Bank of America reports $3.22 billion in profits with $255 million lost

Monday, in its quarterly report filed with the SEC, Bank of America revealed its second-quarter profit of $3.22 billion in total before preferred dividends thus showing better than expected results which was encouraged by the bank's foreign operations. The BofA reported it lost about $255 million in the US as the losses from failed loans continued to rise. The Bank also stated that almost all the bank's earnings of $2.42 billion after preferred dividends came from Asia, owing to a $3.5 billion after-tax gain from Bank of America's sale of part of its stake in China Construction Bank. As for the bank’s non-US operations they totaled $3.48 billion profit, including the gain. BofA’s Asia operations brought in nearly $3.58 billion during the quarter, while its Latin America and Caribbean operations made $93 million, and Canadian operations saw a $50 million profit. Operations in Europe, the Middle East and Africa lost $242 million. Bank of America recorded a $13.4 billion provision for loan losses during the second quarter as consumers struggled with debt amid rising unemployment, against $5.8 billion previous year. The results reflect the challenges the bank, like many others, still faces as it makes efforts to create a global business. BofA has about 55 million consumer and small-business customers, making it vulnerable to delinquencies and defaults, yet also ready to thrive when the economy revives. The bank got $45 billion in bailout funds as part of the Treasury Departments $700 billion financial rescue package. It's uncertain when it’s to pay the government back.

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Euro, Pound on Ease Ahead of Fed Decision (Euro Open)

Euro and Pound traders took a break during the Asian session, ahead of the Federal Reserve’s meeting. It is expected that the Fed will make note of the recent decrease in the U.S. unemployment rate and orient its language toward that fact. Chairman Bernanke and his Board of Governors may revise their language to assure the public that they will act before any form of inflation creeps ahead.

Key Overnight Developments

• Japan Producer Prices Unexpectedly Rise on Imported Inflation
• Australian Wages Meet Slowest Gain in Five Years

Critical Levels



Price action for both the Euro and Pound continued to be subdued against the U.S. Dollar. Traders, in anticipation of the Federal Reserve’s decision, were hesitant to take on new positions ahead of the crucial meeting.

Asia Session Highlights

Japan's Domestic Corporate Goods Prices rose by the largest monthly amount in exactly one year. The 0.4% jump in the cost of raw materials comes after Japanese companies found themselves paying less for such goods nine months in a row. Much of the recent upswing in costs can be attributed to a 7.5% in the cost of petroleum and coal and not necessarily a resurgence of domestic demand-led inflation. Domestic demand-led inflation must be ruled out because it appears as though many of these costs were imported. Indeed, import prices rose 1.1% while the cost of petroleum and coal that was imported rose 7.0%. This was coupled by a 1.5% decrease in the price of goods shipped abroad, which would imply that domestic prices had actually fallen in price.

Australian Quarterly Wages grew at the slowest pace in over five years, as full-time jobs were slashed in favor of part-time ones. The 0.8% gain in labor costs came during a period which saw the unemployment rate rise 0.3 percentage points to 5.8% and 11,100 net full-time positions closed. A lack of wage growth contributed to the stunningly depressive performance of the June retail sales figure. Indeed, the month saw such spending plummet 1.4% after economists had forecast it to actually rise by 0.5%. A market reaction would be inappropriate given the Reserve Bank of Australia's recently revised growth forecast. At it's regularly scheduled meeting last week, the bank predicted that the domestic economy would expand 0.5% in 2009, up from their initial estimate of a 1.0% economic contraction.

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The Bank of Buffett

As reported in a recent Bloomberg article, Warren Buffett's telephone has been ringing off the hook. As the credit markets seize-up, more distressed sellers are looking to Omaha as the last source for funding. As mentioned in the article, "Buffett right now is probably about the only money in the world, in the billions of dollars range, that the check will clear overnight." This has some analysts bullish on Berkshire Hathaway stock. Buffett is known as a value investor, and the market is certainly on sale right now. The combination of his deep pockets allowing him to buy just about whatever he wants, and his liquidity and reputation allowing him to set the terms, makes it likely that he will be able to add value to Berkshire. Of interest in the article is how the price of Berkshire stock has been rising as the TED spread (bank borrowing cost) has been increasing. As usual, market corrections have a way of separating the wheat from the chaff.

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USDJPY drops sharply to as low as 95.69

USDJPY drops sharply to as low as 95.69, suggesting that a short term cycle top has been formed at 97.78 level on 4-hour chart. Deeper decline to 95.00 zone is expected in a couple of days. Initial resistance is at 96.10 followed by 96.35, as long as these levels hold, the short term downtrend from 97.78 will continue.

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DAILY FORECAST FOR USDCHF

Bias: 1.0775-90 is the break level although there is also support at
1.0733-58 but remain aware of both sides today

Breach of 1.0835 has undermined the strongly bullish scenario but we should be patient to allow confirmation of a reversal to develop. The key support is at 1.0790 - and also possibly 1.0775. Even then there is risk of a pullback. If we see an early correction back to the 1.0835-43 area that caps then any test of 1.0790 would more likely succeed and provoke stronger losses through 1.0733-58 and 1.0681 to reach the 1.0637 area. This should prompt a correction but in time the 1.0567 low will come under pressure.

Please view the complete analysis in the attached PDF file.

For a full description of how to use the analysis please see the Analysis page of my website. The prior day's set ups for potential trading levels highlighted in the report are now available on the Daily Forecast page of my web site.

Attached Files

The Brief Daily Forecaster.pdf (23.1 KB, 0 views)

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