"Another Crisis Is Coming": Jamie Dimon Warns Of The Next Market Crash

Tyler Durden's picture

Last October’s Treasury flash crash — which Gregg Berman will tell you wasn’t the fault of HFT and which will likely repeat at some point or another thanks to the fact that Fed purchases have reduced market depth — may no longer be a once every three billion year occurrence as statistics would dictate, Jamie Dimon observes, in his latest letter to JPM shareholders, before suggesting that the event “should make you question statistics.” Amusingly, Dimon seems to confuse cause and effect a bit, as it’s really not the fault of “statistics” per se, but rather the fault of shifting market dynamics (and by “dynamics” we mean increased manipulation and never-before-seen distortions and dislocations) that have rendered the old statistical models obsolete. But at least Dimon sees the event, and recent similar shakeups in FX markets for what they are: “warning shots across the bow.” Here’s Dimon:

Recent activity in the Treasury markets and the currency markets is a warning shot across the bow 


Treasury markets were quite turbulent in the spring and summer of 2013, when the Fed hinted that it soon would slow its asset purchases. Then on one day, October 15, 2014, Treasury securities moved 40 basis points, statistically 7 to 8 standard deviations – an unprecedented move – an event that is supposed to happen only once in every 3 billion years or so (the Treasury market has only been around for 200 years or so – of course, this should make you question statistics to begin with). Some currencies recently have had similar large moves. Importantly, Treasuries and major country currencies are considered the most standardized and liquid financial instruments in the world.

Next, Dimon decides he’s going to do some thinking about what a new crisis might look like under existing market conditions and the new regulatory regime. You can read the entire three-page “thought experiment” on pages 32 through 35 of the letter (below), but the conclusion Dimon ultimately comes to is this: 

The items mentioned above (low inventory, reluctance to extend credit, etc.) make it more likely that a crisis will cause more volatile market movements with a rapid decline in valuations even in what are very liquid markets. It will be harder for banks either as lenders or market-makers to “stand against the tide.”

Perhaps more important are the JPM chief’s observations about liquidity in credit markets which, as regular readers are no doubt aware, is a topic we’ve been pounding the table on literally for years: 

There already is far less liquidity in the general marketplace: why this is important to issuers and investors

 

Liquidity in the marketplace is of value to both issuers of securities and investors in securities. For issuers, it reduces their cost of issuance, and for investors, it reduces their cost when they buy or sell. Liquidity can be even more important in a stressed time because investors need to sell quickly, and without liquidity, prices can gap, fear can grow and illiquidity can quickly spread – even in supposedly the most liquid markets. 

 

Some investors take comfort in the fact that spreads (i.e., the price between bid and ask) have remained rather low and healthy. But market depth is far lower than it was, and we believe that is a precursor of liquidity. For example, the market depth of 10-year Treasuries (defined as the average size of the best three bids and offers) today is $125 million, down from $500 million at its peak in 2007. The likely explanation for the lower depth in almost all bond markets is that inventories of market-makers’ positions are dramatically lower than in the past. For instance, the total inventory of Treasuries readily available to market-makers today is $1.7 trillion, down from $2.7 trillion at its peak in 2007. Meanwhile, the Treasury market is $12.5 trillion; it was $4.4 trillion in 2007. The trend in dealer positions of corporate bonds is similar. Dealer positions in corporate securities are down by about 75% from their 2007 peak, while the amount of corporate bonds outstanding has grown by 50% since then.

 

Inventories are lower – not because of one new rule but because of the multiple new rules that affect market-making, including far higher capital and liquidity requirements and the pending implementation of the Volcker Rule. There are other potential rules, which also may be adding to this phenomenon. For example, post-trade transparency makes it harder to do sizable trades since the whole world will know one’s position, in short order. 

Here's a look at Treasury and bund market depth:

And here's the full letter from Dimon (note the amusing cover image):

JPMC-AR2014-LetterToShareholders

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101 years and counting's picture

what a pair of balls on this douchebag.  destroy capitalism, force the fed to print trillions and then whine about the fact there isnt enough liquidity because the fed is holding all the liquid assets?  i dont know who i hate more.  Dimon or Bernanke.  Prob Dimon.  Bernanke was just a puppet for the bankers....

LoneStarHog's picture

Don't insult douchebags.  At least a douchebag has a productive purpose in life.  Dimon has absolutely NO purpose in a civilized society.

BandGap's picture

Dimon and Larry Summers double team no-look confusion maker.

http://finance.yahoo.com/news/dimon-now-summers-theres-liquidity-1301205...

When people start making excuses for shit that hasn't happened the light at the end of the tunnel is that train.

Off topic, but has anyone tried to buy a revolver lately? I went to three places yesterday and all the revolvers under a 4" barrel are sold out, and have been for months. Hmm. All the dealerships said their orders are never filled to the extent they need. Handgun shortage?

Pinto Currency's picture

 

Dimon and Summers - Flash crashes are coming because we rigged the gold market and interest rates.  It's all coming down.

max2205's picture

His his daughter still a virgin?  7 std dev says yes.

kliguy38's picture

The pigmen cryeth too much.

rccalhoun's picture

greenspan, dimon, summers all supporting the ZH mantra.  guess those 3 were the smart ones...since they caught the upside and ZH was 6 years early.   down vote me.  i dont care.  those three are cock suckers, but they made the $$$$.  ZH advice has been hazardous to your wealth.

101 years and counting's picture

well, when you set the policy and then tell the puppet at the Fed what to do, its kinda hard to not make money.  us pee-ons just aren't privvy to when dimon and the others schedule the dump in stocks.

RU-GAY2's picture

You mean the crisis you helped create Jamie Demon?  Thanks for the heads up....

TahoeBilly2012's picture

Love these guys..."doing Gods work" outta one side of the mouth "prepare for collapse" out of the other....I guess they can have it both ways....another Khazarian who almost looks like a WASP, plays it up too.

espirit's picture

Wall Street out of control (or in control?) of fed.gov pensions.

If I had a dime in it, I'd be sweating bullets.

whotookmyalias's picture

I would love to know what the founding fathers would have considered cruel and unusual punishment for the likes of him.  I have a feeling being tied spread eagle to a small boat and being pushed out into the ocean would have been deemed not harsh enough.

TeamDepends's picture

Someone's gonna have to go back and get a shitload of small boats! No, being as cruel as possible sinks us down to their level. Good old-fashioned public hangings are what we need. And bring the children, as we must never forget. This can NEVER happen again.

Save_America1st's picture

You all see what's going on, of course.  All the criminal douchebags are now changing their tune and "warning" us of the doom we've known about and have been warning everyone else about for years and decades.

Greenspan, Dimon, Buffet, etc.  They drove the world into a pit of debt and doom and now they're acting like our saviors by "warning" us of the cliff that they have driven us off us.

If all these treasonous scum were rounded up and put on trial for their crimes against humanity it would make the Nuremburg Trials look like an easy day in traffic court by comparison. 

bwh1214's picture

You don’t get any more biased than Jamie Dimon.  What a horrible man.  This is a better place to start for the truth, I admit it starts off slow but it’s a good read:

 

http://www.debtcrash.report/entry/history-and-introduction

AE911Truth's picture

There can be no recovery until the wealth the bankers stole is returned to the people from whom it was stolen.

Without justice there can be no _____.

 

TeamDepends's picture

>Satan's minions

>Doing Gods' work

pgroup's picture

It's a big club and you ain't in it.

Bokkenrijder's picture

@ rccalhoun: Unfortunately you are right. Gold is down ±30% or so, and stocks are way up. Jamie is again setting the sheeple up to buy put options, so that he can fleece them yet again.

rccalhoun's picture

ZH needs to report to us what jamie and larry have cooked up so we can mirror their trades and become rich.

eatthebanksters's picture

This is truly funny...a black swan event (even if the impact was not great) and he says statistics are the problem...hmmm.  I think the problems are the creation of the TBTF banks.  Our treasury market is 3x what it wasin 07' yet the depth is 25% of what it used to be...so one of their profit centers is cut off as they can't make money on Treasury trades like they used too. Poor Jamie.  Again, it seems like a lot of this is a result of regulations passed to correct previous bad behavior.  When Dimon whines everyone thinks he's being honest; I think he's using his pulpit to scare the world into making his job easier and allowing him to take more risks while passing the liability onto the tazpayer. His idea is when you can't make money under the system rules then cahnge the rules. Fuck you Jamie Dimon!   You and the other TBTF banks will fail (again) becasue you never had a viable business model.  Ponzi and racketeering models aren't sustainable even when you buy off ploiticians.   

TheReplacement's picture

I gave you a downvote despite nearly everything you said being true.  The one thing that was not true is that there was ZH advice.  I've never seen any advice or even a tip from a Tyler.  They give us accurate information with which we need to apply some thought.  If you were unable to do that successfully then you should have just BTFD which was in fact the obvious play.  Off that you would take a slice of your profit and invest in real assets as a store of value.

Start with $100.  BTFD.  Make a $20 profit.  Buy an ounce of silver.  Rinse and repeat.  Soon you would still have $100 for stocks and five ounces of silver.  The key to not getting burned is realizing you will eventually lose the $100 when it all goes belly up.  That is why you bought the silver to hold on to.  If you did it right and long enough you should have far more silver than $100 worth.

AgShaman's picture

hahaha....I just logged in to check the 'BPR'.

Wait, Zerohedge doesn't post it....hey Zerohedge, please post the BPR

LawsofPhysics's picture

Push in many states to stop issuing concealed carries.  Typical response from the debt-slaves, buy a handgun.  Wait a year and you will be able to pick up a screaming deal on something nice at gunbroker.com.  In fact, you might be able to now.

whotookmyalias's picture

I'm not sure what you are trying to say but it sounds like you think many people are buying guns for the wrong reason and if I wait a year I can get a better deal on their used gun.  That explains my down arrow. 

BandGap's picture

Already ordered. Thanks.

Revolvers comprise ~10% of handgun sales. The dealers said this was the best winter they have ever had, especially for women buyers. Another telltale sign shit is going down.

Headbanger's picture

I tell many first time handgun buyers to go with a revolver cause they don't jam, simple to clean, just pull the trigger again when there's a dud round, etc.

Notice Ruger, Taurus came out with some nice 5 round 9mm revolvers.

And no need for speed loaders with moon clips

whotookmyalias's picture

Tried to convince my dad to buy a revolver for his first handgun, but after shooting a Glock 19 he went with that.  Snubby 357 shooting buffalo bore 38 spcl is what I tell everyone who asks me.

Headbanger's picture

The 19 is one of the few Glocks Ilike.  WTF were they thinking with the 42!?

But check out these small 9mm revolvers for carry.   I might get one.

Then again.. a 460 is on my list too. Here's my hero Jerry Miculek making a sald with his:

https://www.youtube.com/watch?v=DP5WgfoDfA4

NeedtoSecede's picture

S&W 642 with Crimson Trace grips.  It prefers to ride on my hip at 4 o'clock, but sits real nice in an ankle rig.  Also works in a belly band when the wife and I go out for our pre-dawn runs, and I occassionally drop in a pocket holster when no other options will work for concealment. My preferred kit is a hi-cap semi-auto, but the revolver is hard to beat for its reliability, simplicity, and concealabilty.  Highly recommended.

But for all you weekend warriors and wannabe gunners, you need to train with any weapon you purchase.  Train, train, and then train a little more...

Urban Redneck's picture

$500 for a stock Ruger GP100??? I must be getting old.  At least I have enough of them lying around to liquidate and retire off, to bad the banknotes won't buy shit over the long term and the current price isn't likely to be sustaned w/o currency depreciation.

Headbanger's picture

Love mine!

And have you seen what comparable S&W revolvers go for!?

But I still wanna get a S&W Jerry Miculek 9m 7in model

IdiotsOutWalkingAbout's picture

Already long handguns. Major price increase to cover your handgun short(age).

USSA "lost" $500 Bn in arms to the Houthi "rebels" in Yemen. Bid on their spare sidearms.

We armed some folks.

indygo55's picture

I believe that was 500 Million not Billion.

indygo55's picture

Im going to a gun show this weekend in SW Florida. Im sure as always it will be packed and plenty of guns of all varieties will be sold. 

nope-1004's picture

 

 

"Declining Liquidity"

"Cash on the sidelines"

"Central bank invervention toward Economic Recovery"

"Low interest rates good for real estate"

"Monetizing the debt is stimulus".

 

All of the above can be replaced by one word that sums up the criminal banking syndicate:

INSOLVENT

 

 

foodstampbarry's picture

Fuck you Bernanke!

... and Fuck you Mr. Yellin!

gadflew's picture

Jamie Dimon....he never fails to keep putting the "douche" in fiduciary

Jumbotron's picture

I thought he was dying of throat cancer because he ate too much snatch.  Or was that the "other" white meat?

chilli sauce's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com

espirit's picture

I thought your website was hackensackhookers.com? 

JRobby's picture

Fuck You you Fucking Fuck

Oh, and fuck Jamie Dimon too

zjxn06's picture

Dimon: Serial arsonist warning of future flash fires.  Arrest him already.

Squid Viscous's picture

Just hang the m.f. - no trial needed. Him and Bank-fiend.

JRobby's picture

Lay really put the hurt on CA citizens

Now they are out of water

Shit!

Ken enjoying his ranch in Paraguay while the Pitkin County Coroner retires comfortably

 

pgroup's picture

Ken is taking his dirt nap. Dunno if it's in Paraguay.