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Long and the Short of JPMorgan
A couple of thoughts on the debacle with JPMorganChase yesterday. Scheduled on CNBC Squawk Box at 8:00 ET today. -- Chris
http://video.cnbc.com/gallery/?video=3000089572&play=1
1) Not surprised by the size of the loss or source. You cannot be consistently right when you trade derivatives. There are times when the relationships you think exist are badly wrong, with disastrous results. But I wonder how much Dodd-Frank, Volcker Rule contributed to this outcome. Lot of change underway inside JPM.
2) The irony here is that the media and investors alike have attributed magical, super human powers to Jamie Dimon and his colleagues. But JPM is like everyone else, just a partial monopoly. The interesting thing though is to see them screw up in structured products. Again, given the risks the bank takes, not at all surprised to see this type of event. Just shows how volatile and unpredictable is the investment side of the house.
3) The other point is that these losses by JPM are entirely a function of the way that exotic derivatives for which there is no cash basis (like oil or gold) create risk that would not otherwise exist. The losses by JPM are, indeed, self inflicted as Dimon said, and entirely speculative.
Over the past couple of weeks, we have been hearing of a "change of direction" for the CIO group at JPM. As I noted here, dozens of people have been let go from this area in the past 6 months due to the Volcker Rule. The media does not get this part of the story for some reason.
The JPM CIO area had traditionally positioned the book to make money in volatile markets net short to align with the net long book of the CIO in JPM's vast securities portfolio.
Press reports recently have claimed that JPM was shifting the trading book run by "the Whale" in London to a net long position. If so, then JPM obviously wouldn't be hedging the portfolio anymore, and would actually be increasing the overall risk of the group.
Not only would this put them at risk for a big loss, but if the Whale's activity wasn't a hedge anymore, and rather "trading" risk -- then it's not clear that this activity would be permitted under Volcker.
Press reports on JPM and the Whale badly underestimate the impact of the Volcker rule on the trading operations of the large banks. But Jaimie Dimon seems to have handed his head to Chairman Vocker and the advocates of regulation with this error.
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Ahhh.......the late 70's, front porch of the old fraternity house, Van Halen blasting out from every window in the place......
Thanks for the trip back!!
Running into my ahole neighbor from college on this site was unexpected.
Why bother splitting hairs over hopeless propaganda garbage like press reports.
Shifting to net long position. Where have I heard that before...was it LTCM or MF Global?
It's his JOB, yo. This is what Chris Whalen does for a LIVING.
They made their CIO desk their new prop desk to get around Volker, and the assholes leveraged it up and were on the wrong side and were in un-liquid instruments that are getting squeezed until they plead to be put out of their misery. That is it, end of story.......Also could this be the tip of the iceberg of an even bigger trade that is going to blow up?
I will be REALLY interested into seeing what will happen with JP Morgan's shadow.......... wait for it........... wait for it...........
........... HSBC
They have moved in virtual lock step. Nobody would notice reading the news. But they have both played the "hedge". Remember when the whistle blower called them both out for manipulating the precious metals market? They both stated it "wasn't manipulating....it's 'hedging'".
JP Morgan closed out everybody in the MF Global bankruptcy. Well, all but one company. One company was allowed to help rape and pillage MF Global. That company was HSBC.
I am interested to see what the numbers are with HSBC.
Thanks for your comments. A nice heads up to keep on eye out for info on the HSBC position. Interesting.
Indeed. Well said.
Corzine shifted to his own "long position". Notice no mention of his lousy lying ass recently in the Lame Stream.
They're protecting Obama's butt-buddy. Corzine knows where financial bodies are buried.
The SEC, along with the CFTC, are feckless operations - only intimidating to the small time operators - whom they can bully and out-money in their "relentless pursuit of justice" - and even in that, their track record is soft.
The big guys? They'll threaten to blow the whistle on members of Congress, as well as other banksters.. wihich neuters them into mootness.
No worries for the Jamie demon as he is ne of Obama's 'savvy businessmen' buddies....
Look for a Fed bailout - and a few nice presents from the fed guv for this bankster predator.
Since when does the Rule of Law apply to these corporate thieves?
Ode to Jamie:
http://www.youtube.com/watch?v=yge311sFhC8&feature=youtube_gdata_player
Yeah no shit. "Wall Street gibberish meet Samurai bonds."