The scramble for return has brought elements of pre-crisis behavior very much back to life. Mull that description of the fixed income markets in early 2013 over– and decide what the fallout might be on equities. Just as took place most shockingly in 2008 and early 2009.
Source: FULL ARTICLE at Forbes Latest

News, Politics, Government

Bill Gross likes the 5 year treasury. Here's why.

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By Marc Prosser, Contributor In a recent interview with Bloomberg’s Erik Schatzker and Stephanie Ruhle, Bill Gross said that PIMCO currently likes the 5 year treasury. Why Most People Hate Treasuries Right Now The large majority of investors and market pundits think that treasuries of all flavors are currently a terrible investment. So, when the world’s largest bond fund […]
Source: FULL ARTICLE at Forbes Latest