Just flashing red headlines for now:
- JPMORGAN ACCUSED BY U.S. REGULATOR OF MANIPULATING POWER MARKET
- JPMORGAN ACCUSED OF MANIPULATIVE ENERGY-BIDDING STRATEGIES
- JPMORGAN ACCUSED OF ENERGY-MARKET MANIPULATION IN 2010 AND 2011
- U.S. FERC ANNOUNCES JPMORGAN ALLEGED VIOLATIONS IN E-MAIL
And now we look forward to learning how many hundreds, or maybe even thousands, of cents the settlement will be, which will also include a full wristslapping pardon of Blythe Masters of course.
Back in June 2011 we first reported how "Goldman, JP Morgan Have Now Become A Commodity Cartel As They Slowly Recreate De Beers' Diamond Monopoly" in an article that explained, with great detail, how Goldman et al engage in artificial commodity traffic bottlenecking (thanks to owning all the key choke points in the commodity logistics chain) in order to generate higher end prices, rental income and numerous additional top and bottom-line externalities and have become the defacto commodity warehouse monopolists. Specifically, we compared this activity to similar cartelling practices used by other vertically integrated commodity cartels such as De Beers: "the obvious purpose of "warehousing" is nothing short of artificially bottlenecking primary supply." Over the weekend, with a 25 month delay, the NYT "discovered" just this, reporting that the abovementioned practice was nothing but "pure gold" to the banks. It sure is, and will continue to be. And while we are happy that the mainstream media finally woke up to this practice which had been known to our readers for over two years, the question is why now? The answer is simple - tomorrow, July 23, the Senate Committee on Banking will hold a hearing titled "Should Banks Control Power Plants, Warehouses, And Oil Refiners."
- Detroit ‘Gut Kick’ Poses New Test for Long Suffering City (BBG)
- Florida lawmakers urge overhaul of 'Stand Your Ground' law (Reuters)
- Investors pour huge sums into US equity funds (FT)
- Snowden Standoff Threatens Obama-Putin Moscow Summit (BBG)
- China, U.S. companies' great hope, now a drag (Reuters)
- Morgan Stanley stock traders rebuild burned bridges (Reuters)
- Huawei spied for China, claims ex-CIA head Michael Hayden (FT)
- Gorilla Flipping Homes as Rebound Revives Rapid Trades (BBG)
- BRICS joint action at G20 summit may be wishful thinking (Reuters)
Following Barclays' fine of $453 million by FERC for manipulating electric energy prices in California (and other other Western markets), it seems the price of infamy is weighing heavy on Blythe Masters' overlords at JPMorgan in yet another derivative debacle for the "I invented CDS" queen. As we discussed in great detail here, FERC's investigations into JPMorgan's actions saw them pursuing actions against the firm and Ms. Masters. In recent weeks settlement rumors have been heard and now as the NYTimes reports, it appears - in light of last year's PR and P&L 'London Whale' disaster - the best-CEO-in-the-entire-world-so-there is preparing to settle to the tune of $500 million to keep Blythe out of jail. To settle Ms. Masters' alleged “manipulative schemes” that transformed “money-losing power plants into powerful profit centers,” and then her giving “false and misleading statements” under oath, must mean she has some serious dirt on Jamie (and his fortress balance sheet and best-in-class risk management).
Following the drubbing in commodities in Q2 it is was only a matter of time that the pendulum swung the other way. At least that is the view of JPMorgan's commodities team led by Colin Fenton who says to "go overweight commodity indices now." JPM's summary: "It’s our first OW call on commodities since September 2010… we turned underweight commodities as an asset class in November 2011, shortly after it became apparent that Europe and Australia had entered manufacturing recessions and commodities were likely to underperform equities and bonds over the following 6 to 12 months, likely yielding negative returns in 1H12. Over the past year, we have grown more positive on the asset class, as energy has improved, expected menaces in bulks and metals have arrived, and sentiment across commodities has belatedly soured. However, our strategies have sought to be directionally neutral. Now, we move to recommend a net long, overweight exposure for institutional investors for the first time in more than two years, based on ten fundamental factors we quantify in this note." Yes, that includes gold, although as a hedge JPM adds: "Liquidity could fall quickly in summertime. Buy 25-delta puts in oil, copper, and gold to protect a core position in commodity index total return swaps."
First it was the conspiracy theory that Li(e)bor traders were manipulating the entire rates market which a year ago became conspiracy fact. Then it was commodities with an emphasis on the energy market (but not gold - gold is never, ever manipulated) with even such luminaries as JPMorgan's Blythe Masters, subsequently implicated. And moments ago, via Bloomberg, to absolutely nobody's surprise, we learn that that final market which so far had not been exposed as the "wild west" of manipulators, the FX market, is part of the conspiracy "fact" too. According to Bloomberg, "employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years."
Earlier it was Bank of America reporting a perfect trading quarter, with profitability on 60 out of 60 trading days, and now it is JPMorgan's turn. Moments ago, Jamie Dimon's firm filed a 10Q in which, among other things, it announced than in the quarter ended March 31, it was profitable on 63 out of 63 trading days and had one day in which it gained more than $200 million, or said simply another case of trading perfection unmatched anywhere in the known universe except perhaps by sellers of newsletters on Twitter. It was not immediately clear why JPM got a freebie of three extra profitable trading days in the quarter compared to BofA, although we suspect Jamie Dimon's presidential cufflinks may have something to do with it. What is clear is that the probability of one firm trading without error for an entire quarter, let alone two (and soon more as other banks file their 10-Qs) is slim to quite slim. Although not nearly as slim as whoever the hot chick is on Dancing with the Stars this season, which we are confident is the only thing the bulk of the population cares about. For everyone else, there's E(rror free)-trade.
As reported earlier, JPM's head commodity maven, Blythe Masters (her very rare public appearance can be seen here) suddenly finds herself in hot water for, among other things, allegedly lying under oath, obstructing justice and "engaging in a systematic cover up" to "approve schemes" seeking to defraud the states of California and Michigan in electricity trading (Enron flashbacks are more than welcome). So just who is Blythe? Most people on this site should be very familiar with her work by now (the NYT has a good recap), so instead of reconnecting the dots, we will once again dig up the presentation by one very young Ms. Master, introducing her then quite innovative product: the Credit Default Swap, titled appropriately enough "The J.P.Morgan Guide To Credit Derivatives" (by Blythe Masters). Because it is always best to let one's work speak.
One year after the infamous Jamie Dimon "tempest in a teapot" fiasco, which promptly turned out to be the biggest TBTF prop-trading desk debacle in history, things were going well for JPMorgan. On one hand, the chairman of the TBAC (and thus US Treasury advisor and policy administrator), and former LTCM trader, Matt Zames, was just recently promoted to the sole second in command post at the biggest US bank (and 2nd biggest in the world) by assets, and first in line to take over from Jamie Dimon. On the other hand, one of Mary Jo White's former co-workers, and a JPM defense attorney from Debevoise just became head of the SEC's enforcement division, in theory guaranteeing that the US government would never do more than slap the wrist of JPM in perpetuity. And then, when everything seemed like smooth sailing ahead, the Federal Energy Regulatory Commission (FERC) showed up on March 13, the day before Carl Levin's committee released its latest report on JPM's prop trading blunder, and according to the NYT, alleged that JPM in the past several years, quietly became nothing short than the next Enron. ... But what is worst for JPM, and its brilliant (abovementioned) employee, often times credited with creating the Credit Default Swap product and market (simply an instrument to trade credit with negligible upfront collateral and thus allow equity option-like speculation in the credit realm), is that FERC may be seeking to throw the book at none other than Blythe Masters.
The man who is the chief advisor to the US Treasury on its debt funding and issuance strategy was just promoted to the rank of second most important person at the biggest commercial bank in the US by assets (of which it was $2.5 trillion), and second biggest commercial bank in the world. And soon, Jamie willing, Matt is set for his final promotion, whereby he will run two very different enterprises: JPMorgan Chase and, by indirect implication, United States, Inc.
And that, ladies and gentlemen, is how you take over the world.
Previously, in our first two editions of FleeceBook, we focused on "public servants" working for either the Bank of International Settlements, or the Bank of England (doing all they can to generate returns for private shareholders, especially those of financial firms). Today, for a change, we shift to the private sector, and specifically a bank situated at the nexus of public and private finance: JP Morgan, which courtesy of its monopolist position at the apex of the Shadow Banking's critical Tri-Party Repo system (consisting of The New York Fed, The Bank of New York, and JP Morgan, of course) has an unparalleled reach (and domination - much to Lehman Brother's humiliation) into not only traditional bank funding conduits, but "shadow" as well. And of all this bank's employees, by far the most interesting, unassuming and "underappreciated" is neither its CEO Jamie Dimon, nor the head of JPM's global commodities group (and individual responsible for conceiving of the Credit Default Swap product) Blythe Masters, but one Matt Zames.
Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).
In what may be the most amusing news of the day, according to the FT the CFTC will shortly drop its 4 year old investigation into silver manipulation, "after US regulators failed to find enough evidence to support a legal case, according to three people familiar with the situation." How about evidence to support an "illegal" case? Of course, that this is happening after the recent discovery that the world's most pervasive fixed income benchmark was manipulated for years, if not decades, can only be reason for laughter and wonder if the CFTC used the same assiduous diligence methods in pursuing the alleged perpetrators of precious metal manipulation as it did in letting the fraud at PFG slip through its fingers for two decades. We will probably never know, or at least not until an email mentioning bottles of Bollinger and silver price "fixing", (or "banging the close" for that matter) in the same sentence inexplicably turns up and makes a complete mockery of the CFTC yet again.
As readers enjoy JPM squirm his way through the JPM conference call (webcast live) explaining how it is that he not only was fooled by the CIO traders to the tune of billions, but more importantly to mismark hundreds of billions in CDS over the years, here is some delightful irony: "The J.P.Morgan Guide To Credit Derivatives" By Blythe Masters. Because it is truly ironic that the firm which created CDS will be the one responsible for destroying them.