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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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March, Tuesday 13, 2012

DOW + 217 = 13,177SPX + 24 = 1395NAS + 56 = 303910 YR YLD + .08 = 2.11%OIL +.04 = 106.75GOLD – 25.70 = 1676.10 SILV – .20 = 33.51PLAT – 7.00 = 1692.00 It’s a crazy world. Stocks posted their best day of the year. Go figure. The big boost seems to be JPMorgan announcing a dividend, while at the same time 3 banks failed the Fed’s Stress Test. Wait a minute, you’re asking yourself, “Self, am I going crazy or was the Fed supposed to release the results of the Stress Test on Thursday?” And of course, the answer is yes. The Fed, in releasing its annual stress test results, said 15 of the 19 largest banks would have satisfactory capital buffers, even after considering banks’ proposed dividend increases or share buybacks. The regulator said Citigroup, Ally Financial, SunTrust, and MetLife fared worst under the supervisory stress ratios, with Tier 1 common capital ratios of 4.9 percent, 2.5 percent, 4.8%, and 5.1 percent, respectively. The bank holding companies that came out top were Bank of New York Mellon with a Tier 1 common capital ratio of 13.1 percent under the hypothetical financial shock, State Street Corp with 12.5 percent and American Express with 10.8 percent. Bank of America came in with 6.2 percent, and JPMorgan’s result was 5.4 percent. So, only 4 out of 19 enormous financial institutions failed the stress test, meaning that just over one-quarter of the biggest banks in the country could implode at …

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