The prior margin borrowing high was $381.37 billion, back in July 2007. This is an important reflection because that is months before the recession started and when certain aspects of the economy began giving warnings signs of worse things to come. What we would point out that may offer a break in worries here is that the July/July one-year comparison in margin borrowing at the peak in 2007 was a gain of almost 65%, and that is a much larger percentage gain than the year-over-year gain of almost 29% from the year-over-year comparison to the peak in 2013.

What is so different here is that the low rates (almost zero) seemingly should have started bringing back the record margin levels last year. It is concerning that it has happened at a time after the rally is so long in tooth. Investors are chasing returns with stocks already up well into the double-digits so far in 2013. We would also point out that the American Association of Individual Investors weekly bullish sentiment just surged massively in the past week, and that can be yet another reverse indicator ahead.

As a reminder, margin debt does not have to be reinvested in stocks just because it is borrowing against stocks. Borrowing on margin against big equity gains is often cheaper to borrow against positions than it is to get new loans, depending on the use and time to repay.

If you think that this is a one-off, this is not the first concern and it may not be the last. Bloomberg outlined concern at the start of this month about the margin borrowing being off the chart in March and showed a comparable chart for comparison against the S&P 500 Index.

Apparently those borrowing on margin were not too concerned with a “Sell in May and go away” theme this year.

The call from Goldman Sachs may not look like much on the surface, but investors who are holding all of these 10-year Treasury notes and 30-year Treasury Bonds better understand that the safety they purchased in uncertain times could literally come with years’ worth of interest and coupon payments gobbled up if rates rise handily.

Goldman Sachs sees 10-year U.S. Treasury yields rising from 2.03% or so today to 2.25% in the next few months and to as high as 2.50% by the end of 2013. The firm also sees inflation-adjusted TIPS rising back into positive yields from negative yields as of now. Get ready for higher yields in Japan as well. Goldman is now expecting that Japanese Government Bond yields will rise to 1.0% rather than 0.8% by the end of 2013.

So, what does this really mean to you and your money?

Investors should not have to panic over a 50 basis point rise all that much on the surface. The problem is that once rates rise, they have historically not just risen by 50 basis points or so and then stabilized. Rate cycles have historically risen much more and the only difference now is that we are coming off of historic low yields and investors currently do not demand as high of a “return on capital” after a period that a “return of capital” was temporarily good enough.

What investors need to brace for is what happens if rates rise 100 basis points or more say over the course of a year. If the 30-year long bond rises 100 basis points in a short period of time then the holder of that Treasury Bond will see the face value or market price of that bond fall by about 15% or a tad worse.

Many investors do not realize the price risk in long-dated Treasury and other bonds because bonds have been in a secular bull market for so long. The real risk is if interest rates rise 150 basis points, 200 basis points, or even more. Most long-term Treasury investors are not really prepared for that sort of move. Most would even feel like they had been duped by the Fed and the government if the value of their long-term bond portfolio is suddenly worth 10%, 20%, or even 30% less than what they paid.

Rates will ultimately go higher. What remains up for debate is when and by how much.

NBG’s ADR trading in New York has been active with almost 11 million shares bringing the stock down almost 6% to $1.34 today. The 52-week trading range is $0.61 to $3.25. Stock options trading has been thin, except in the November 2013 puts at the $1.00 strike price. We have seen 1,670 contracts trade against an open interest of 4,338 contracts.

Reverse splits are rarely considered a good thing. The question is whether or not that is the case in Greece and the lands of the PIIGS in Europe. NBG and others have been undercapitalized and the recovery until recent days is turning out to have a very short life.

More details are out about the financing. The Athens Stock Exchange daily bulletin states:

National Bank of Greece announces that its Board of Directors, having already taken into consideration the reduction, decided upon by the 2nd Repeat General Meeting of Shareholders of 29 April 2013, in the total number of existing shares (by means of a reverse split at a ratio of 10:1) from 1,226,601,200 to 122,660,120 and simultaneous reduction in share capital, due to be carried out in the course of the next days, determined under the terms of the Council of Ministers Act that (a) the number of NBG new shares to be issued under the capital increase be 2,274,125,874 and (b) the issue price be EUR 4.29 per new share after the reverse split (equivalent to a price of EUR 0.429 under today’s conditions before the reverse split). Immediately after approval, by the Hellenic Capital Market Commission, of the Information Circular for the share capital increase and approval, by the Athens Exchange, for the reduction in the number of common shares and their nominal value, details will be announced to investors by the Bank regarding the implementation of decisions taken by the said General Meeting, and the detailed terms and commencement of the share capital increase procedure.

It is interesting to see that officials are open to reducing bond purchasing at the June meeting if there is evidence of strong and sustainable growth. A problem is that officials disagree on what evidence would really indicate that there is sufficient underlying growth that would remain if the bond buying was tapered. The minutes also showed that labor markets have improved since last September. That jobs market is what many Fed members want to see improving.

What you have is evidence that Fed officials are starting to think that the bond buying aspect of quantitative easing may not be helping that much. That being said, there is really only one dissenting voice among the voting members of the FOMC.

The markets have continued looking for a reason to sell off and that is what they have done. The S&P 500 is now down 8 ponts at 1,660 after having been over 1,680 this morning. The DJIA is now down about 30 points at 15,356 after having been challenged 15,550 earlier.

FULL FOMC MINUTES

The one dissenting vote is Esther George and the minutes said,

“Ms. George dissented because she continued to view monetary policy as overly accommodative and therefore as posing risks to the long-term sustainable growth of the economy. She expressed concern that the stance of policy might be fostering imbalances and excessive risk-taking in some financial markets and institutions, and she cited the potential for the Committee’s ongoing asset purchases to complicate the future conduct of policy, raise uncertainty, and affect future inflation expectations. Accordingly, Ms. George preferred to signal a near-term tapering of asset purchases, which would begin to move policy toward a more appropriate stance.”

Bernanke’s main talking points are that fiscal policy remains a drag on the economy this year, growth has continued at a moderate pace, government spending declines acted as a drag, long-term inflation expectations remain stable, aggressive monetary policy has reduced headwinds, the pace of assets purchases could change based on conditions and credit quality of some loans has eased.

The one thing that the stock and bond bears will hang a hat on is that Bernanke did admit that a long period of low interest rates does come with risks. That being said, our own interpretation is that Bernanke is telling the bears to relax, as you will see here.

Here is the takeaway quote that should ease concerns that the Federal Reserve will drastically cut its easing and bond buying.

A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further. Such outcomes tend to be associated with extended periods of lower, not higher, interest rates, as well as poor returns on other assets. Moreover, renewed economic weakness would pose its own risks to financial stability.

Just yesterday came word from Fed presidents Bullard and Dudley that the quantitative easing measures and bond-buying efforts do not need to be tapered off yet, and Dudley even went on to further back that up this morning, telling Bloomberg TV that any real decision to begin tapering off of the bond buying is likely another three or four months out.

Shortly before the Bernanke speech, we had the S&P 500 up 4.70 at 1673.86, and the DJIA was up 40 points at 15,427. Gold was up $7 at $1,384.60 per ounce, and the 10-year Treasury yield was 1.918%. Now the S&P 500 is up more than 10 points, the DJIA is up more than 80 points and gold went up to $1,400.

See the Bernanke’s full testimony here.

Back on April 12 along with earnings, the bank’s press release said, “As previously announced, the Board of Directors intends to increase the second-quarter common stock dividend to $0.38 per share from the current $0.30 per share, returning the dividend to its highest level. The Board has also authorized the Firm to repurchase $6 billion of common equity commencing with the second quarter of this year through the end of the first quarter of 2014. During the first quarter of 2013, the Firm repurchased $2.6 billion of common equity. The Federal Reserve asked the Firm to submit by the end of the third quarter an additional capital plan addressing the weaknesses it identified in the Firm’s capital planning processes. The Firm is dramatically increasing the resources deployed and intends to fully address their requirements. Following their review, the Federal Reserve may require the Firm to modify its capital distributions.”

Shares of J.P. Morgan Chase have hit a new post-recession high today. The higher dividend is payable on July 31, 2013 to stockholders of record at the close of business on July 5, 2013. At $53.43, the old dividend yield would be about 2.25%. The new dividend yield will be closer to 2.85%. As we pointed out that the old dividend was in place, most of the online financial website stock ticker screens already reflect the higher declared payout.

The bank’s press release confirmed that it will be officially keeping Jamie Dimon as both Chairman and as Chief Executive Officer. The annual shareholder meeting showed that the vote to split the roles of Chairman and CEO received only 32% of the votes.

While a vote of 32% of voting to split the roles might seem high, this is actually more supportive than it was in 2012 when shareholders voted some 40% of the votes to split the CEO and Chairman roles. It appears that Jamie Dimon won about 98% of shareholder support to remain as a director. All of the company’s directors were reelected as well.

Shares of J.P. Morgan hit a new post-recession high and the new 52-week trading range is $30.83 to $53.67.

Bloomberg TV reported the news and the New York Times ran something showing that Dimon was expected to hold on to both the CEO and chairman roles around 9:30 a.m. EST. The report is according to two people who have reportedly seen the preliminary vote tallies.

Investors have reason to cheer. Dimon had hinted that he might leave the bank if he was stripped of either title, and one report showed a $20 billion risk in shareholder value. That is roughly 10% of the market cap.

What investors need to focus on ahead is that there is no clear succession plan at J.P. Morgan. There have been many departures of late, some voluntary and some mandatory, in the aftermath of the London Whale trading loss scandal and under more regulatory scrutiny.

Apparently the message is out that Dimon is still the best banking CEO, because J.P. Morgan holders have now seen shares hit a post-recession high of $53.48 on Tuesday, and shares are currently up 1.9% at $53.28.

Be advised that a formal vote outcome may not be known until later today.

Jamie Dimon has floated the idea that he may consider leaving if his role is split. We noted that one analyst recently signaled a $20 billion or 10% risk that could come out of the stock if Dimon decided to leave the firm if his role is split. We have also warned of a coming activist investor bubble that seems to be forming as activist investors are attacking billions and billions worth of companies if you count the market caps.

Dimon has maintained that the issues behind the London Whale have been resolved. Unfortunately, many top lieutenants have left the firm in recent months. While this may be a sign that things were not as good as some analysts hope, this also has created a bit of a management vacuum and that leaves no heir apparent if Dimon chooses to just leave J.P. Morgan.

Warren Buffett of Berkshire Hathaway Inc. (NYSE: BRK-A) has taken sides, saying Jamie Dimon is one of the greatest bank CEOs that exists. Ken Langone, a founder of Home Depot Inc. (NYSE: HD), also has been in full support and said that he would sell J.P. Morgan shares if Dimon leaves. Citigroup Inc. (NYSE: C) recently talked up its own split role position. The bank said that the split of a chairman and CEO role have worked well for it during the restructuring.

J.P. Morgan remains one of our top banks as one of the seven safest banks in America for 2013. Unfortunately, the London Whale issue and the loss of Jamie Dimon’s ability to speak against regulation and legislation has taken the bank’s leadership role away.

So, tell us what you think in our anonymous poll below.

The use of funds for Petrobras is very different versus the consumer electronics giant’s record sale. Apple’s $100+ billion in cash is largely housed overseas where so much of its sales have taken place and it would face serious tax consequences for repatriating that capital. Apple’s $17 billion bond sale was to finance dividends and buybacks. Petrobras is borrowing this money to finance or pay for the development of its vast offshore oil fields. Apple’s capital return plan is $50 billion for the coming years, but Petrobras has an ambitious capital spending plan that could get to be more than $200 billion in the coming years.

One commonality between the Petrobras offering and the Apple offering is that there are multiple tranches in the offering. Petrobras has two floating rate tranches, with 2016 and 2019 maturities. Its fixed-rate tranches have maturities in three years in 2016, six years in 2019, ten years in 2023, and one out thirty years due all the way out in 2043.

Another commonality is solid investor demand. Corporate bond buyers have been clamoring to either find yield or to put large amounts of capital to work. Apple met strong demand and the Petrobras offering has had bids that are supposedly over 200% oversubscribed.

Is history a guide here? Petrobras is the third largest energy company in the world and has a daily output of 2.6 million barrels of oil equivalent. With a record corporate bond sale from an emerging market player, we have to wonder if the record stock sale that was also from Petrobras brings any lessons. This bond offering is also not that long after multi-billion corporate bond offerings in the U.S. from Sinopec in China and Lukoil in Russia.

To keep things even more on edge, this emerging market record bond size from Petrobras could be upsized as well because there is a possibility that foreign firms will be sold more bonds Monday night or Tuesday morning. We will update this for Tuesday as the formal pricing should be confirmed within the next couple of hours on Monday.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that these largest bank holding companies and non-bank financial institutions conduct two stress tests per year and this is the first communication of such.

Each banking firm is charged with developing its own baseline, adverse, and severely adverse scenarios. This is supposed to best reflect the strength and weakness and the individual operations and risks for each bank.

Tests conducted earlier this year used Fed-generated scenarios and the Federal Reserve also conducted its own supervisory stress tests of the institutions. Each firm will be required to release the results produced under its severely adverse scenario between September 15 and September 30.

Read Also: America’s 7 Safest Banks for 2013 

The full mid-cycle stress test instruction summary is here. Today’s news should probably be considered more routine updates than anything breaking.

We would take the cynical side of this with a simple question. If a creditor asked you to construct a financial scenario on yourself based upon your creditworthiness and your ability to operate under adverse conditions that you deem the most adverse, would you skew your valuations and assumptions higher or lower?