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Is JPM Staring At Another $3 Billion Loss?

Tyler Durden's picture


"[The trading loss] plays right into the hands of a whole bunch of pundits...."


                                                         - Jamie Dimon

There are a lot of moving parts in the Dismal tale of Dimon's demise. The starting point is that Bruno Iksil in the JPMorgan CIO Office, under the premise of hedging the bank's credit portfolio's tail risk had placed various tranche trades (levered credit positions with various risk profiles) in the only liquid tranche market that still exists - CDX Series 9 (an 'orrible portfolio of credits with an initial maturity at the end of 2012). These positions were low cost  (steepeners or equity-mezz) but needed a certain amount of day to day care and maintenance (adjusting hedges and so on). As the market rallied, the positions required increasing amounts of protection be sold to maintain hedges (akin to buying into a rally more and more as it rises). His large size in the market left a mark however that hedge funds tried to fix - that was his index trading was making the index extremely rich (expensive) relative to intrinsics (fair-value).

This is the 10Y IG9 credit index (dark blue) and its fair-value (light blue) and the difference or skew (orange). What is clear is that the index remained massively rich to its fair-value through this period (red oval) and it was not until the last two months or so that the skew (red arrow) began to compress as perhaps Iksil got the nod and more and more people realized the arb...(or understood from where the technical pressure was coming in the index rallying)...

Hedge funds began to try to arb this position and got frustrated at the lack of convergence -  and this is how we initially got to hear about Bruno Iksil - the London Whale - since those funds suggested someone was 'cornering' the index market in credit.

Critically - this is akin to looking at the 500 names in the S&P 500 - weighting them and seeing the S&P 500 index should trade at 1200 but it is trading at 1400 so you sell the index 'knowing' that the index is mispriced - (this never occurs in stocks since they are instantly and everywhere arbed between the index and its components - but can occur in credit because of illiquidity or in this case flow - what we call 'technicals').

This was very evident when one looks at the net notional being soaked up by the Whale and this 'hedge' position had clearly grown extremely large as it became a momentum trade not a hedge (at which time we suspect Iksil started to lose control). In early April, as news of this broke across the market, the credit and equity markets were beginning to quiver again at European contagion and US macro data and as a proxy for the volatility JPM must have been feeling we can see very significant (2-3 sigma) swings in the credit index they held. This would more than likely have triggered a risk manager to come along and look over the trader's shoulder - suggesting humbly that he exit/hedge/don't panic.

This is IG9 10Y spreads (upper pane) and their rate of change (lower pane) - (h/t @swaptions for idea) and as is clear the 3-sigma multiple day move likely scared a few risk managers (and Iksil) into fessing up...

Evidence from the HY market suggests that the trader used more liquid on-the-run indices to hedge as the spread of the HY18 credit index blew notably wider relative to intrinsics and net notionals dropped modestly. The market calmed down a little and it appeared from net notionals and the index skews that he tried again last week to unwind some more of the huge position that had clearly tripped various risk limits and VaR controls. This is where we find ourselves now - the net notionals remain huge (and implicitly on JPM's shooulders), his lack of selling has left the credit index maybe 20bps rich to where it might trade given its rough correlation with the S&P 500 and this would imply at least $3bn of losses already in addition at fair-value.

As is evident, IG9 credit index and the S&P 500 have moved in a very correlated manner - and IG9 net notionals (the amount outstanding in IG9 CDS) has risen alongside these moves as JPM built a bigger and bigger longer and longer credit position. The red vertical arrow shows the current dislocation if one assumes the cessation of Iksil's unwind efforts stalled IG9's selloff - which is the $3bn loss that remains to be seen and the black dotted line is an indication of the kind of notional unwind that would occur - which with a market moving as it is - would be highly disjointing.

Of course, the situation is far worse because 1) any efforts to unwind such a huge position will lead to the market yawning wide and swallowing him in illiquid bid-ask spreads; and 2) the rest of the world knows their position - so why would the hedge funds not push their position. Perhaps this explains why JPMorgan's CDS has remained relatively wide while its exuberant stock price shot up on stress-test ebullience - only to plummet back to CDS reality this evening. Critically, JPM will need to use whatever method they can to hedge this now over-hedged and over-long position - which likely means credit instruments such as JNK, HYG, HY18, and IG18 will all get their share of strange attraction as the trader mispriced not just the basis risk (the volatility between the hedge and its underlying) but the attraction of running with a trend when you have a bottomless pit of money to cover it - until now.

It is already evident in the on-the-run liquid indices - HY18 for instance has exploded wider twice now - in line with the net notional reduction and hedging moves from JPM's IG9 position...

This chart somewhat relates to the IG9 skew chart above in that it represents how far above 'fair' the spread of the index trades relative to the underlying names - the spikes show that there was huge technical demand for the index protection relative to the underlying risk of the portfolio.

and perhaps there was already concern in the market with regard JPM's counterparty risk or exposure from hedgies' trades as CDS has been far less exuberant than stocks...


Of course noone knows for sure what exact positions Iksil had on - though it is clear what hedging he needed to do to manage his hedges. As Peter Tchir ( @TFMkts ) noted this evening - perhaps this mark-to-model irregularity is what the Fed discovered and gathered all the banks last week to ascertain just who has what exposure to whom? As we tweeted earlier, perhaps Iksil just got carried away - and please understand that while CDS do indeed provide leverage, so do many other financial instruments - it is not the instrument that caused this - it is the trader as "you don't hedge risk when you bet on momentum continuing you idiot!"

Addendum - VaR is almost entirely useless as a risk statistic in regard to the kind of highly non-linear positions that we are talking about here and so the doubling of JPM's VaR suggests the tail-risk (or conditional VaR) is considerably larger.


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Fri, 05/11/2012 - 02:42 | 2416392 Deo vindice
Deo vindice's picture

I'll save you some time.  Here are some definitions of abbreviations:

An abbreviation (from Latin brevis, meaning short) is a shortened form of a word or phrase. Usually, but not always, it consists of a letter or group of letters taken from the word or phrase. For example, the word abbreviation can itself be represented by the abbreviation abbr., abbrv. or abbrev.

And for even more definitions try

Thu, 05/10/2012 - 22:31 | 2416041 Miffed Microbio...
Miffed Microbiologist's picture

Count me in too! I'm just getting a lot of satisfaction knowing some asshole somewhere is feeling some pain even though i can't understand why. Not enough for me to be truly happy but at least it's a start. Damn, wish this was really enough to bring them down! Of course, what's a minnow to a whale.


Fri, 05/11/2012 - 01:55 | 2416344 Nobody For President
Nobody For President's picture

Ditto - ZH is like a post-grad course in real-world finance, and it has been run like hell or get drug sometimes. (Drug - not drugged, though that can help sometimes also.) I read the above twice, and am primed for a third go-round. I googled out on 'tranche trade' and found this article from only a few days ago about CIO and the stresses being set up by them, for those of us struggling to get this stuff:

Even with diagrams, this stuff can make your head hurt.

There are also links from this article with further explainations.

Hope this helps another - I've been helped along plenty this past year.

Thu, 05/10/2012 - 21:30 | 2415838 D-2
D-2's picture

It isn't meant to be understood. It's all a huge gimmick. The whole economy of the entire world is one huge gimmick.

Thu, 05/10/2012 - 21:38 | 2415873 Buckaroo Banzai
Buckaroo Banzai's picture

Let me simplify it for you. They took a bunch of free money they printed up, then fucked a lot of hookers and snorted massive amounts of cocaine. Then they made a bunch of guaranteed, lead-pipe cinch one way bets...that worked fantastic until they went the other way.

Then they left the shareholders and the taxpayers holding the bag.

Thu, 05/10/2012 - 21:46 | 2415906 Chaffinch
Chaffinch's picture

I get it now!

So now we are just wondering how many IOUs are inside the bag?

Thu, 05/10/2012 - 22:13 | 2415993 Buckaroo Banzai
Buckaroo Banzai's picture

Then when we are done wondering, we pay for them.

Thu, 05/10/2012 - 22:46 | 2416078 Chaffinch
Chaffinch's picture

For the hookers? We have to pay for their hookers? Is that going to add a lot onto the bill?

Can we look in the bag yet?

Thu, 05/10/2012 - 23:24 | 2416157 Tijuana Donkey Show
Tijuana Donkey Show's picture

You don't have to pay, if you tell them your with the Secret Service. 

Fri, 05/11/2012 - 15:48 | 2418399 Papasmurf
Papasmurf's picture

I tried that. They assumed I was American and didn't know the value of money.

Thu, 05/10/2012 - 22:52 | 2416084 knukles
knukles's picture

A second time, if you will.
It was our money they lost first and then we whose money was lost have to pony up a second time to make the loss whole.

No kidding.
That's whatthefuck is going on.
And yes, I do understand this shit, fully.


See, it's like MGF.  Corzine's minions take the money from client accounts.  Say it (for sake of ease of computation) was $500MM.  Placed into the firm's accounts and the "lost" it. 
OK, with me to here?
But, and here's the fucking but....

They didn't post any collateral into the client accounts when they "borrowed" the money, and now it's gone.
So how much is missing?

The original $500MM PLUS the Collateral which never got posted of another $500MM, for a total of $1.0B.

That's how this shit works.

Then, they run it through London (as in City of, not tourist horse shit) and one can take the supposedly disappeared $500MM and before it went bye-bye, post it as collateral a bazillion times over again and again for other transactions.
No kidding.
That's what infinite re-hypothecation means, kids.

Now, of you got it, it sounds like too good to be true, what a fucking ripoff, they can't do that, etc., you gotta be fucking kidding me.
Sound like it's worse than Madoff, eh?
Yeah, because it is!

Hold on tight.
That's right.
You got it.

Welcome to the Peasantry looking through the fences at the New Versailles form the Way the Fuck Outside.


But this case was just wrong leveraged bets that they claimed weren't bets.  With depositor's/lender's monies of one form or another.  This is simple shit.  Just done with a variety of conjured up synthetic nobody knows or really cares imaginary financial instruments that in the end are no fucking different than a Casino.
With full regulatory approval.
And nobody's gonna go to jail... Unless it's the Whale who gets pegged as broke the rules, etc.  Nobody senior will even sweat it.  And will still get a Big Fat Bonus.


PS and with MFG it was actually 3x as the money was once stolen in the US without collateral (second) then sent to London (3x) then rehypothecated (+infinity).  But thats where it does get too confusing to even bother.....

Thu, 05/10/2012 - 23:24 | 2416153 Animal Cracker
Animal Cracker's picture

I love you.

Fri, 05/11/2012 - 00:12 | 2416220 Future Jim
Future Jim's picture


What I'm wondering now is why they needed to use depositors' money at all given fractional reserves and rehypothecation.

Also, if they have any assets remaining, then why couldn't they use those to make depositors' accounts whole?

Perhaps they are just SAYING that was depositors' money to get a bailout?

Fri, 05/11/2012 - 02:33 | 2416380 delacroix
delacroix's picture

the depositors were the only ones with any real money in the game. the huge fake losses, are just the ruse, to hide the original theft, of real money

Thu, 05/10/2012 - 22:36 | 2416051 Rubbish
Rubbish's picture

It's nice to be poor, you can just slip right into FREE !

Thu, 05/10/2012 - 21:59 | 2415952 TonyCoitus
TonyCoitus's picture

It all works until it doesn't.

Thu, 05/10/2012 - 22:58 | 2416110 WonderDawg
WonderDawg's picture


Thu, 05/10/2012 - 22:11 | 2415983 Jack Burton
Jack Burton's picture

+ 1,000,000 Buckaroo Banzai! These JPM financial engineers, many probably in their mid 20's with no real experience in the work world or the financial world are turned lose to create poison financial positions inbetween spending their massive bonuses on butt fucking bimbos while snorting 50K $$ worth of coke a night and then going to some trading desk and working out skimming schemes to steal from the real economy.

Useless pricks. I'de like to see them all shipped to Afghanistan and sent out on patrol with minimal training and a shortage of ammo. The friggen Taliban would sort those useless cocain heads out in double quick time.

Decapitate the useless pricks!

Thu, 05/10/2012 - 22:18 | 2416001 Buckaroo Banzai
Buckaroo Banzai's picture

Decapitate them??

Q: who let them print up the free money in the first place?
A: we did.

Thu, 05/10/2012 - 22:56 | 2416104 knukles
knukles's picture

Needs apply the Soprano rule.

I lets you do it and I gets no fucking taste?

I forgot where it came from but's something like this: I get my taste or your dogs get killed in front of your kids, your kids get killed in front of your wife and your wife gets killed in front of you. And then you don't wanna know.

Thu, 05/10/2012 - 22:22 | 2416015 ihedgemyhedges
ihedgemyhedges's picture

Oh Jack how correct you are.  The originals were in their mid 20's and no's all right here:

Thu, 05/10/2012 - 22:49 | 2416090 Chaffinch
Chaffinch's picture

De-capitation is too good for them.

Thu, 05/10/2012 - 23:02 | 2416112 Hulk
Hulk's picture

I'm thinking Human meat slicer, 2.5 mm thick slices. Feet first...

Fri, 05/11/2012 - 04:09 | 2416444 CuttingEdge
CuttingEdge's picture

Testicular removal with a blunt spoon works for me.

Thu, 05/10/2012 - 22:33 | 2416044 kahunabear
kahunabear's picture

Funniest thing I have read all day, year maybe.

Thu, 05/10/2012 - 21:56 | 2415931 The Alarmist
The Alarmist's picture

"Wow I wish I could understand all this shit!  This must be how these bastards get away with this shit.  Not enough people that matter can understand any of this."

Yeah, first we sell you the product, then we give you the results, but we never show you the model, so you really never know if the results we are giving you are real or not. Oh, and you pay us 2&20 for the privilege of being screwed.

Nice work if you can get it.

Thu, 05/10/2012 - 21:15 | 2415779 Bill D. Cat
Bill D. Cat's picture

 So ...... when does Moody's whack the rest of these fuckers ?

Thu, 05/10/2012 - 21:28 | 2415828 Chaffinch
Chaffinch's picture

Did you call 911?

Thu, 05/10/2012 - 21:14 | 2415781 The Big Ching-aso
The Big Ching-aso's picture



Correction:   Is The Taxpayer Staring At Another $3 Billion Loss?

Thu, 05/10/2012 - 21:29 | 2415827 Dingleberry
Dingleberry's picture

No. The Taxpayer is looking at a 3 billion INVESTMENT. At least that's what CNBC would call it.

Thu, 05/10/2012 - 22:15 | 2415997 ihedgemyhedges
ihedgemyhedges's picture

And God knows we need a LOT more investment in this country!!!

Sincerely, one of Professor Paul Krugman's students

Thu, 05/10/2012 - 23:55 | 2416193 bigkahuna
bigkahuna's picture


Thu, 05/10/2012 - 21:41 | 2415877 reTARD
reTARD's picture

And as an added taxpayer bonus... any predictions on how big the JPM bonuses would still be this year?

Thu, 05/10/2012 - 21:59 | 2415947 Buckaroo Banzai
Buckaroo Banzai's picture

Correction to the correction: Is The Taxpayer Staring At Another $9Billion Loss?

You forgot to apply the MF Global 3x rule.

Thu, 05/10/2012 - 21:16 | 2415782 Captain Archer
Captain Archer's picture

The Jungle takes care of their own.

Thu, 05/10/2012 - 21:16 | 2415785 ultimate warrior
ultimate warrior's picture

JPM is To Big To Fail...aka a little bitch that gets bailed out for bad behavior. The tax payers will be forced to "help out."

Thu, 05/10/2012 - 21:27 | 2415824 Dingleberry
Dingleberry's picture

you mean "invest"....

Thu, 05/10/2012 - 21:18 | 2415786 New American Re...
New American Revolution's picture

There is a God, and it is not the one that Lloyd Blankenfien refers and prefers.   I call this divine retribution.

Thu, 05/10/2012 - 23:56 | 2416198 vamoose1
vamoose1's picture

to  new american


    right  on,  thats  what  this  is,  the  irony  is  breathtaking,  no  thats too mild  divine  retribution  is  right,  if  these  swaps  start dominoeing  through the  banking  system,  its  mel  gibson  running  the  fed,   check  that,  mel  gibson   president.

Thu, 05/10/2012 - 21:17 | 2415787 Raynja
Raynja's picture

The only real question is does jp morgue survive the weekend.
Bankia, greece, mf global, dexia. Someday someone will report one of the whores missing.

Fri, 05/11/2012 - 01:58 | 2416352 goldcoastgirl
goldcoastgirl's picture

And I thought the first shoe to fall would be BofA



Thu, 05/10/2012 - 21:18 | 2415790 EmmittFitzhume
EmmittFitzhume's picture

With all the collusion on wall street, who thinks JPM is the only one to be caught with their pants down?

Thu, 05/10/2012 - 21:52 | 2415919 blunderdog
blunderdog's picture

I don't think Congress would step up for TARPing right now.  No one'll see anything for at least three months.

Thu, 05/10/2012 - 21:20 | 2415792 SIOP
SIOP's picture

Surprising they came out of the closet today and not wait 24 hours till friday after the market closes for the weekend. That makes me think this is kinda sorta big deal.  (snicker)

Thu, 05/10/2012 - 21:35 | 2415853 xela2200
xela2200's picture

And apparently in a surprise call. Fishy.

Thu, 05/10/2012 - 22:03 | 2415961 HarryM
HarryM's picture

Was thinking same thing - give em the weekend for damage control -- makes absolutely no sense unless someone was going to blow the whistle - 

Looks like not much reaction from the Far East Markets - probably thinking - 3 Billion is really chump change - Gates could write you a check


Fri, 05/11/2012 - 02:09 | 2416367 Nobody For President
Nobody For President's picture

It had to be a desperate knowledge that someone was about to spill the beans big time, maybe to Financial Times/Alphaville or even Business Insider or wherever, to make this surprise call after Thursday market close and not wait until Friday close. Must have been ready to explode, so Jamie stepped up with the mega mea culpa "sorry about that, but we got it covered" story.

He at least took a hell of a lot more responsibility than Corzine. (Damning with faint praise.)

Thu, 05/10/2012 - 21:18 | 2415795 Seasmoke
Seasmoke's picture

Black Friday

Thu, 05/10/2012 - 22:07 | 2415979 HarryM
HarryM's picture

3 billion is a rounding error these days - 

Not enough money to change a thing - 

But the Fear Factor could tip it

Thu, 05/10/2012 - 21:19 | 2415797 Solarman
Solarman's picture

My question for the author, will this cause JPM to also unwind their massive PM short positions to bring overall Var into a lower state?

Thu, 05/10/2012 - 21:34 | 2415856 xela2200
xela2200's picture

Nobody knows the implications at his point. Many factors into play now.

Thu, 05/10/2012 - 21:24 | 2415807 midgetrannyporn
midgetrannyporn's picture

It sounds like a case of all pump and no dump.


Nigger forgot to duck, that's all!


[/Denzel - Glory]

Thu, 05/10/2012 - 21:23 | 2415808 the 300000000th...
the 300000000th percent's picture

This is going to too big to bail its coming

Thu, 05/10/2012 - 21:24 | 2415811 theTribster
theTribster's picture

Time to raid customer accounts, that are covertly named customer accounts so I can say we didn't know they were customer accounts, because any account labled as customer accounts cannot be customer accounts - we learned of this financial complexity through the MF Global debacle. What a fucking joke. Nothing will happen to them and they will simply either steal the money or have the fed send a batch over.

If there was only some way to communicate what is happening to the masses....

Thu, 05/10/2012 - 21:37 | 2415861 yabyum
yabyum's picture

Tribster, That is some scary shit. What is safe? What is not?

Thu, 05/10/2012 - 21:55 | 2415926 Paul Atreides
Paul Atreides's picture

I seem to remember from the MF global fiasco that customer segregated account funds ARE allowed by law to be gambled on foreign/sovereign debt due to a loophole. So if that's the case they could stick their hand in everyone elses pocket to cover some shitty derivatives bet on Greece and it would be legal. When I learned that I stopped keeping any more then a requiews float in the bank.

Thu, 05/10/2012 - 22:00 | 2415956 The Alarmist
The Alarmist's picture

"... customer segregated account funds ...."

Wow, I laughed so hard that I could taste a little vomit when I read that part.

Fri, 05/11/2012 - 00:13 | 2416223 FeralSerf
FeralSerf's picture

There is no "safe" anymore.

Thu, 05/10/2012 - 21:36 | 2415863 xela2200
xela2200's picture

Let's start a blog with all these financial information, so they can discuss it and get educated. Oh wait  Never mind.

Thu, 05/10/2012 - 21:24 | 2415812 Kaiser Sousa
Kaiser Sousa's picture

I love how its all unraveling for the sociopath bitch made cocksucking bankers...and gold and silver get clobbered on a day like today which is like every other day over the past 4 years?????????YEAH, RIGHT U BITCH ASS BANKERS.....
buy more stocks, bonds, and debt coupon dollars all u dumb ass brainwashed slaves.....I so love the ever more poignant smell of collapse...justice approaches........

Thu, 05/10/2012 - 21:27 | 2415820 Dingleberry
Dingleberry's picture

Did this Iksil fucker think he was a reincarnation of the Hunt brothers? Looks like the "whale" was riding a wave that he created instead of truly hedging. Oh well. Nothing that Blythe and Uncle Ben can't fix....I think. Maybe Iksil can blame his trades on a "fat finger". Seemed to excuse the "flash crash" if I recall. What doubt Sir Jamie will contniue to rail against any sensible bankster regulations.

Thu, 05/10/2012 - 21:37 | 2415868 Cursive
Cursive's picture


Iksil reminds me a Joseph Jett from Kidder, Peabody (c. 1992).  It's just a video game.  If the balance on your screen gets bigger and bigger, nobody questions anything and you are the toast of trading floor.  Joseph Jett profited from a simple computer glitch, Iksil profited from creating and riding his own wave.  Neither created any value of anything to anyone.

Thu, 05/10/2012 - 21:56 | 2415933 EclecticParrot
EclecticParrot's picture

With respect to whales, I imagine Mr. Dimon now understands why that nun assigned him to read Moby Dick in the 7th grade:

"Aye, aye! It was that accursed white whale that razeed me; made a poor pegging lubber of me for ever and a day!" 

"Towards thee I roll, thou all-destroying but unconquering whale; to the last I grapple with thee; from hell's heart I stab at thee; for hate's sake I spit my last breath at thee."

Fri, 05/11/2012 - 02:39 | 2416389 delacroix
delacroix's picture

lee harvey iksil, the lone trader

Thu, 05/10/2012 - 21:27 | 2415823 myshadow
myshadow's picture

The only real coverage of this as of 5 pm pacific time was fox business.  charlie gasparino was breathless defending what jpm has been doing.  He would step on liz macdonald and spew that a bunch of 'democrats' will be trying to make hay of this opposed to just what the fuck are they hedging, and why are they having to defend that position....what were they messing with and is this yet another chapter of MF global.

Thu, 05/10/2012 - 21:28 | 2415830 fonzannoon
fonzannoon's picture

If JPM is down 3% at the close tomorrow and these talking heads are cheering what a great buy it was I give up.

Thu, 05/10/2012 - 21:31 | 2415836 MsCreant
MsCreant's picture

We had a 40% retrace, I believe, during the last crash on PMs.

Then that shit went to the moon, my fellow bitches.

You a PM long? I am. White knuckle time.

Thu, 05/10/2012 - 21:40 | 2415876 yabyum
yabyum's picture

MsCreant, Yup! Put on your big boy pants and hang on Loretta!

Thu, 05/10/2012 - 21:41 | 2415887 WonderDawg
WonderDawg's picture

Hiya, MsC! If metals crash, it might be the buying opportunity of a lifetime.

Thu, 05/10/2012 - 21:50 | 2415916 Dr. Engali
Dr. Engali's picture

Or we may just end up with free gold as people won't let go of their physical regardless of the paper price.

Thu, 05/10/2012 - 22:30 | 2416040 The Alarmist
The Alarmist's picture

Yeah, risk-reward is for us mere mortals.

Thu, 05/10/2012 - 23:13 | 2416137 knukles
knukles's picture

No white "Knukles". :)

Nothing has changed.
If anything the whole system has become more concentrated, leveraged, credit sensitive, populated with lower credit quality, the rot spreads way further than a simple Lehman and AIG (think a whole continent, the EU, of banks, insurance companies, pension funds, sovereign wealth funds, etc, ad hoc, Vootie) ...

And, nobody has the wherewithal to sell out and buy back at the right time, regardless of the pabulum, boasting and lack of contrition, even the most vaunted souls populating the herein.

People's own egos will fail them at the most stressful of times.

Gold and silver should be viewed as long term Armageddon instruments.  Which they will be.  History repeats, rhymes, looks similar, too many coincidences.
Put the statements away and don't worry about the PM's

My own suggestion is that better worry about the rest of your portfolios and lock up a stable high quality level of dependable income for a long time. 
This shit ain't goin' away any time soon.
De-leveraging hasn't even yet begun in a serious manner.

Times are going to be tough for a very long while.  And probably without the disappearance of mankind, reform of the financial or political systems.   And if history is any guide, cans can be kicked for a much longer time than most contemplate.

No white knuckles
However, any Knukles is A-OK  :)

Fri, 05/11/2012 - 00:41 | 2416256 MsCreant
MsCreant's picture

"And, nobody has the wherewithal to sell out and buy back at the right time, regardless of the pabulum, boasting and lack of contrition, even the most vaunted souls populating the herein.

You got this. No debate.

Knukles are good. Would love to talk, I don't know how to leave message on the "relationship" stuff. I think we both need to accidentally be here at the same time for it to work. 

Fri, 05/11/2012 - 07:48 | 2416625 Chaffinch
Chaffinch's picture

Hanging on for the wild ride MsCreant, but although history rhymes, we won't get an exact replay. All I mean is that no-one here should be thinking they can sell at $29 or $1580 and buy back 35% lower. The roller-coaster is going to be making some climbs up - and maybe it won't scream down as far as it did last time (or even at all, given the pull-back to where we are now) - because quite a lot more people are awake this time around. There has undoubtedly been a lot of collusion between CBs in managing gold's price thus far, but some of the CBs must be starting to develop white knuckles by now, surely? When I look at how seriously some of the smaller CBs (e.g. Mexico) are stacking their gold it makes me think that they are starting to behave pretty much like the ZH stackers - every time the price dips they are going to be tempted to buy at bargain prices, in case some other CB snaffles it and they miss their opportunity. The big advantage they have over ZH stackers is that they can print fiat to buy with (once they have used up their foreign currency reserves). If there wasn't some real competitive pressure amongst the CBs they wouldn't have let the price rise quite so fast as it has done.
I'm not disagreeing with anything you are saying - you and Knukles seem to understand this thing much better than most (and certainly a load better than me!) but I don't want people here to get the idea that the experts here are saying prices are going to follow the same pattern as 2008, because if so some will jump ship and try to climb back on when it is too late.
But it's fair to warn everyone that this is going to be a wild ride - as Knukles says - put the statements away / stop worrying about the fiat price (easier to say than to do!).

Thu, 05/10/2012 - 21:30 | 2415840 roguetraderinchicago
roguetraderinchicago's picture

What is it going to take for some administrtion to give a fuck about these bastards using other peoples money to get rich!?!?!


Thu, 05/10/2012 - 21:38 | 2415874 xela2200
xela2200's picture

Who do you think fund their campaigns?

Why do you think that when they are in front of congress they are laughing?

Thu, 05/10/2012 - 21:32 | 2415841 Some Bloke
Some Bloke's picture

When you think of what banking once was - taking deposits and making home loans - it really shows you how f*cked in the head these bankers are these days. 

Thu, 05/10/2012 - 21:40 | 2415880 newworldorder
newworldorder's picture

Dont blame them. Blame the Congress and our Rhodes Scholar President Clinton for gutting financial regulation against the rest of us.

Thu, 05/10/2012 - 21:57 | 2415938 grey7beard
grey7beard's picture

>> the Congress and our Rhodes Scholar President Clinton


How coy of you to completely side step the fact that Gramm-Leach-Bliley was a Republican bill that finally passed after many years of effort by said Republicans and many many millions of dollars in campaign contributions from the TBTF banks.  I applaud you for mentioning Clinton by name, as that shit bag deserves his share of the blame, but I damn you for not instigating the authors, movers and shakers of the bill.  Credit where credit is due, my friend.

Fri, 05/11/2012 - 02:32 | 2416379 SDShack
SDShack's picture

Actually, the facts are that Gramm-Leach-Bliley was passed with overwhelming DEMOCRAT support in both the House and Senate (votes=House 362-57, Senate 90-8), and signed by DEMOCRAT Bill Clinton only after Chris Dodd and Chucky Schumer (Democrats) inserted a provision into the bill to force all merged bank/financial houses to comply with the Community Reinvestment Act... basically providing low interest mortgages, guaranteed by taxpayers, to subprime borrowers, leading to the massive housing bubble and subsequent economic collapse. So both parties were to blame. The bottom line is the Repubs should never have done anything to repeal Glass-Steagall in the first place, but the Democrats took a bad Repub bill and made it infinitely worse. So if you are going to lambast the "authors, movers, and shakers", you have to include almost all Democrats, especially Dodd, Schumer and Clinton because they are just a liable as the Repub names on the bill.

Fri, 05/11/2012 - 07:17 | 2416578 Chaffinch
Chaffinch's picture

Let's not get back on the left/ right and red / blue argument - that's the way they keep us divided and distracted. They are all in the pockets of the banksters, and vice-versa.

Thu, 05/10/2012 - 21:31 | 2415842 Thunder_Downunder
Thunder_Downunder's picture

There is some beautiful irony in this. Guess they needed what they stole from MFG afterall.


Wonder if Dimon is regretting the decision to pad profit margins with reduced loss provisioning these last few years...

Thu, 05/10/2012 - 21:34 | 2415848 Cursive
Cursive's picture


Regrets?  He's Jamie Fuckin' Dimon.  He won't have any regrets until the guillotine.

Thu, 05/10/2012 - 21:46 | 2415904 Thunder_Downunder
Thunder_Downunder's picture

Oh yeah.... I gotta get out more. Anthropomorphism fail on my part.

Thu, 05/10/2012 - 21:31 | 2415844 Cursive
Cursive's picture

As Peter Tchir (@TFMkts) noted this evening - perhaps this mark-to-model irregularity is what the Fed discovered and gathered all the banks last week to ascertain just who has what exposure to whom?

I thought momo chasing was encouraged by the Fed.  How the hell is JPM going to unwind this without at least a $3B capital injection (i.e. BENRON BAILOUT) from the Fed?  Or will we all just close our eyes and ignore the lack of Tier 1 capital, a la Spanish cajas?

Thu, 05/10/2012 - 21:32 | 2415847 Larry Dallas
Larry Dallas's picture

Credit never lies. It really never does. 

How it trades proverbially allows one to look into the soul of any institution.

Thu, 05/10/2012 - 22:03 | 2415970 Cloud9.5
Cloud9.5's picture

There is blood in the water.   The con is slipping out of the confidence. 

Thu, 05/10/2012 - 21:34 | 2415850 monopoly
monopoly's picture

We have talked about this for eons. Why would anyone with 1/2 a frontal lobe, invest in any bank for any reason. You do not know what is under the cover. They lie, hide, move numbers around, make mortgages disappear and finesse their books to their liking. They should all be at 0, a ward of the state, with their executives in a maximum security prison with "shared cells".

I will never understand trading a bank. 

Thu, 05/10/2012 - 21:34 | 2415854 IMA5U
IMA5U's picture

Credit should not be linked to derrivatives or ETFs


The next buble forming are the silly high yield bond ETFs



Thu, 05/10/2012 - 21:38 | 2415855 reTARD
reTARD's picture

Deleted by JPM.

Thu, 05/10/2012 - 21:37 | 2415858 newworldorder
newworldorder's picture

Who can tell us again - how these direvatives are helpfull to the US/World productive economy? Other than "hedging" what usefull purpose do these vehicles provide?

Thu, 05/10/2012 - 21:48 | 2415908 xela2200
xela2200's picture

Absolutely for nothing. What is interesting is how everybody goes along with it. Few people understood CDS, and yet they were buying them like they were hot cakes. Now they are hedging against instrument that make no sense to anybody. Is there any wonder why all these strategies based on weird formulas go wrong?

Thu, 05/10/2012 - 21:53 | 2415923 reTARD
reTARD's picture

Why introduce complexity? To hide something.

Fri, 05/11/2012 - 00:46 | 2416259 MsCreant
MsCreant's picture

You friend are poorly named. You did not tard the first time. No "re."

Thu, 05/10/2012 - 21:37 | 2415864 Extremist Tan
Extremist Tan's picture

We may all be smelling napalm in the morning.

Thu, 05/10/2012 - 21:40 | 2415872 chump666
chump666's picture

Incredible analysis ZH.

I suspect that their equity positions will unwind to support the credit position/hedges.

It is 100% going to weaken JPM overall exposure in other words they are going to be very vulnerable to margin calls and lack of liquidity.

Thu, 05/10/2012 - 21:40 | 2415883 Shibumi2
Shibumi2's picture

Can someone explain what the hell happened, and what the (non-exaggerated) results are likely to be?


It didn't seem that long ago that a billion sounded like a lot, but now...what's the big deal? Three billion sounds like chump change

Thu, 05/10/2012 - 21:54 | 2415925 xela2200
xela2200's picture

Nobody knows what the real amount is or how this will impact markets. They have confirmed 2B plus the 3B above maybe. We will see how this mess unfolds over the next weeks.

JPM has big losses and no way to unwind their positions.

Thu, 05/10/2012 - 22:01 | 2415957 Shibumi2
Shibumi2's picture

Based on past performance, I doubt there will EVER be official disclosure.


With the trillion plus sub-prime fiasco not really affecting the banks, this would seem to be nothing more than a blip.


I'm really fed up with this double-standard bullshit...society maintaining separate laws and enforcement standards based on industry sector and financial standing...and on top of it all, a bogus, fictional fiat

Fri, 05/11/2012 - 06:19 | 2416513 Kiwi Pete
Kiwi Pete's picture

Well every trader and his dog will pile in to the other side of the trade and totally fuck them up. When you're a forced seller and everyone else knows it that is not good. Remember Barings?

Thu, 05/10/2012 - 21:41 | 2415886 XtraBullish
XtraBullish's picture

They are - quite simply - criminals that own the police and the judges and the politicians.

Thu, 05/10/2012 - 21:43 | 2415892 adr
adr's picture

So essentially the Ponzi couldn't find enough new investments to pay for the clients wanting to redeem? I'm not understadning all of this.

In normal times an event like this would mean the market should drop at least 10% tomorrow. But from what it sounds like the Fed is probably going to pump at least $100 billion into the market overnight to send futures up 100 points.

Remember stocks rallied today on improving jobs numbers. CNBC told me so :]

Since we live in bizzaro world this must be the most bullish indicator of all time.

Thu, 05/10/2012 - 21:42 | 2415893 Dr. Engali
Dr. Engali's picture

This is why I love the Hedge. I can learn more in one article than I can sifting through mounds of shit in any other site.

Thu, 05/10/2012 - 21:55 | 2415922 Central Bankster
Central Bankster's picture

That, and you can reliably trade many ideas suggested here about one to three months after Tyler walks you through the logic.  Any sooner, and the lemmings are still momentum chasing against your position.

Fri, 05/11/2012 - 00:32 | 2416248 WAMO556
WAMO556's picture

And the really interesting part is this, most of the individuals that I have read really are concerned about the State of the Union and in my opinion are patriots of the highest order.

Thu, 05/10/2012 - 21:45 | 2415900 FischerBlack
FischerBlack's picture

Oh no! What does this mean for my dividend which Dimon announced two days early to show the Fed who's who?

Thu, 05/10/2012 - 21:53 | 2415927 Central Bankster
Central Bankster's picture

yah! or those share buy backs because Jamie said they have so much cash and equity.  ROFLMAO.

Thu, 05/10/2012 - 21:46 | 2415903 rsnoble
rsnoble's picture

Nice. Pump this bullshit with fucking lies to 13k then drop the bomb. Speaking of which im surprised Iran isn't being blown up simultaneously with Dimon's little mess on the back page.

Well.......let's come up with a new word for this mess. I'm tired of 'debacle'.  Last time I looked that word up the definition wasn't totally fucked, lieing bunch of goddamn theives that need to be put in fucking prison.

Thu, 05/10/2012 - 21:47 | 2415907 Dr. Engali
Dr. Engali's picture

I'm sure we will have some distraction besides gay marriage soon.

Thu, 05/10/2012 - 22:00 | 2415954 blunderdog
blunderdog's picture

[apocalypse, armageddon, catastrophe, imbroglio, disaster, cataclysm, crisis, mess, horror show, nightmare,  clusterfuck, shitstorm, hell]

Thu, 05/10/2012 - 22:21 | 2416010 rsnoble
rsnoble's picture

The Perfect Shitstorm. Hmmm........has a nice ring to it. And could cover simultaneous clusterfucks as well.

Thu, 05/10/2012 - 22:43 | 2416071 fuu
fuu's picture


Thu, 05/10/2012 - 22:44 | 2416075 sof_hannibal
sof_hannibal's picture

this must have caught them off guard... mind you the spin starts now and the wars on Monday... expect it, when you least expect it

Thu, 05/10/2012 - 22:51 | 2416094 Prometheus418
Prometheus418's picture

I like "Catastrofuck"

Thu, 05/10/2012 - 21:48 | 2415909 Mister Minsk
Mister Minsk's picture

It's time to plan for JPM's funeral.

Thu, 05/10/2012 - 21:49 | 2415910 Capt. Ray
Capt. Ray's picture

Today at 9am I closed my Chase account.[no joke]


I just love how butterflies can create sunshine.


Thu, 05/10/2012 - 21:58 | 2415945 Hannibal
Hannibal's picture

Capt Ray:

About time, now buy yourself some physical silver, Cheers!

Thu, 05/10/2012 - 21:48 | 2415913 Cabreado
Cabreado's picture

If somebody screwed-up, it will be absorbed.

This thing isn't going down 'til they say it is.

If Dimon goes, he's a sacrificial lamb...

and will be sent on his way

(he'll be ok)...

and the rest will play

'til they can't.

That is the only game they know.

Thu, 05/10/2012 - 21:54 | 2415924 Hannibal
Hannibal's picture

I'd be more concerned about "who dunit" Fukishima, Haiti and Banda Ache "quakes"??

Bet ya NikokaTesla knows!

Thu, 05/10/2012 - 21:55 | 2415930 GCT
GCT's picture

I like some of the other posters here am lost on this one big time.  When reading it in the end JPM just screwed alot of people as we will most likely bail them out of this mess and no one will go to frigging jail.  So fucking sad.  I am wondering now how many of the other big banks are involved in this and what will be done.  Did these jerks just screw over their cutomers big time all the while lying to them again as well?

What a frigging mess. I wonde how this will effect the markets and what mom and pop or person in a 401k may have just lost everything.  We ought to do the criminals that did this the same way China did theirs and sentence them to death and maybe just maybe the bankers will pay attention.  Alot of you trade or sound like you trade in the markets, I am just an old man trying to figure it all out. 

After reading this several article times, the more I seem to learn about finances and investing he stupider I feel. I hpe someone can actually explain this so an old man can understand it.  Wait maybe I do not need to understand it, but those charts and explanations look real ugly.  I remember Zh talking about JPm many times and this stuff for that thank you very much I stopped investing with them and got out months ago.  My boss may be crying i nthe morning as she has a large portion of her 401k with them.

Thu, 05/10/2012 - 21:58 | 2415940 Central Bankster
Central Bankster's picture

We can start with FREE markets where idiots who make these trades lose EVERYTHING.  Like Kyle Bass said, make all bankers liable to the equity of the bank so they don't take ridiculous risks that wipe out their depositors.

Thu, 05/10/2012 - 22:22 | 2416013 blunderdog
blunderdog's picture

"The depositors" aren't the issue. 

The big problem is that it's hard to own money when the numbers get too big.  I wouldn't worry about *anyone* whose deposit accounts total under $250K in a circumstance like this.  Similar for mutual fund holdings in things like 401Ks, etc, 

There's laws guaranteeing a lot of shit up to low figures, and fedgov will happily issue bonds to cover the vast majority of "investors."

A tiny number of folks between average and rich will be badly hurt, the even tinier number of really rich folks will pay the lion's share of the tab without much concern.  It won't be more than a hundred thousand people really injured here.

I realize this is not a popular point to raise around here, but seriously: complain about the "taxpayer-funded bailouts" all you want, but who really thinks the debt could ever possibly be paid by the "taxpayers"?  Or ever WOULD be paid by ANYONE?

The "tax" that really pays for the bailouts is levied on dollar-owners.  The populations of taxpayers and dollar-owners overlap, but they are worth distinguishing.

Thu, 05/10/2012 - 22:37 | 2416052 Central Bankster
Central Bankster's picture

Depositors certainly ARE the issue.  We want people to save money in banks, and bankers to safely allocate the capital to worthy investments.  Depositors need to be selective (have risk) because that is the free market force on irresponsible lending (as long as the banker can also lose ALL of his personal equity if his bank fails).  The problem is the system works nothing like a traditional bank used to work.  The problem is the economy is centrally planned and failing because it is centrally planned.   socialized risk, money printing, and TBTF idiot investment ideas are just symptoms of the disease.

Fri, 05/11/2012 - 00:39 | 2416254 blunderdog
blunderdog's picture

    Depositors need to be selective (have risk) because that is the free market force on irresponsible lending (as long as the banker can also lose ALL of his personal equity if his bank fails).

The legal/political system has already obsoleted/violated this principle with the FDIC.

My point is that the people with "liquid" assets beyond the insured amounts who "keeps wealth in banks" is such a teeny tiny small percentage of the population.  They won't have the clout to mobilize the commoners to pitchforks, and without that, political will to do anything truly beneficial will not be forthcoming.

I'm saying that NO WAY the contents of cash accounts held by individuals and businesses are "lost" like happened with MF Global.  Absolutely no way.  There may be periods of inaccessibility, and they can scalp everyone with any kind of risk holding, trading account,  whatever...but the demand accounts (including money markets, hah!) are already all on the gummit's hook to keep whole.  Up to statutory limits...

Thu, 05/10/2012 - 21:59 | 2415941 Hedgetard55
Hedgetard55's picture

Maaybe the dude was levered up 100x in Green Mountain and CSCO and NFLX, and all this derivative talk is BS?

Thu, 05/10/2012 - 21:59 | 2415942 SPAREPARTS
SPAREPARTS's picture

PMs could still go lower,so I am not buying just yet, I am holding long as well

Thu, 05/10/2012 - 21:59 | 2415944 Hoody Who
Hoody Who's picture

I am a PM stacker, and I am also a Christian, and I am also aware in this day and age that this evil, wicked country and world may very well be shaken to its foundation, and that right soon.

Ezekiel 7

17 All hands will hang limp and all knees will [k]become like water. 18 They will gird themselves with sackcloth and shuddering will overwhelm them; and shame will be on all faces and baldness on all their heads. 19 They will fling their silver into the streets and their gold will become an abhorrent thing; their silver and their gold will not be able to deliver them in the day of the wrath of the Lord. They cannot satisfy their [l]appetite nor can they fill their stomachs, for their iniquity has become an occasion of stumbling.


Thu, 05/10/2012 - 23:02 | 2416120 Prometheus418
Prometheus418's picture

"But he loves you."

--George Carlin

Fri, 05/11/2012 - 00:04 | 2416207 WAMO556
WAMO556's picture

REALLY??? Did you get the fax or email directly from heaven, or did you just plaigarize???

Thu, 05/10/2012 - 22:00 | 2415948 Diet Coke and F...
Diet Coke and Floozies's picture

Maybe they could make a quick buck by dumping all the silver shorts and going long instead... :O

Fri, 05/11/2012 - 00:08 | 2416211 JLee2027
JLee2027's picture

If the analysis of JPM's silver short position is even 50% correct, unwinding that position would cost trillions. Oops.

Thu, 05/10/2012 - 22:01 | 2415953 Convolved Man
Convolved Man's picture

Someone needs a new 8-ball.

Behind 'The Iksil Trade' - IG9 Tranches Explained

In the end, it is all speculation, what, if any trade they have on, but I think this explanation is far less scary, and in fact should encourage holders of JPM that their bank is well positioned to take advantage of opportunities they see in the market and potentially remain a step ahead of the competition.

Thu, 05/10/2012 - 22:07 | 2415976 Central Bankster
Central Bankster's picture

That is Peter Tchir, not Tyler.

Thu, 05/10/2012 - 22:01 | 2415958 Dr. Engali
Dr. Engali's picture

It's weird they announced this on Thursday instead of after the close on Friday.

Thu, 05/10/2012 - 22:03 | 2415967 JackT
JackT's picture

Damnit I just asked the same thing.  Didn't see your post until I posted mine...

Thu, 05/10/2012 - 22:13 | 2415996 Dr. Engali
Dr. Engali's picture

That's okay I read further after posting and saw that somebody else asked the same thing.

Thu, 05/10/2012 - 22:17 | 2416004 JackT
JackT's picture

I'm guessing no one knows.  For now I'll just assume the worse and hope for the best.  

Fri, 05/11/2012 - 01:33 | 2416307 Body of Lies
Body of Lies's picture

Easy to explain ... the big shindig at George's Cloney's tonight was adequate cover. No one in the media could graps the salient facts about JPM and besides there was a lot cleavage in Hollywood

Fri, 05/11/2012 - 07:16 | 2416570 _underscore
_underscore's picture

This is the crux for me too. Why even bother announcing it? Do other financial institutions announce bi/tri/monthly trading positions or likely outcomes 'mid-term'? Very odd indeed.

The only thing I can figure is that this is needed to offset another announcement/action in the very near future, not necessarily by JPM though.

Thu, 05/10/2012 - 22:03 | 2415962 JackT
JackT's picture

The questions I have scare me..

How deep does this rabbit hole go, that they had to make this public on a Thursday?  Why not wait until 4:30pm Friday?  Something doesn't smell right.

Thu, 05/10/2012 - 22:23 | 2416017 blunderdog
blunderdog's picture

They could actually be hoping to be able to get The Bernank and the Jeethner to pull Congress together for the weekend.

Thu, 05/10/2012 - 22:28 | 2416029 JackT
JackT's picture

hell, they're ready to scramble into action at the drop of a dime. They're always ready to make new "investments" for the public good.  

Thu, 05/10/2012 - 22:56 | 2416107 junkyardjack
junkyardjack's picture

It shouldn't take long for the Fed to put together a 3 page document signing away the country again...

Thu, 05/10/2012 - 22:03 | 2415969 DavidC
DavidC's picture

Am I missing something or could this not be where the other banks try to force the market UP to make JPM's position more untenable?

Certainly doesn't look good for JPM.

Grateful for any feedback.


Thu, 05/10/2012 - 22:17 | 2416005 distopiandreamboy
distopiandreamboy's picture

Too big too fail meets too big too sell

Thu, 05/10/2012 - 23:04 | 2416126 WatchingIgnorance
WatchingIgnorance's picture


Thu, 05/10/2012 - 22:18 | 2416008 delivered
delivered's picture

Here's the way I see it. Since nobody has frickin idea how to account for the massive amount of derivatives, all of the gains realized on these products have already been realized over the past 2 years to shore up the preceived quality and strenght of the balance sheets (from the counter party in the black). The losses were deferred as either MTM accounting was not implemented or TPTB found a way to simple adjust simple estimates and assumptions to always make sure and in the words of Clark Griswold from the movie Vegas Vacation, "I'm about even" (when asked how he was doing at the BJ table). So one party is realizing the gain, the other party deferring the loss and just like that, earnings galore for the banks. But finally a party has to take a loss on its derivative bet (which I'm assuming was authorized by Ben at the Fed) which really represents only the tip of the iceberg. I've got to figure there a massive losses manipulated, deferred, buried, dumped, etc. associated with the investment banks that have yet to be realized.

Mr. Titanic (i.e., the investment banks) meet Mr. Iceberg (derivatives or really when all is said and done, worthless soverign debt that can never be repaid). Enjoy each other's company as it won't last for long.

Thu, 05/10/2012 - 22:20 | 2416012 djcando
djcando's picture

Duck on Friday (cooked goose today)

Thu, 05/10/2012 - 22:24 | 2416018 BudFox2012
BudFox2012's picture

No one announces shit on a Thursday anymore.  Black Swan?  Or more JMP manipulation?

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