DOW – 1 = 12,502
SPX +0.64 = 1316
NAS – 8 = 2839
10 YR YLD +.06 = 1.79%
OIL – .92 = 91.65
GOLD – 24.10 = 1569.30
SILV – .27 = 28.30
PLAT – 23.00 = 1451.00
Morgan Stanley, JPMorgan and Goldman Sachs are just pure scum. No wait, I shouldn’t say that; it’s much too kind; they are lying, stinking, thieving, dangerous scum.
Maybe you heard about a little company called Facebook; it went public last Friday. Today, Reuters is reporting Morgan Stanley, JPMorgan and Goldman Sachs all cut their earning forecasts for Facebook in the middle of the IPO roadshow. You didn’t hear about that? No, you did not hear about that because the big banksters didn’t tell you. Why didn’t they tell you? Because they thought it would be much better to screw the public and try to make a quick buck on insider information, which they are required by law to report.
Instead, the banksters passed the information only to a handful of big investor clients. This is a problem because earnings forecasts are material information, especially when they are prepared by analysts who have special access to company information and company management. Everybody who invested in Facebook would consider this material information when making an informed decision. The handful of big investors that did receive the information about reduced revenue forecasts were reportedly shocked.
The change in Morgan Stanley’s estimates came on the heels of Facebook’s filing of an amended prospectus with the U.S. Securities and Exchange Commission (SEC), in which the company expressed caution about revenue growth due to a rapid shift by users to mobile devices. Mobile advertising to date is less lucrative than advertising on a desktop.
Now, regardless of why the analysts cut their estimates (and this will be important), estimate cuts of any sort are material information, so if this news was given to some institutional clients, it also obviously should have been given to everyone.
Typically, the underwriter of an IPO wants to paint as positive a picture as possible for prospective investors. Investment bank analysts, on the other hand, are required to operate independently of the bankers and salesmen who are marketing stocks – that was stipulated in a settlement by major banks with regulators following a scandal over tainted stock research during the dotcom boom.
The people familiar with the revised Morgan Stanley projections said the bank’s analyst cut his revenue estimate for the current second quarter significantly, and also cut his full-year 2012 revenue forecast. The analyst’s precise estimates could not be immediately verified.
That deceleration freaked a lot of people out,” said one of the investors.
Scott Sweet, senior managing partner at the research firm IPO Boutique, said he was also aware of the reduced estimates.
“They definitely lowered their numbers and there was some concern about that,” he said. “My biggest hedge fund client told me they lowered their numbers right around mid-roadshow.”
That client, he said, still bought the issue but “flipped his IPO allocation and went short on the first day.”
So, there is at least one hedge fund that sold on what is apparently insider information, and then sold short, which is a nifty trick on the first day. It looks like a naked short sale. The hedge fund guy was selling shares he did not hold. That would be illegal. Maybe it is not coincidental that there were major problems with trade execution the first day; Nasdaq OMX is being sued, possibly a class action, for foul-ups that led to hour long delays in purchase orders and cancellation orders. A bigwig at Nasdaq now says the exchange would not have gone forward with the Facebook IPO if they had known the problems would disrupt a normal trading day. Yes, in retrospect, the current outcome will likely turn out even worse for investors’ faith and sentiment in the farce known as the capital markets.
That follows an alert issued by Nasdaq before the first trade, which caused delays and unfilled orders. Nasdaq will pay out somewhere between $3 million and $10 million to people who lost money on Friday because of the delays.
Selective dissemination of this sort could be a direct violation of securities laws. Irrespective of its legality, it is also grossly unfair. The SEC should investigate this immediately. And late this afternoon is word that the state of Massachusetts has subpoenaed Morgan Stanley for more information. The head of the Financial Industry Regulatory Authority, or FINRA, said: “If true, the allegations are a matter of regulatory concern” to the industry-funded brokerage watchdog and the U.S. Securities and Exchange Commission. You think? How about this – if true, the way we find out the truth is by having the industry funded brokerage watchdog investigate and learn the truth.
Depending on how this shakes out, there will be lawsuits for years and years. Facebook can sue the underwriters, and the naked short sellers, and there will be counter-suits. And every schmuck who bought a share that lost value has now bought a ticket to the class action law suit. And even if Morgan Stanley, JPMorgan and Goldman Sachs do eventually weasel out of this, one thing is abundantly clear – they do not give a damn about you; they are lying, cheating scum and they consider you and me as nothing but Muppets.
And that brings us back round to Jamie Dimon, the CEO of JPMorgan Chase. You remember about a week ago, Dimon announced that the proprietary trading desk of JPMorgan had some hedged positions that didn’t work out so great. Well Dimon called them hedges but the truth is that they were speculative trades. And the Chief Investment Office, or CIO lost $2 billion dollars. And then a couple days later Dimon said he was suspending plans to use bank funds to buy back up to $15 billion worth of shares in the bank. Buybacks are a popular way for firms to use up cash sitting on the balance sheet and prop up the share price. Buybacks and dividends are only allowed for banks that have certain levels of capital reserves as determined by stress tests conducted by the Federal Reserve. The immediate concern was that losses were big enough to affect the reserve levels. Mr Dimon insisted that the decision to cancel the buyback was not linked to fears about a possible increase in losses. “You should not interpret this as anything about the size of the loss,” he said.
Then we learned the losses were a little bigger than expected; 50% bigger; $3 billion not $2 billion. The trading losses have occurred in a credit default index, which is fairly thinly traded. Dimon originally said the bank would deal with the positions to “maximise economic value”. But there is a danger in taking the long view. And now the trading in this thinly traded market has really gone quiet, suggesting that JPMorgan has decided to trade out of its positions gradually rather than take a big hit. Traders in these markets believe the losses could be as high as $7 billion. As one trader explained: “The markets know pretty much what JP Morgan has and in what sizes.” So, how big a hit could JPMorgan take? Well, it could just be $7 billion, or it could be $15 billion. And then there might be other positions that are affected, and there might be collateral fallout. For example, could JPMorgan maintain its credit ratings in the face of $15 billion in losses?
And then there are repercussions; today, the Senate Banking Committee started hearings into the JPMorgan losses. Committee Chairman Tim Johnson said: “The company’s massive trading loss is a stark reminder of the financial crisis of 2008 and the necessity of Wall Street reform.”
JPMorgan is the biggest player in the derivatives markets. The CIO was betting on derivatives, which were bets on other derivatives. When things went well, the bank made big profits. If regulators stop the gambling it would take away a major profit center as well as eliminating a source of risk that threatens to destroy the global financial markets on any given day. Three years ago we faced this risk – nothing was done. If we don’t stop this risk now, it’s just a matter of time until the derivatives time bomb explodes.