First, while this loss is a one time adjustment to capital, the use of this type of ‘trading’ as a profit center is probably a thing of the past.
Additionally, my guess is the whale has been liquidating a long oil position (and maybe paying on long bma ratios) for the last several weeks.
That is, this announcement probably came after their liquidations were pretty much over to minimize losses.
This means the market effects are probably behind us.
The losses are from synthetic credit positions. JPM’s CIO was selling credit default swap (CDS) protection on a basket of investment grade corporate debt (CDX IG).
selling or buying? in either case some of those contracts are linked and indexed to all kinds of things.
@WARREN MOSLER,
I think I heard analysts on Bloomberg TV say JPM was buying the CDS. However, they might have had their terms mixed up.
@WARREN MOSLER,
both selling and buying…underlying asset was probably a credit index, buying protection on the short end and selling protection on the long end…as a means to hedge the corprate credit portfolio…a flattener trade.
JPM loss on long Oil ????
days ago on Triple Hammers I entered Long WTI with stop loss..
so now I have to pray to be better of JPM.. quite impossible !!!
30 years after David Stockman’s IQ peaked, the level of discussion in the highest levels of our gov is still lower than you could possibly imagine. We still have quants working long & hard on mathematical analysis of flawed concepts.
“What happened to the global economy and what we can do about it”
“JP Morgan Debacle Reveals Fatal Flaw In Federal Reserve Thinking”
http://baselinescenario.com/2012/05/11/jp-morgan-debacle-reveals-fatal-flaw-in-federal-reserve-thinking/
This boils down to a simple concept, to scale any system, protect the components PLUS grow the system options. Airlines grasp this. There’s a little sign above the seats, saying “In event of an emergency, [we suggest putting] your own oxygen mask on before trying to help others.” That general rules leaves plenty of room for flexibility, while reminding people that 2-stage tolerance limits apply in parallel.
@roger erickson,
Don’t quite see what the problem is. Is $2B a lot of money all of a sudden?
@ESM, Right. 2lbs of fiat is meaningless, unless transposed into a specific sub-context. Half the 50 states wouldn’t mind an extra $2b right now, nor would net harm be done by a refund of some FICA taxes.
And it’s odd that the DoD writes voluminously about the importance of battlefield tempo, while class warfare strategists claim they don’t. (Reality is that every month of underfunding/overtaxing “competing” clans has far-reaching consequences for the aggregate that more than offset the local benefit a “winning” clan perceives. What’s good for a sub-component is not necessarily optimal for the aggregate, and CERTAINLY not if prolonged across unpredictably changing contexts.)
Seems to me that our root problem is always narrow-minded subsets of people trying to divert control of a workable operational tool-set.
I keep coming back to a core conclusion, that we need a Ben Franklin present at most policy debates, to give a “table-talk” reminding people to trade low-margin sub-issues for big-margin collective returns.
First off, it’s all about parsing the spectrum of available options, and their net returns.
Second, we keep sending people with tunnel-vision to a spectrum parse.
Third, when an obvious output gap appears, instead of having sending Ben Franklin’s in to elevate the discussion, we send the same people back to try harder with bigger knives (Committee “seniority”).
We need a formal mirror institution managing distributed electorate quality?
@roger erickson,
GREAT points.
I keep coming back to a core conclusion, that we need a Ben Franklin present at most policy debates, to give a “table-talk” reminding people to trade low-margin sub-issues for big-margin collective returns.
exactly. So true. And THAT requires people to release from their paradigms. These people are literally attached to their inflation fears, etc. Even when I get a recent econ grad to admit that the government is not revenue constrained, he STILL insists that inflation is the problem, saying “It WILL come. It WILL come.” and then cites the 70’s. Yeah that’s real scientific. But more than that it’s indicative of a HUGE group of people refusing to even consider letting go of their point of view even as an intellectual EXERCISE let alone being willing to actually consider updating their pov and system theories.
We are the strong blooded ones bridging a major divide in society. We do what we do for our future grandkids and for posterity. Long live human intelligence and creativity!!!
Who do you think was on the other side of that trade?
@walter,
Captain Ahab?
@MamMoTh, LOL!
@Save America, You’re not allowed to comment until you graduate community college, “Save America.”
@MamMoTh, Hilarious. Don’t forget the importance of what linked Ahab to the Whale. Enough rope to drown/hang/sink more than anyone’s admitting?
@roger erickson,
right! He couldn’t cut himself from his own twisted and tangled mess of ropes and harpoons about him. Those who live by DSGE die by DSGE!!!!
@walter,
Probably all the usual suspects.
Naked Capitalism suggested JPM has not closed the trade yet, but is considering moving it over to the hold-to-maturity books where there is no market-to-market and thus no intermittent hit to EPS.
Whatever the case, Dimon suggested that market movements could create further losses, which tells me this is not yet a one time deal.
@Chad Starliper,
A pain trade.
As with Warren, I would hope a firm with billions at stake would be a little smarter. Are they really held by the balls like this?
http://www.bloomberg.com/news/2012-05-11/credit-traders-drive-up-swaps-index-linked-to-jpmorgan-s-loss.html
@Inoculated,
Moreover, is this an isolated event, or just the tip of the iceberg?
Zero hedge on the fallout in the IG
Don’t worry, Jamie Dimon is also on the board of the NY Federal Reserve protecting the taxpayers of America.
He is sure to do that right thing for America.
that ‘board’ and his ‘position’ has no actual power.
The Fed reports directly to Congress, it’s actual boss
@WARREN MOSLER, Congress has recently been letting the NY Fed do pretty much what they want.
Promised campaign support seems to breed Congressional ignorance & timidity, if not collusion.
Congress reports directly to the US electorate. As long as the electorate is asleep at the wheel, Congress may not stray out of sight of the people running Congress’s own ATM.
[Why do they “feign gold” in Congress? Because we let them.]
I don’t know guys, may be this is old news already, I haven’t seen It before. Central banker says: printing money does not lead to inflation.
http://en.mercopress.com/2012/03/26/printing-money-does-not-lead-to-inflation-argues-argentine-central-bank-president
Also Milton Friedman’s picture is coming down from bank’s hall of fame.