: Is JP Morgan Slowly Sinking Under Water?

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Jamie Dimon, the CEO of JP Morgan Chase, will be subjected to a very public tongue-lashing when he testifies before the U.S. Congress later this week. The $2 billion “tempest-in-a-teapot” trading loss is the reason why, but Dimon’s banking sector colleagues are at a loss to understand the need for a public chastisement over something that they deem an inevitability in the business. According to one critic, it serves no purpose other than to reduce investors’ confidence in the U.S. financial system in general, and in JP Morgan Chase, in particular.
But some economists say that the bankers who argue that the government is unfairly singling out Dimon, and that a $2 billion loss is inconsequential relative to JP Morgan’s 2011’s $19 billion earnings are missing the point. According to Richard Sylla of NYU’s Stern School of Business, the trading loss represents a clear warning shot that not everything is under control in an organization of the size and scale of JP Morgan, even in spite of sizable operating profits.
Moreover, it brings into question Dimon’s risk management strategy, which had been praised before this incident as one of the best in the financial sector. U.S. Secretary of the Treasury Timothy Geithner recently called Dimon’s strategy a “significant risk-management failure,” while other critics are more concerned about the Dimon’s complacency, saying that it was complacency which brought the 2008-2009 banking sector crisis to a head.
It’s clear that confidence in JP Morgan has eroded, and analysts say there’s a good possibility that investors’ negative sentiment could contaminate the sector as doubts grow over effective and appropriate risk management techniques.
Dimon will be among the first to admit that the loss may have hurt the collective efforts by a group lobbying the U.S. Congress to relax certain financial sector restrictions under the 2010 Dodd-Frank Act. One proponent of the group’s efforts noted that the markets’ “punishment” of JP Morgan shares was an effective deterrent and a solid argument for less regulation. The head of Blackstone Group, Stephen Schwarzman, also shrugged off the public outcry, saying that losses such as JP Morgan’s couldn’t be prevented or contained by any amount of legislation.
Since the trading loss, the company’s market value has been markedly cut, by as much as $27 billion and the value of its publicly traded shares has lost 17%. Despite the loss, the bank continues to have the support of many analysts, including those from Wells Fargo, Royal Bank of Canada and Goldman Sachs who said that they are still calling shares in JP Morgan a buy. Only time will tell whether or not investors have decided to accept that analysis and will forgiven JP Morgan its transgressions.

€ Euro under pressure despite of strong German industrial data

THE TAKEAWAY: Strong German industrial data-> Euro and risky currencies Markets digest French, Greek election results
German industrial production was stronger than expected in March, removing some of the bite from a weak open weekly for the single currency. Production rose 2.8% on the month, more than the - 0.3% markets had expected. The yearly number was 1.6% versus the expected - 1.2%, the German stats Office said today. Both the monthly and yearly figures saw upward revisions.
Germany has struggled to maintain industrial growth as declining global demand continues to erode. Even so, Europe's largest economy remains its strongest, although yesterday's election results from France and Greece threaten to test Berlin's mettle in demanding tough reforms across the Eurozone. Both nations elected anti-austerity parties in a repudiation of the German-led drive to reduce sovereign debt in the Euro-area.
Germany's leader Merkel reportedly told French President-Elect Holland that the Eurozone fiscal compact approved last fall is not up for renegotiation. Berlin has taken a similar hard position regarding Greece, where last weekend's election results are likely to bring increased opposition to austerity.

The Euro remained pressured today as risk-correlated currencies took a beating in the wake of uncertainty over the Eurozone's future.

€ Euro Under Pressure Amid Greek Threats, Sterling Supported By BoE

08 May 2012 13:15 GMT  Talking Points
Euro: Greece Threatens To Reject Bailout Terms, Need Close Below 1.3000 British Pound: Former BoE Members Talk Down Bets For More QE U.S. Dollar: Fed’s Dudley Softens Dovish Tone, Central Bank Hawks On Tap Euro: Greece Threatens To Reject Bailout Terms, Need Close Below 1.3000
The Euro slipped to 1.2989 as rising finance costs across the European periphery raised the threat for contagion, and the bearish formation in the EURUSD should continue to take shape as the fundamental outlook for the region turns increasingly bleak. Indeed, Greece sold EUR 1.0B in 182-Day bills yielding 4.69%, which compares to the 4.55% offered in April, while Greek policy makers are still making an effort to form a government as Alexis Tsipras of the left wing party threatens to reject the terms of the EU-IMF bailout.
As European policy makers struggle to meet on common ground, the lack of coordination certainly dampens the outlook for the region, and we may see the governments operating under the single currency become increasingly reliant on monetary support as the economy remains at risk for a prolonged recession. According to Credit Suisse overnight index swaps, market participants continue to see scope for a rate cut in the next 12-months as the European Central Bank’s non-standard measures have a limited impact in addressing the sovereign debt crisis, and the single currency is likely to face additional headwinds in the coming days as European policy makers fail to restore investor confidence. As the EURUSD continues to approach the apex of the descending triangle, we are still waiting for a major selloff in the exchange rate, but we would need to see the pair close below support around 1.3000 to reinforce our bearish forecast for the euro-dollar.
British Pound: Former BoE Members Talk Down Bets For More QE
The British Pound weakened to 1.6124 as market participants scaled back their appetite for risk, but the sterling may hold steady ahead of the Bank of England interest rate decision as the GBPUSD trades within the previous day’s range. Indeed, former BoE members Andrew Sentance, John Gieve and Charles Goodhart talked down speculation for more quantitative easing, with Mr. Sentance seeing scope for a rate hike later this year, while Mr. Gieve said the central bank may extend its asset purchase program for ‘a month or two’ amid the ongoing uncertainties surrounding the region. As the Monetary Policy Committee moves away from its easing cycle, we should see the bullish sentiment underlining the sterling gather pace throughout 2012, but we are still looking for a test of former resistance around 1.6000 as the relative strength index continues to come off of overbought territory.
U.S. Dollar: Fed’s Dudley Softens Dovish Tone, Central Bank Hawks On Tap
The greenback pared the decline from the previous day, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) rallying to 9,967, and the reserve currency may appreciate further during the North American trade as the U.S. equity market opens lower. Nevertheless, as Richmond Fed President Jeffrey Lacker and Dallas Fed President Richard Fisher are scheduled to speak later today, hawkish rhetoric from central bank officials should help to prop up the greenback, and we may see the FOMC continue to move away from its easing cycle as the economic recovery gradually gathers pace. Indeed, New York Fed President William Dudley said the FOMC would drop its asset purchase program ‘the moment they become inconsistent with our dual mandate objectives,’ and the committee may continue soften its dovish tone for monetary policy as the stickiness in underlying price growth raises the risk for inflation.

S Moody Places largest US banks under control

Moody's Investors Service has warned more than a dozen of America and the largest banks of Europe with important global capital markets operations it has been put under review for possible downgrades. Large US banks Moody under the control of possible downgrades were Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley.
Moody warning came on the heels of a warning prior to more than 100 European banks that they could also be downgraded. Although several global European banks such as Deutsche Bank and HSBC Holdings have been targeted by the previous downgrade warning, the warning later addressed the negative factors which were only confronted by banks with global capital markets operations.
Warnings of the downgrade reflect the more difficult environment that big banks are after a financial crisis which has seen many of them receive the support of the Government. Regulators are watching the activities of banks and banks will find it more difficult to receive support from the Government if an economic crisis, in part because of public anger on issues related to the last round of bail-out banks.
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Dow Jones Index under 5000 by 2013?

As my first post to Guru Talk, I wanted to share an insightful article written by Tom Hougaard last year. For those who haven’t heard the name before, Tom is a highly successful market strategist, has worked for some of the UK’s leading financial brokers, and has conducted over 1000 interviews across various television networks (CNBC, Bloomberg etc).

In December last year he predicted that a market turn was in progress on the Dow Jones Index. Since then, the Index has failed to cross the Fibonacci top at 12877.63, suggesting the prediction still holds weight. To summarize his prediction, he expects “the Dow to be trading lower than 5000 by the end of 2013, or it will have traded below 5000 by the end of 2013.”

atelierUK’s P & L

For any of the longer term index traders out there, this could be the ideal time to consider your position in the market, should you agree with Tom’s sentiment. My personal approach will be buy into Short ETFs outside of eToro due to the longevity of such a position.

In any case, I wish you all every success in your trading on OpenBook.