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So How Are JPM's Prop "Counterparties" Faring?

Tyler Durden's picture


We already know that JPM has lost billions on its prop trade, and as suggested earlier (and as the FT picked up subsequently), JPM's prop desk (not to mention its actual standalone hedge fund, $29 billion Highbridge, which nobody has oddly enough discussed in the mainstream press yet) is so large that unwinding the full trade, as well as all other positions held by the CIO, would be unwieldy, allowing us to mock "the fun of negative convexity - especially when you ARE the market and there is no-one to unwind the actual tranches to." The FT then phrased it as follows: "I can’t see how they could unwind these positions because no one can replace them in terms of size. It’s a bit of the same problem they face with the derivatives trade," said a credit trader at a rival bank. "They pretty much are the market." Which actually is funny, because if the media were to actually read a paper or two on how the market works, and puts two and two together, it just may figure out that the biggest beneficial counterparty for JPM is none other than the Fed, using the conduits of the Tri-Party repo system. But that is for Long-Term Capital MorganTM and its new CIO head Matt "LTCM" Zames to worry about. In the meantime, a question nobody has asked is how have the purported JPM counterparties, the most public of which are BlueMountain and BlueCrest who leaked the trade to the press in the first place, and are allegedly on the other side of the IG9 blow up doing. Well, according to the latest HSBC hedge fund update looking at the week ended May 11, not that hot.

Now one thing we know is that when it comes to reporting one's results to an aggregator: when you have a profit you never under-represent it. And in this special case, since the funds are likely eager to recruit more like-minded hedge funds to their side of the trade, the best way to do it is by showing profits.

Which, for the early part of May, when the bulk of the JPM losses took place, are oddly missing for the two biggest players across from JPM...

So: where are the profits really going?

And is there much more here than the "access journalism" press has been let on to know?


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Thu, 05/17/2012 - 20:52 | 2437998 francis_sawyer
francis_sawyer's picture

evil speculators!

Thu, 05/17/2012 - 21:18 | 2438044 Central Bankster
Central Bankster's picture



Well we all know Jamie Dimon is "the best risk manager" .

Thu, 05/17/2012 - 21:21 | 2438051 Global Hunter
Global Hunter's picture

according the Kenyan president he's the smartest banker we got

Thu, 05/17/2012 - 22:58 | 2438301 jeff montanye
jeff montanye's picture

but let us not mock just negative convexity.  let us mock jamie as well:


Thu, 05/17/2012 - 21:35 | 2438095 stocktivity
stocktivity's picture

How many hedgies bought Apple after earnings near $600 ....if Apple keeps dropping, some other big name will be in trouble soon. How many ways can you spell "Margin Calls"?

Thu, 05/17/2012 - 22:33 | 2438245 The trend is yo...
The trend is your friend's picture

my guess is dimon has lost 20 billiion.

Thu, 05/17/2012 - 23:18 | 2438358 Harlequin001
Harlequin001's picture

On what basis? Just curious...

Thu, 05/17/2012 - 23:55 | 2438436 tekhneek
tekhneek's picture

Oh y'know... just guessin'

Fri, 05/18/2012 - 01:51 | 2438668 Harlequin001
Harlequin001's picture

Maybe, happens a lot out here. Still curious though...

Thu, 05/17/2012 - 22:39 | 2438261 Buck Johnson
Buck Johnson's picture

No place for them to unwind there positions too.  I think because of this we will see QE3 or some type of intervention before Sunday night/Monday morning.

Thu, 05/17/2012 - 23:02 | 2438320 jeff montanye
jeff montanye's picture

and blythe was sure she was earning brownie points with the knockdowns in the p.m. department.

Thu, 05/17/2012 - 23:22 | 2438366 Raynja
Raynja's picture

that or she made her bonus makng $ to fund margin calls by cashing in sold calls. interesting the london whale floated to the top at the same time the fed couldn't find anyone to ride the maiden lane.

Thu, 05/17/2012 - 21:43 | 2438123 stocktivity
stocktivity's picture

Wow!..Nikkei down 200.

Fri, 05/18/2012 - 00:11 | 2438474 Mentaliusanything
Mentaliusanything's picture

Wake me when it is 200

Thu, 05/17/2012 - 20:55 | 2438003 Caviar Emptor
Caviar Emptor's picture

TBTF blows up a trade. Do they neeed to unwind? Is there some room for negotiation? Maybe Ben can just make it all go away

Thu, 05/17/2012 - 23:23 | 2438368 Ident 7777 economy
Ident 7777 economy's picture

"TBTF blows up a trade."


THOUSANDS of checks to cut; or alternatively, several big ones to brokers in EUR?




Fri, 05/18/2012 - 00:46 | 2438543 decon
decon's picture

I wonder if there's any connection with this blow up and Dimon's unusually vocal complaints to Bernanke about Frank/Dodd at that press conference on 6-6-11?  It seemed really odd at the time that Dimon would air his bitching at that venue.

Thu, 05/17/2012 - 20:57 | 2438007 chrisd
chrisd's picture

nice of the FT to credit you

Thu, 05/17/2012 - 20:58 | 2438009 vincent
vincent's picture

QE money bitches!!

Thu, 05/17/2012 - 21:01 | 2438011 Central Bankster
Central Bankster's picture

Maybe they are long some allocation of stocks/bonds and this trade is their hedge against systematic risk?  EL OH EL.

Thu, 05/17/2012 - 20:59 | 2438013 Burr's 2nd Shot
Burr's 2nd Shot's picture

I'll take Vaporized for the win please, Tyler.

Thu, 05/17/2012 - 22:13 | 2438195 imbrbing
imbrbing's picture

What is "where did it all go?"

Fri, 05/18/2012 - 06:37 | 2438849 odatruf
odatruf's picture

Corzine worked hard to earn the moniker, damn you.  He didn't need a second volley unlike our third Vice President.

So, you'll take "Corzined" for the win, dear sir.

Fri, 05/18/2012 - 07:36 | 2438918 Burr's 2nd Shot
Burr's 2nd Shot's picture

Heard on ZH, circa 1804.

"Weehawken, Bitchez!"

Can you imagine the Pay-Per-View possibilities of a Geithner-Biden duel? 

Thu, 05/17/2012 - 21:05 | 2438025 kurt
kurt's picture

Where's the Beef?

Thu, 05/17/2012 - 21:06 | 2438026 spooncutter
spooncutter's picture

whats the difference between "losing" funds like MF global and "losing" money like JPM?

Fri, 05/18/2012 - 01:44 | 2438655 Marco
Marco's picture

The former shouldn't be legal (yes, I believe in regulation to a certain extent) the latter should be the risk of doing business (I also believe hedge funds should be allowed to blow themselves up).

Thu, 05/17/2012 - 21:08 | 2438028 chump666
chump666's picture

What the f*ck are they unwinding into?  Equities?  Nope, they would be cutting positions to cover holes.

Write-downs baby...

And we haven't yet seen a major spike in risk aversion, persistent selling but looking for that absolute fear trade. 

Fri, 05/18/2012 - 04:42 | 2438795 Bolweevil
Bolweevil's picture


Thu, 05/17/2012 - 21:08 | 2438029 q99x2
q99x2's picture

Probably called in the guy from LTCM to see if there was any possible remedy before calling the next meeting at the FED to let them know that ice-nine has re-entered the system.

Thu, 05/17/2012 - 21:08 | 2438030 junkyardjack
junkyardjack's picture

JPM:  Heads they win, Tails you lose

Don't bet against the Fed...

Thu, 05/17/2012 - 21:10 | 2438032 piceridu
piceridu's picture

I'll take "Hedging a Hedge" for one thousand Alex

Thu, 05/17/2012 - 21:10 | 2438033 Caviar Emptor
Caviar Emptor's picture

Just stick it all into the mattress. From now on there's no reason why a TBTF bank should take any risks. And if anything goes wrong just send the bill c/o Ben APO Guantanamo

Thu, 05/17/2012 - 21:11 | 2438034 veyron
veyron's picture

Fed will set up an SPV and absorb the losses of this and every other shitty CIO trade.  

Thu, 05/17/2012 - 21:27 | 2438071 Zero Govt
Zero Govt's picture

Ben the bankers pooper scooper will be round in a jiffy

Thu, 05/17/2012 - 22:49 | 2438285 Cadavre
Cadavre's picture

Ben the bankers pooper scooper will be round in a jiffy

But why? Ben's a rock star! He never pays for lunch! Mean, like, and after all, the TV set been saying the economy is recovering - everything is up, and that the apparent  capitulation by always heroic money center HFT mills [and enjoyably obviously predictable] bull chumming  uptick stuffings may offer a good opportunity for individual traders to reenter the market. Right ... like there will will be lines around the block clamoring for entry into Schwab strip mall kiosks all over the country - any minute now - yep real soon .. you wait you miss the big score - just watch the Cramer teeter todder shtick ... you're getting sleepy .. when the count hits three you be a born again true believer!

Don't cha' see: When there ain't no buyers nowhere - the problem is not the risk associated with the unconverted paper held by "Street" gang, the problem is buyer perceptions.

Forget reality. The  problem is perception!

Saw weekend gold nose dive - knew something was up. Then saw gold and market indexes traveling the same down path - double dog knew something was up - Germans are pestering their D-Bunder to repatriate off shored German gold under watch and key in US, France and UK. The 2.3 Billion JPM headline is being offed by some as ruse, a false flag, a diversion to hide an alleged wad of recent JPM naked short offers. Don't know `bout the underly. Easy to speculate the totally artificial down turn of last weekend's o/n Gold tick may have had something to do with alleged naked Morgue shorts. Easy to speculate why: 340 tonnes of offshored German gold. What if some of the offshored German gold was loaned out? The custodians would need to get it back. In a time where demand is high, the best way to lower the cost of (re)acquiring the needed German gold would be to do what the Street gang always do: Write a bunch of naked shorts!

Didn't Chanos do that to Lehmans?

Thu, 05/17/2012 - 21:12 | 2438037 BalanceOrBust
BalanceOrBust's picture

JP Morgan is fubared.   They (and they are not alone) are so deep into it only the Fed can save them (at the expense of taxpayers).  


I say let the big banks fail.  All of them.  They fubared all of society and should go down.  Whatever hell breaks loose as a result will be better than the hell of propping them up so that rich bankers can collect more bonuses at taxpayers expense.  I would rather a cataclysm that a slow erosion of Main Street that kills us all and benefits a few banksters.

Thu, 05/17/2012 - 21:13 | 2438039 JohnSilent
JohnSilent's picture

Wait for it, wait for it... The moral hazard is about to bloom!

Thanks in advance Uncle Ben!

Thu, 05/17/2012 - 21:20 | 2438042 Global Hunter
Global Hunter's picture

I have to admit I have no idea what is going on anymore, on the bright side I'd make a good candidate for a job at JPM, the Fed or the NY Fed as I'm uterly clueless. 

edit: all I can make of it is their position is so big that as the market moves and they begin to adjust their hedge that their sheer size moves the market and they have to conversely re-hedge (ie start out buying move the market up turn around and start shorting).  So they're just in a loop now.  Do I have this anything close to what's going on?

Thu, 05/17/2012 - 21:46 | 2438130 Gamma735
Gamma735's picture

I have no idea if you are right.  I thought JPM positions were so large that nobody has the resources to buy them.   Or in other words, that if they start to unwind them, there is no market for them and the price craters.  But I maybe wrong.

Thu, 05/17/2012 - 21:56 | 2438150 Global Hunter
Global Hunter's picture

Think you're right there, they became the whole market in whatever they're doing.  

Thu, 05/17/2012 - 23:51 | 2438428 PersonalRespons...
PersonalResponsibility's picture

Haven't they always been?

Thu, 05/17/2012 - 21:17 | 2438043 Reese Bobby
Reese Bobby's picture

New FT Alphaville story on JPM's CIO.  Ouch.


Thu, 05/17/2012 - 21:35 | 2438094 junkyardjack
junkyardjack's picture

Looks like they are in European mortgages, nothing to see here...

Thu, 05/17/2012 - 21:19 | 2438046 IMA5U
IMA5U's picture

the final battle between blue mountain and the last of the cds prop desks?


or are there more....



Thu, 05/17/2012 - 21:21 | 2438052 slewie-the-pi-rat
slewie-the-pi-rat's picture

"access journalism"


how 'bout abscess journalism?


Jamie one more question (and thanks for the excellent wh'orederves the other night)...

Thu, 05/17/2012 - 22:12 | 2438192 fuu
fuu's picture

Fake slewie.

Thu, 05/17/2012 - 21:23 | 2438057 insanelysane
insanelysane's picture

Wonder if the Fed is taking the position as collateral for some LTRO.  Love the fact that all of this crap traded through the UK office but the good old Fed comes to the rescue because you can never leave one of your own behind.  No conflict of interest or illegal foreign activity going on here.  Bet it in the UK and get insurance from the US.

Thu, 05/17/2012 - 21:24 | 2438065 Ted Baker
Ted Baker's picture



Thu, 05/17/2012 - 21:26 | 2438068 mickeyman
mickeyman's picture

Maybe the counterparties are those mysterious Chinese groups on whose behalf JPM is allegedly shorting silver.

Thu, 05/17/2012 - 21:30 | 2438077 JR
JR's picture

The bankers who have pushed themselves into positions of world authority, disallowing Europeans to vote on economic issues and disallowing Americans’ representative grassroots political parties, are on the dark side and past side of history. This is not the future; the future is not monarchies, oligarchies and banker dictators such as Jamie Dimon and Lloyd Blankfein.

The international bankers’ economic system, their Keynesian world plan, will not work; it will fail and fail big. And the longer it goes on, the faster it goes down.  Making good people work and forfeit their livelihoods and resources for the exclusive use of a criminal banking oligarchy directly flags the forward progress of civilization.  

These people, the financial elites who are imposing their political will on the world's markets through the power of the Federal Reserve System, are willing to destroy America and all of Europe in a one-time fast grab for all western civilization’s wealth and resources. Society in the past has had its cheaters and grabbers, but never has a vested interest achieved the no-appeal-power the Fed cartel holds over governments, wealth, natural resources, and the manpower of the world.  It is this stranglehold by Fed central planners on free enterprise that has choked the vital life out of the world’s well being, creating the adverse conditions, the JPMs et al., that are producing mass unemployment and near starvation in parts of the world.

And, now, as the whole shebang fails and the central planners can no longer revive it via more central planning, the people exercising the power have learned that if they don’t grab all they can NOW, competing crooks will take it from them.  The current situation can be likened to a group of burglars fighting over the stolen money. The people of America, finally awakening, did not expect the Fed players would actually destroy the country to satisfy their avarice. Fortunately, the economy is stronger than the Fed and takes no prisoners.

Thu, 05/17/2012 - 21:52 | 2438143 Stoploss
Stoploss's picture

Heloooo to our huckelberry.

This is got Lehman written all over it.

So, does a JPM failure result in a new currency yet?

Is this the plan?

Watch out for a fast one being pulled here, something stinks.

Thu, 05/17/2012 - 21:55 | 2438148 ss123
ss123's picture

I agree with your last part. See my post below. (not sure about the Lehman part)

Thu, 05/17/2012 - 21:54 | 2438145 ss123
ss123's picture


My hunch is that JPMs "loss" is a stimulus package in disguise.

I really don't see a lot of scrambling going on. So far the reactions have seemed tame to me.


Shit has hit the fan hard and now they're scrambling to clean up the walls before company comes over.

Thu, 05/17/2012 - 21:58 | 2438154 booboo
booboo's picture

Blue Mountain loves........................

Thu, 05/17/2012 - 21:58 | 2438155 oldman
oldman's picture

Well, if I wanted to rob a bank

I'd do it from the inside

or if I wanted to wash a few dollars

I'd use a washing machine

and if I were inside of a washing machine

with all those dollars

I'd go outside and tell the world

That the machine didn't work and I lost


And then I'd fire all of my friends                    stupid                                  om

Thu, 05/17/2012 - 21:59 | 2438159 Go Tribe
Go Tribe's picture

Thanks for the ft link. Interesting that JPM loaded up on the same toxic mortgages in the UK that caused Moody's to downgrade Santander UK. Wonder how many of those the Fed now owns.

Thu, 05/17/2012 - 22:10 | 2438186 HurricaneSeason
HurricaneSeason's picture

Bluecrest and BlueMountain hedged that trade with Oprah Winfrey Financials, but I wasn't suppose to tell anyone.

Thu, 05/17/2012 - 22:17 | 2438206 Stock-Paper-Silver
Stock-Paper-Silver's picture

For clarification, does this article imply the FED is benefiting from the other side of the non hedge, hedge gone bust, is that even possible?

Thu, 05/17/2012 - 22:21 | 2438215 web bot
web bot's picture

If they are the market and have the capacity to do this... think what these #oksukers are capable of doing to silver and gold...

Thu, 05/17/2012 - 22:25 | 2438224 Born-Again Bankster
Born-Again Bankster's picture

Any chance the slide in Silver is due to JPM prop trade related margin calls?

Fri, 05/18/2012 - 02:22 | 2438706 RECISION
RECISION's picture

Of course.

Prices (even of gold and silver) always slide in the first phase of a crisis as those exposed liquidate in order to cover. 

The strong hands and old heads stay out of the market deliberately too, in order to deepen the dip that they will buy back into later. 

Typically takes 1-4 weeks for that dip to mature then bounce.

Thu, 05/17/2012 - 22:34 | 2438244 laosuwan
laosuwan's picture

The question of who the counterparty is on these JPM losses crossed my mind immediately. Seems to me we need to know, especially if the taxpayer is going to bail out the bank. I have a sneaking suspicion that the losses are calculated and the money is really going into somebody's pockets. That is to say, this is a fraud. At the very least it is one hell of a tax deduction they should not be allowed to keep.

Thu, 05/17/2012 - 23:35 | 2438392 oldman
oldman's picture




When this blows it will make Moby Dick look like a pimple on a duck's ass.

Who or what will be left----too big for the CB's let alone the individual banks and ten years at hard labor with no pay for the 99%.

This is a just a great joke and meanwhile---------------------------------------

Well, meanwhile-----------------------------------------

It is just big for an ignorant oldman to fit in this tiny brain               WOW!!!!                       om

Thu, 05/17/2012 - 22:43 | 2438267 azusgm
azusgm's picture

Is there any possibility PIMCO could be a part of this?

Just looking for someone who could deal in bonds in the size required.

Fri, 05/18/2012 - 09:16 | 2439160 azusgm
azusgm's picture

Article from the FT stating Bill Gross is using CDS in the Total Return Fund.

"The mutual fund by comparison is so large that Mr Gross has to use derivatives such as swap contracts to express an investment view. This gives broad exposure to an index, but does not allow an investor to add value by cherry picking individual bonds."

Then again, John Paulson was playing in mortgage bonds back in January. He could be a counterparty too.



Thu, 05/17/2012 - 22:53 | 2438268 Dingleberry
Dingleberry's picture

Is this is what is known as "burying the corpse"?

I heard that term used when the Brothers Hunt tried to corner the silver market by becoming the market. The rules got changed on them, though.  

Thu, 05/17/2012 - 22:49 | 2438288 spanish inquisition
spanish inquisition's picture

One of the only people to tell us what is going on and sort out the mess is Bruno.

I wonder if Bruno is getting nervous about, you know, stuff and people... maybe personal safety...

Thu, 05/17/2012 - 22:56 | 2438309 LMAOLORI
LMAOLORI's picture

Moore Leads Hedge Funds Betting On JPMorgan Before Losses 

Soros, Singh

Billionaire George Soros’s New York-based investment firm, Soros Fund Management LLC, bought 606,400 JPMorgan shares in the quarter, according to a filing yesterday.

in full


SORO'S :) now we  know why the FBI got involved so quickly

Thu, 05/17/2012 - 23:06 | 2438326 supersajin
supersajin's picture

I smell QE3 coming. Fed is going to bail out JPM

Thu, 05/17/2012 - 23:11 | 2438338 loveyajimbo
loveyajimbo's picture

Silver will pop big if the crooks at JPM have to try to unwind THAT monster quickly... and they are probably selling their gold like mad... I would hate to have MY gold at a JPM run warehouse... or anything in the SLV and GLD... which are soon to blow sky high too... it is all paper... tha...tha...that's all, FOLKS!!

Thu, 05/17/2012 - 23:44 | 2438415 icanhasbailout
icanhasbailout's picture

Breaking... Dimon approved the disastrous trade...

Thu, 05/17/2012 - 23:54 | 2438433 azusgm
azusgm's picture

So now we're up to $5b.

Fri, 05/18/2012 - 01:46 | 2438661 Questan1913
Questan1913's picture


Yes, so far.  And let us not forget that the "desk" in London was (according to a reliable source) mangling.... excuse me, "managing" 360 BILLION of unlent DEPOSITOR funds.  If true that is almost beyond belief.  This is how depositor money is being deployed?  AND IT IS LRGAL?  If you bank with Chase, where should you be tomorrow morning?  Not a trick question.

Thu, 05/17/2012 - 23:56 | 2438440 I am a Man I am...
I am a Man I am Forty's picture

Let me guess, the money never existed to begin with, it just existed on paper in the form of a derivative, and now the paper is not worth as much.  And even more importantly, there is no one but myself (JPM) to pay me for it, because I am the market.  What a fucking absurd joke.

Fri, 05/18/2012 - 00:07 | 2438453 CreativeDestructor
CreativeDestructor's picture

Somebody let Tyler see this:

What Tyler never picked up on is that when it gets hard to trade credit index those models tell traders to instead trade major equity indexes, currencies, commodities as a proxy. So I think JPM has been buying S&P wherever and whenever they couldn't sell IG9. Hence with every 35 bps fall in market there was usually a bid and obviously they’d be selling some on small rallies. Hence the realized vol was getting crushed.

Now that game is completely over, there is no more vol crushing JPM stabilizer bid/offer. In fact JPM is short gamma if anything. Say hello to high vol regime from now on.

Fri, 05/18/2012 - 06:01 | 2438829 CPL
CPL's picture

That would require faith in the current system and FASB and all the circuit breakers to be removed.

Fri, 05/18/2012 - 02:57 | 2438719 anonnn
anonnn's picture

The founders of Morgan and Chase are long dead. Jamie Dimon is just a hired manager.

He is doing exactly what hired managers do.  Accumulate and maximize income/benefits for himself, which is often best accomplished by hollowing-out the company. Any losses are someone else's money.

It is the ultimate of corporate games after the founders depart. Peak corporation.

What do you expect?

A long time ago, when as tradesman I first got into Nuc Power Plant field, a mentor pointed to the 2 containment domes and asked " Do you know what's inside them? I hesitated. He continued, "They're full of money, and our job is to empty them".

Fri, 05/18/2012 - 03:42 | 2438774 silverdragon
silverdragon's picture

JPM you f*cked with my silver, so I am enjoying your problems.

May they continue.

Fri, 05/18/2012 - 05:27 | 2438808 Downtoolong
Downtoolong's picture

  "They pretty much are the market."

Yep, therein lies the paradox. The more you win the more likely you will eventually lose. Eventually you can only play (er trade) with yourself. And therein lies the fact that every time Blythe Masters or another one of JPM’s brass goes to the CFTC and argues how position limits are so wrong for the big banks and the world economy in general, they are lying to us and to themselves at the same time.

Fri, 05/18/2012 - 05:43 | 2438815 Miss Expectations
Miss Expectations's picture

We're going to need a bigger whale.  Wait, that won't work.

Fri, 05/18/2012 - 08:49 | 2439133 Village Smithy
Village Smithy's picture

Hey all you brilliant kids out there attending the nation's best private liberal arts colleges, serve your country and go into investigative journalism. We need more Tyler Durdens and Matt Tabbis. A lot more. 

Fri, 05/18/2012 - 09:05 | 2439191 canary
canary's picture

get over it or get real




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