My Platinum Article in CoinAge Mag; Is it JP Morgan, or JP Moron?; Gold and the Dollar; $Arna, $FB
Tooting my own horn…. My article on Platinum is in the May #CoinAge Mag. At newsstands now not online. $GLD $PL_F. Nice front cover mention of the 4 page article I did for them:
Is it JP Morgan, or JP Moron?
Quick – how did JP Morgan lose $2 bln in six weeks? Sell credit default swaps with spreads that ended up blowing out even if the underlying bond spread remained tight. To boil down a long article on this subject today from the Globe and Mail of Toronto:
“Think of it this way. If JPMorgan was using this trade as a hedging strategy, it means the company was probably short corporate bonds. (By going short, the banks benefits when the bonds do badly, while in the CDS market it suffers because has a higher change of paying out.) But because JP Morgan was selling insurance protection, the lower CDS value from wider spreads wasn’t offset by any bond spread movements.
JP Morgan wouldn’t be the first U.S. financial institution to get dinged by the basis trade. Merrill Lynch posted a $16-billion loss in the fourth quarter of 2008 for the same reason…”
See the Globe and Mail for further details: How did JPMorgan lose $2-billion in six weeks? http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/how-did-jpmorgan-lose-2-billion-in-six-weeks/article2429647/
Talk about an achilles heel ( you’ll understand that if you read the Globe article. haha.
The bottom line? JPM is not going to make the money it thought it would make in the 2nd quarter. This brings to mind the original Three Stooges. The violence of the short films (mostly committed by Moe on Larry, or Curly), was not specified in the script. Instead, non descript instructions in the script were given: “Moe punishes Curly”.
This is what’s going to happen in the market today. JP Morgan shall be punished. A pall will be cast over its shares for the rest of the quarter. JP will either have to pull some really great news out of the hat, or its stock will be punished to the point of doing the “dead cat bounce”.
Make no mistake about it. The trades that soured for JPM were not rogue trades. They were conducted by an expert trader with his bosses knowlege. The buck ultimately stops at Jamie Dimon’s office. Gosh, perhaps Jamie has overstayed his welcome?
Recently, this space mentioned the ills of Bank of America. BofA and JPM are like two peas in a pod today. Both are undergoing some slappage.
Let’s face it, we can conclude for now that not only is JPM too big to fail, but it is also too big to be run properly. Mistakes will happen with the sort of far flung structure of these megabanks.
Stocks are poised to open lower. Banks are an important part of the market. Foul ups bleeps and blunders at JP Morgan – known as the ‘King’ of risk management – is not what gets the bullish juices flowing. I realize that no one is infallible, that even King JP Morgan, can err. BUT, these are supposed to be the smartest guys in the room running these trades so I have little sympathy for them.
One might expect a larger stock market decline. But there is complaceny where these banks are concerned. First and foremost, JPM is not going to be allowed to fail as long as the Fed controls the game. Everyone knows it. But still, stocks (the Dow, S&P 500) are going to fall.
I noted my recent trade in Arena Pharmaceuticals ($ARNA). The stock is up over 100% on FDA panel backing.
Today Brings Facebook’s Last Chance To Sell Itself by http://read.bi/JlH4me
I have written ad nauseum about the long term positives for gold. Short term, the price is impacted by the strength of the dollar relative to the euro and a number of other currencies. As I stated at FUN in January during the Scott Travers conference that was open to the public, the road to $2000 is going to be bumpy. I am more convinced that $2000 shall come, but we may have to wait until at least the end of the year. Remember – I don’t see gold as a price play, I believe it should be acquired to hedge against a future dollar decline. Now is as good as any other time to purchase physical gold.
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Author Jim Kingsland
Market commentator with focus on Gold and Silver after long broadcast career at FNN, Bloomberg, and Fox. #RandomHouse published author on PMs. Jim has also been involved in projects for CAC and Coinplex.
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