Another Reason Not To Believe Wall Street's Hype On Individual Stocks ...

Trading Day 3 - Some might say the share price of FaceBook looks like a "falling knife."  Indeed, this may be a picture of what greed gets you ...

Offering Share Price = $38

Down 18+ percent in two days is embarrassing on an initial public offering this big.  Too many shares were offered at too high a price with trading platform gliches to boot -- but Mark Zuckerberg is still laughing all the way to the bank.


Don't try to catch this falling knife just yet.


PS (Tuesday, 2:45 p.m.) Developing Story --
"NEW YORK (MarketWatch) -- The consumer Internet analyst at Morgan Stanley, the lead underwriter for last week's Facebook Inc. IPO, trimmed his outlook for the social-networking firm's revenues just days before the deal went live, Reuters reported Tuesday. The report said that the action, which it said was relayed to some of Morgan's major clients during Facebook's pre-IPO road show, came as a surprise to many potential investors so close to the stock's debut. Reuters explained that the cut came after Facebook released an updated prospectus ahead of the share sale that cautioned about revenue-growth challenges presented by a shift to mobile devices. Citing sources familiar with the situations, analysts at fellow underwriters J.P. Morgan Chase & Co. and Goldman Sachs Group Inc. also revised their Facebook estimates after the prospectus was updated by the company, the report stated."

Could this be a reason for such tepid institutional trading demand post-IPO?  And here we are again with the retail investor not getting the same message that the big-guys get pre-IPO.  And people wonder why "Wall Street" isn't trusted???

Something Soothing After a Terrible Market Week ...

The Dog That Didn't Bark: Obama on JPMorgan

Here's an interesting piece on President Obama's "non-response" to the JP Morgan Chase trading fiasco --- Robert Reich (The Dog That Didn't Bark: Obama on JPMorgan)

Felix TV on "The Real Scandal" @ JP Morgan Chase

The Chart You've Been Dying to See (or maybe not)

Here's the chart related to the offending credit default swaps that caused the egg on the face of JP Morgan Chase and CEO Jamie Dimon, courtesy of Felix Salmon and Scotty Barber @ Reuters.

This chart shows the spread on the CDX NA IG 9 index (i.e., the synthetic index on which JP Morgan’s Bruno Iskil was selling enormous amounts of protection) minus the spread on the index’s constituent bonds.

Three things jump out here. First, the basis is negative, not positive. That means that the obvious trade was to buy the underlying bonds and hedge by buying protection on the index. That obvious trade, if held to maturity, should always make money. Iksil was funding that trade, by selling protection on the index.

Second, the chart is going up and to the right. Since Iksil was selling protection, that means the market was moving against him. Or, to put it another way, the obvious trade makes money when it expires at zero, and as the chart moves towards zero, Iksil loses money on a mark-to-market basis.

Finally, the move doesn’t seem to be all that huge — only about 30bp in this quarter. Which doesn’t seem remotely enough to cause a $2 billion loss. Still, Iksil managed it somehow.

And CEO Dimon and the other big-bucks risk management overseers @ JPMC missed the obvious risk of the transactions, with Dimon calling it a "tempest in a teapot" a month ago when the story started to surface.  Maybe these guys aren't as smart as they think and would have the world believe.

JP Morgan Chase and Other Too-Big-To-Fail Banks

In thinking about the JP Morgan Chase situation, three problems come to mind immediately.

The first is the inability of the managements of these too-big-to-fail institutions to fully comprehend and monitor what is going on.

The second is the inability of the regulators to fully comprehend what is going on in an entity the size of JP Morgan Chase.

And third, and most importantly, these too-big-to-fail banks have short institutional memories. They quickly forget what led to their problems the last time it got tough for them. Eventually, they look to the US taxpayer for help when the going is tough (whether in the form of direct assistance or, what we have now, a near-zero interest rate environment to pad their profitability and capital levels at the expense of savers who need a return on their deposits).

JPMC and its likes (the too-big-to-fail banks) shouldn’t be allowed to act like hedge funds (even though in the current instance the offending transactions look more like bets than hedges against risk).

I keep seeing comments from various commentators on various websites to the effect that JPMC should be able to do what it likes with its “own” money. But this is either depositors' funds or shareholders’ money (retained earnings). What should really happen when JPMC has excess funds (i.e., those assets which aren't going be used to facilitate the growth of the nation's economy through lending activities) is the following: invest those excess funds temporarily in safe assets (US T-bills come to mind) until they can be deployed into loans or distribute the portion of those funds which are retained earnings to the shareholders who can then choose to invest in whatever asset classes they choose under their own decision regimens. If hedge fund investments are what they want, then let them make conscious decisions to invest in hedge funds, without any Federal (US taxpayer) guarantee of the investment.


But here we are again with a too-big-to-fail bank losing $2+ billion of its “own” money — and under the leadership of CEO Dimon who is one of those most vocal against limiting the banks’ proprietary trading under proposed regulation/legislation.  What did CEO Dimon learn about risk management from our most recent financial crisis?  Nothing?


The shareholders, bondholders and managers of these too-big-to-fail banks should pay the price for “mistakes” such as JP Morgan Chase’s recent fiasco. However, the US taxpayer remains on the hook just as in the 2007-2008 financial crisis.


It’s time we revisit the separation of real banking activity and everything else that banks want to do. This might eliminate, or at least restrain, much of the burden that is now placed on US taxpayers to correct the “sloppy” and “stupid” decisions (CEO Dimon’s own adjectives) that have been made by the too-big-to-fail banks in the post-Glass-Steagall era.

IS TOO BIG TO ALLOW!

The Greek Tragedy Continues

US equity markets will start the day lower as the Greek tragedy continues ...

UPDATE:  Close of Market
The pre-open expectation was fully realized.  U.S. stocks closed at more than three-month lows Monday as investors worried about Greece’s potential exit from the Eurozone.

I'm still expecting some favorable US econ data tomorrow through Thursday to help offset the market struggles related to the "Greek tragedy."

The JP Morgan Chase Trading Fiasco

A month ago when this story started to surface, JP Morgan Chase CEO Jamie Dimon called it a "tempest in a teapot."  Now he calls the trading strategy employed "sloppy” and “stupid."  Which is it?  Or, in fact, does CEO Dimon even know what goes on in his "too-big-to-fail" bank?
Should CEO Dimon be escorted out of JPMC along with his "sloppy” and “stupid" traders and risk-management execs?  I'll leave that to the shareholders and board of directors.  But, at a minimum, CEO Dimon should resign from the NY Fed if not from JPMC as well.      
                      

One would think after the fiasco of the 2007-2008 financial crisis, the too-big-to-fail (“TBTF”) banks would have learned a lesson about risk management --- but, no, here we are again with JP Morgan Chase losing $2+ billion of their "own" money --- and under the leadership of CEO Dimon who is one of those most vocal against limiting the banks' proprietary trading under proposed legislation.  (As an aside, the TBTF banks of vintage 2007-2008, including JPMC, are now even bigger than they were at the beginning of the financial crisis.)


The shareholders, bondholders and managements of these TBTF banks should pay the price for "mistakes" such as JP Morgan Chase's recent fiasco. However, the US taxpayer remains on the hook just as in the 2007-2008 financial crisis. 


Banks have been granted their "franchises" and given preferential treatment to serve the needs of the nation's economy and to facilitate the movement of funds between individuals/entities wanting to have a relatively safe haven for their excess liquidity (aka, depositors) and those needing to borrow those resources.  Proprietary trading of the TBTF banks’ "own" funds has little place in this economic environment --- the portion of those funds srepresenting retained earnings hould be distributed to the shareholders who can then choose to invest in riskier asset classes under their own decision regimens. If hedge fund investments are what they want, then let them make conscious decisions to invest in hedge funds, without any Federal (US taxpayer) guarantee of the investment. Any other "excess" funds (representing depositors' monies) should be invested in safe assets (e.g., US Treasury bills/bonds) until theOne would think after the fiasco of the 2007-2008 financial crisis, the too-big-to-fail (“TBTF”) banks would have learned a lesson about risk management --- but, no, here we are again with JP Morgan Chase losing $2+ billion of their "own" money --- and under the leadership of CEO Dimon who is one of those most vocal against limiting the banks' proprietary trading under proposed legislation.  (As an aside, the TBTF banks of vintage 2007-2008, including JPMC, are now even bigger than they were at the beginning of the financial crisis.)


The shareholders, bondholders and managements of these TBTF banks should pay the price for "mistakes" such as JP Morgan Chase's recent fiasco. However, the US taxpayer remains on the hook just as in the 2007-2008 financial crisis. 


Banks have been granted their "franchises" and given preferential treatment to serve the needs of the nation's economy and to facilitate the movement of funds between individuals/entities wanting to have a relatively safe haven for their excess liquidity (aka, depositors) and those needing to borrow those resources.  Proprietary trading of the TBTF banks’ "own" funds has little place in this economic environment --- the portion of those funds srepresenting retained earnings hould be distributed to the shareholders who can then choose to invest in riskier asset classes under their own decision regimens. If hedge fund investments are what they want, then let them make conscious decisions to invest in hedge funds, without any Federal (US taxpayer) guarantee of the investment. Any other "excess" funds (representing depositors' monies) should be invested in safe assets (e.g., US Treasury bills/bonds) until they can be deployed into lending activities.


This approach would take much of the burden off US taxpayers to correct the " sloppy” and “stupid" decisions (CEO Dimon’s own adjectives) that have been made by the TBTF banks in the post-Glass-Steagall era.
y can be deployed into lending activities.


This approach would take much of the burden off US taxpayers to correct the " sloppy” and “stupid" decisions (CEO Dimon’s own adjectives) that have been made by the TBTF banks in the post-Glass-Steagall era.

This Bear Looks Greek to Me

The Greek electorate effectively rejected the Eurozone bailout last weekend and, as a result, equity markets took a nosedive during the week as resurfacing Eurozone debt woes welcomed back the bears on Wall Street.  Political turbulence in Greece has sparked a wave of worry, with many fearing that the nation will have to face default unless the opposing parties agree to implement the proposed austerity measures.

On the domestic side, economic data releases remain mixed; the latest consumer sentiment index came in better than expected, however, the labor market remains fragile.  But next week may be more encouraging as several significant US economic reports will be forthcoming Tuesday through Thursday --- perhaps less tepid than those we've seen in the past couple of weeks.

Given the potential for better data releases in the near-term, I'm fully invested in equities in my more aggressive portfolios heading into next week.

How Does It Feel to be Unemployed or a Part of the Underclass?

How do the unemployed or the less privileged in our society feel today? I can only imagine maybe like this ...

OMG - The Repubs Move Further to the Cliff on the Right Side of the Road !

 

Senator Richard Lugar of Indiana was defeated soundly by a Tea Party-backed candidate in the Repub state primary yesterday.  This is most unfortunate for the Country --- especially if the Repubs are able to hold Lugar's Senate seat in November.

Senator Lugar was one of those "lost breed" Repubs who, while solidly right of center on political issues, still saw it in the Country's best interests to negotiate and reach some middle-road agreement with Dems from time to time in order to address the significant problems confronting our Nation.

With the defeat of Senator Lugar, the Repubs have moved closer to being the extremist party for which "principle" (aka, myopic stubbornness) outweighs "economic patriotism" (which I'll define for this limited purpose as the willingness for Repubs and Dems to compromise on critical issues in order to advance the Country's economic standing in the global economy and advance our on-going, but weak economic recovery --- in other words, for Repubs to be the "loyalist opposition").

And, if the trend continues that the Repubs move closer to the extremist right, we're all in danger of falling off that conservative cliff --- and it won't be pretty ...

UPDATE - 12:23 PM ---
Here's an excerpt about Lugar from an article in today's The National Journal by Matthew Cooper:

"But he had a style that could only be called senatorial.  He raised the debt ceiling, voted for omnibus legislation, worked well with colleagues and had a courtly manner that was more PBS than Drudge.  Famously, he was Richard Nixon's favorite mayor but the thing to know is that by being mayor--having to make sure the cops were paid and the trash got taken out--he had to be more pragmatic than a lifetime legislator.  When he got to the Senate in 1977, as Nicholas Reindl noted, there were three members who had been born in the 19th century and had voted on Social Security. Lugar was a link to a different time, not a golden age of bipartisanship, but at least one where filibusters were for break-glass-in-case-of-emergency moments and shutdowns were not a handy tool."

It's All Greek to Me

"Investors woke up Monday to a “worst-case” scenario in Greece after voters punished mainstream, pro-bailout parties in parliamentary elections, potentially creating a political vacuum that could fan doubts over the country’s ability to meet the terms of its latest bailout and remain in the euro, strategists said."

You might want to buckle up for this market ride ... but after this morning’s (or perhaps the next couple of days') downward market reaction, think "buying opportunity."

A Bit of Diversion for Extroverts, Introverts and Ambiverts Alike

This is one of those posts that has nothing to do with the intersection of politics and financial decision-making. The TED video is worth 19 minutes of your free time --- and if you don't have 19 minutes of contemplative time, well then ...

Sell in May and Go Away?



I'll let you know in September...
(or perhaps sooner)

But since I'm 85% invested now in equites, I will be setting conditional stop losses for several holdings (especially those that are leveraged ETFs) @ 1390 on the S&P 500 --- just to protect the inherent gains (currently, the YTD return on my most aggressive portfolio is > 30% vs. ~ 12% on the S&P 500).