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Tuesday, May 15, 2012 – JPMorgan is Scary, the California Budget is Easy – by Sinclair Noe

05152012 Script DOW – 63 = 12,632SPX – 7 = 1330NAS – 8 = 289310 YR YLD =.01 = 1.78% OIL – .57 = 93.41GOLD – 12.20 = 1545.30SILV -.46 = 27.82PLAT – 5.00 = 1437.00 So, JPMorgan shareholders held their annual meeting. They decided to pay Jamie Dimon $23 million. They can still afford it; despite a $2 billion dollar loss, JPMorgan is still the largest publicly traded company, the largest bank in the US, and the largest derivatives dealer in the world. JPMorgan invented credit default swaps, they wrote the legislation to reform the derivatives markets, and when JPMorgan went insolvent in the 1980s and in 2007, they were bailed out by taxpayers.A $2 billion dollar loss is not the end of the world, JPMorgan is not in imminent danger, but I don’t think this will end well. The really scary part isn’t the loss, but that it only represents one-tenth of the annualized profit. What are they doing to make that kind of money? And if these are supposed to be the best and brightest bankers, what does it say about the others? The FBI has opened an investigation into the trading losses. We don’t know what the FBI is looking at and I won’t hold my breath waiting. The SEC has opened an inquiry into JPMorgan’s disclosures and accounting practices. JP Morgan maintains that the purpose of the trades that resulted in the $2 billion loss was to hedge exposure elsewhere, as opposed to being proprietary …

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Monday, May 14, 2012 – Problems in Greece, Euro, California, and JPMorgan – No Surprise

DOW – 125 = 12,695SPX – 15 = 1338NAS – 31 = 290210 YR YLD -.05 = 1.79%OIL – .70 = 94.08GOLD – 23.80 = 1557.50SILV – .71 = 28.28PLAT – 29.00 = 1442.00 Back in early April I started telling you to heed the old market maxim: “Sell in May and Stay Away”. You are welcome. The Dow Industrial Average has now dropped 8 out of the last 9 sessions; no surprise. Of course, we had the weekend to think about the shenanigans of JPMorgan Chase; a too big to fail bank acting irresponsibly while simultaneously demanding less regulation; no surprise. Today’s declines started in Europe; no surprise. In Germany, Angela Merkel’s Christian Democratic Union Party suffered more losses in a local election for the second straight week. Merkel’s CDU party received just 26% of the vote while a coalition of left-leaning Social Democrats and Green party candidates received over 50%. In light of the recent French elections, we are starting to see a trend. In Greece, the various leaders of the various political parties failed to form a coalition government over the weekend; no surprise. The Greeks will likely need to call another election. And the fate of Greece hangs over the markets just as the possibility of exiting the Euro-Union hangs over the heads of the Greeks. And I think that is the correct application of the metaphor, with Angela Merkel in the role of Dionysius and the Greeks in the role of Damocles. I don’t know …

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Friday, May 11, 2012 – JPMorgan Moving On

DOW – 34 = 12,820SPX – 4 = 1353NAS +0.18 = 293310 YR YLD -.04 = 1.84%OIL – 1.51 = 95.57GOLD – 13.00 = 1581.40SILV – .15 = 28.99PLAT – 21.00 = 1471.00 So, let’s break down the problems at JP Morgan Chase. The bank lost net $800 million, on a $2 billion dollar trading loss in synthetic credit derivatives. They won’t go broke today. JPM made $5.4 billion in profit in the first quarter. Still, a couple of billion dollars is significant, and it raises questions about the regulation of banks, the valuation and suitability of derivatives, the size of the world’s largest firms and the systemic risk they may pose to the financial system. For the past few years, JPM has been increasing the size and importance of its proprietary trading desk based in London. Theoretically, a proprietary trading desk trades stocks, bonds, currencies, commodities, derivatives and other financial instruments with the firm’s own money – as opposed to using customers’ money. If the bank makes money, they keep it and Jamie Dimon gets a big bonus. If they lose big, Jamie Dimon could lose his job, but he gets to keep the bonus. If the proprietary trading department screws up royally and the trades implode and pose a possible systemic threat, then the taxpayers cover the losses, and Jamie Dimon gets to keep his bonus. Once upon a time, the proprietary trading department of a bank was not the major part of the banks’ profits. The bankers …

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Thursday, May 10, 2012 – JP Morgan Chase Goes Boom

DOW +19 = 12,855SPX + 3 = 1357 NAS – 1 = 2933 10 YR YLD + .05 = 1.88%OIL – .26 = 96.55GOLD + 4.00 = 1594.40SILV -.23 = 29.14PLAT – 13.00 = 1492.00 So, it was a quiet day in the markets, not much going on; the Dow and the S&P managed to eke out modest gains, and this was welcome following 6 days of losses. Back in early April I told you to start getting out of the market, based in part, on the the idea of “Sell in May and stay away”. Sure, enough, May has been ugly, but not every day is ugly. There will be ups and downs. The past six days have been down; today the markets stopped banging their head against a wall, but the headache hasn’t gone away. All in all, an uneventful trading day. And then after the closing bell – boom! JP Morgan Chase lost about $2 billion on mark-to-market accounting tied to synthetic credit securities after positions taken by its chief investment office were riskier than expected. JPMorgan’s chief investment office, or CIO has been transformed in recent years under Chief Executive Officer Jamie Dimon, into a unit that makes bigger and riskier speculative bets with the bank’s money, five former employees of the bank said earlier this year. Some of the bets were so big that the bank probably couldn’t unwind them without losing money or roiling financial markets. Losses in CIO’s synthetic credit portfolio have been …

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Wednesday, May 9, 2012 – Greek Government, Spanish Banks, Gold Prices – It’s All Messy

DOW – 97 = 12,835SPX – 9 = 1354NAS – 11 = 293410 YR YLD unch = 1.84% OIL – .56 = 96.45GOLD – 15.40 = 1590.40SILV – .20 = 29.37PLAT – 12.00 = 1505.00 The Greek tragedy continues; no success so far in negotiations to form a coalition government after weekend elections resulted in a deadlock. It looks like there might be another election in June. The Greeks accepted another $5 billion dollar bailout payment today, so they keep the government afloat for a few more weeks. Now, the chatter is shifting to the very real idea that Greece will exit the Euro, and trying to figure out the implications. The concern is that exiting the Eurozone is going to be impossible and possibly will trigger a cascade of bad economic consequences. Absolutely right, but only because it might be done in an uncontrolled manner. The Federal Reserve and the ECB and the IMF and all the others have been saying that the Euro-crisis is under control. If, or when Greece exits the Euro, nobody should be surprised; this train has been rolling down the track for a couple of years, and the Germans and ECB and IMF and Fed all had plenty of time to come up with solutions. And they didn’t. So, now the Greek voters have come up with a solution. They didn’t come up with a unanimous decision, not even a plurality. The whole thing was a crazy mish-mash of votes, ranging from communists to …

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Tuesday, May 08, 2012 – The Situation in Europe Isn’t What You Think

DOW – 76 = 12,932SPX – 5 = 1363NAS – 11 = 294610 YR YLD – .04 = 1.84%OIL – .46 = 97.30 GOLD – 33.70 = 1605.80SILV – .62 = 29.57PLAT – 18.00 = 1517.00 The markets did a double take. We knew what was happening in Europe. Yesterday, the markets acted as if nothing had happened. This morning, the sky was falling. And then as the day progressed, the markets realized the sky wasn’t falling, or  perhaps the markets remembered that the Federal Reserve will backstop the markets. And the Fed meets again in June 19th, and that’s not too far away. Of course, before the Fed can make an announcement on yet another round of Quantitative Easing, the sky has to fall, at least a little; stock markets have to wobble, oil prices need to slip, gold prices need to be slapped around. And just when you imagine there is a deep dark deflationary abyss, the Fed can ride to the rescue with another round of cheap money for undeserving bankers. The euro fell for a seventh straight session against the dollar, dropping below $1.30, which was considered a fairly significant level of support. Today’s euro weakness is overwhelmingly tied to Greece’s difficulty putting together a government. Greece’s two main pro-bailout parties failed to win a majority in weekend elections, leaving questions over the country’s ability to avert bankruptcy and stay in the euro. Greece’s Left Coalition party has a chance to form a government opposed to …

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Monday, May 7, 2012 – The Revolution in Greece and France

DOW – 29 = 13,008SPX +.48 = 1369NAS + 1 = 295710 YR YLD unch = 1.88% OIL +.07 = 98.01GOLD – 3.60 = 1639.50SILV -.25 = 30.19PLAT + 2.00 = 1535.00 The results pretty much followed expectations: An anti-austerity backlash by voters in Greece an France. First attempt at forming Greek coalition fails. Hollande seeks to augment fiscal pact with growth plan. Merkel tells French president-elect “no renegotiation”. Greece, where Europe’s sovereign debt crisis began in 2009, was slightly discombobulated after the election boosted left and right-wing fringe parties, stripping the two mainstream parties that backed a the EU/IMF bailout of their parliamentary majority. Uncertainty over whether the country could avert bankruptcy and stay in the euro deepened on Monday when the leader of the conservative New Democracy party which won the biggest share of the vote, failed within hours to cobble together a government. The leaders of the New Democracy party had been given 3 days to form a government but this morning they said it was impossible. Next in line to try to form a government will be Left Coalition leaders, whose party came second on a platform of rejecting the austerity conditions of Greece’s latest bailout program. So, that might be interesting. The Left Coalition is considered a splinter group of the communist party, and now they are in the spotlight because the socialists were too centrist. The far right Golden Dawn party, essentially neo-nazis, achieved a parliamentary breakthrough. In hard times, voters are receptive to …

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Thursday, May 3, 2012 – Jobs More or Less, Europe More or Less, HSBC Mess

DOW – 16 = 13, 206SPX – 10 = 1391NAS – 35 = 302410 YR YLD unchanged = 1.92%OIL +.09 = 102.63GOLD – 17.90 = 1636.80SILV – .58 = 30.17PLAT – 28.00 = 1540.00 Tomorrow the government releases the employment report for April. Economists predict the U.S. gained 160k to 175k jobs last month, up from a disappointing 120,000 in March. The preliminary increase in March was the lowest in five months and fell well short of the 246,000 average from December to February. We’ve seen several reports on jobs that might give a hint on tomorrow’s report: The four-week average of initial jobless claims was 383,500.Jobless claims declined by 27,000 to a seasonally adjusted 365,000 in the week ended April 28. The Labor Department said continuing claims decreased by 53,000 to a seasonally adjusted 3.28 million in the week ended April 21. Continuing claims reflect people already receiving benefits. ADP’s report on private-sector payrolls slowed to 119,000 from 201,000 in March. The employment component of the Institute for Supply Management’s manufacturing report rose to 57.3% from 56.1%, on a scale where readings over 50% indicate expansion. The employment component of the Institute for Supply Management’s services report slowed to 54.2% from 56.7%, on a scale where readings over 50% indicate expansion. Planned layoff announcements rose 7% to 40,559, according to Challenger, Gray & Christmas. What does it mean? It means wait until tomorrow’s report and we’ll find out. This is not the kind of report that you bet on. …

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Wednesday, May 02, 2012 – Jobs Report, Euro Elections, California Budget, and Watching Paint Dry

DOW – 10 = 13,268SPX – 3 = 1402 NAS + 9 = 305910 YR YLD -.03 = 1.92OIL +.14 = 105.36GOLD – 8.50 = 1654.70SILV – .32 = 30.75PLAT – 9.00 = 1569.00 This is shaping up to be a wild weekend. Friday we get the jobs report. Then, in Europe there will be elections in France and Greece. On a personal note, I’m going to paint the patio on my house, so I’ll be watching paint dry, just to counterbalance the rest of the world. The monthly jobs report, already the most highly anticipated data of the month, will be getting a little extra attention this Friday after a disappointing report on GDP late last week. A bad jobs report and a weak GDP report might be enough to trigger another round of Quantitative Easing from the Federal Reserve. The economy is adding and will continue to add jobs; that is not in question. It is the rate of job growth. Expectations are that there were about 160k to 175k new jobs created in April, up from 120,000 in March, and an unemployment rate that remains steady at 8.2%. The lowball guesses are for only about 125k jobs. With the addition of 120,000 jobs, March marked the 15th straight month of jobs growth, but it broke a three-month streak in which the economy had added more than 200,000 jobs. Now we are only a couple days away from finding out whether March’s report was a fluke or the …

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Tuesday, May 01, 2012 – The Return of Occupy Wall Street

DOW + 65 = 13, 279 SPX + 7 = 1405NAS + 4 = 305010 YR YLD +.04 = 1.96%OIL – .15 = 106.01GOLD – 2.10 = 1663.20SILV -.04 = 31.07PLAT + 3.00 = 1577.00 The Dow Industrials hit the highest point since December 2007. Later this week we’ll have reports on retail sales and the big monthly jobs report on Friday. Today, the ISM reported their manufacturing index rose to 54.8% last month from 53.4% in March. The results were much better than anticipated. We may have hit a top in the stock market: Former Federal Reserve Chairman Alan Greenspan said U.S. stocks offer good value and are likely to rise as corporate earnings increase over time. “Stocks are very cheap,” Greenspan said today at the Bloomberg Washington Summit hosted by Bloomberg Link, citing “a very low price-earnings ratio. There is no place for earnings to grow except into stock prices,” I mean, when Greenspan speaks it must be a contrary indicator. Today is the one year anniversary of the killing of Osama bin Laden. President Obama is in Afghanistan, and he’ll deliver a speech a little later. Today is also May Day. Occupy Wall Street is back; trying to resurrect the movement with May Day marches, which gained momentum through the day. Protesters marched on banks, chanted anti-corporate slogans, and clashed with police in an opening day of sorts for the movement’s summer revival. In New York, hundreds of protesters gathered in Union Square. A crowd surged out …

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