The Golden Truth: J.P. Morgan Shutters Prop Trading: Much Ado About Not Much

Wednesday, September 1, 2010

J.P. Morgan Shutters Prop Trading: Much Ado About Not Much

Yesterday the news hit that JPM would be closing down its proprietary trading operations, including the proprietary commodities trading operations, in order to comply the "Volcker Rule" provisions of the new FinReg legislation. Before everyone in the gold and silver world gives each other high-five's, let's take apart what is really going on here.

According to the WSJ, JP Morgan hasn't really focused on proprietary trading. Specifically with respect to commodities, the decision affects 20 employees, one in the U.S. and the rest in London.

However, I believe this WILL NOT AFFECT the gold and silver trading operations, including all derivatives-based precious metals trading. Why? Here's the language from Section 716 of the legislation:

Under the agreement banks would only spin off their riskiest derivatives trades. Banks get to keep some of their lucrative business based on trades in derivatives related to interest rates, foreign changes, gold and silver. They could even arrange credit default swaps, the notorious instruments blamed for the meltdown, as long as they were traded through clearing houses. Banks also would be allowed to trade in derivatives with their own money to hedge against market fluctuations. (source link: LINK)

Just to be clear, here is the direct language from the legislation, which I sourced from seekingalpha.com:

To exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; (here's the link: LINK)

Does it get any more clear than that? What this tells me is that JP Morgan is shutting down a smallish operation that makes money some quarters and loses money some quarters and affects in total something like 50-70 traders globally and only 20 with respect to commodities.

This is not really big news other than the noise being reverberated across the internet about the evil Voclker Rule. In fact, if you read this analysis from Reuters, banks with much larger proprietary trading/investing operations are going to find some ways to work around the legislation - and if they choose to completely comply, they have three years in which to do so - Impact of Volcker Rule?

So there you have it. Do not expect that this move by JP Morgan will have much, if any, affect on JP Morgan's ability to manipulate the precious metals market using derivatives (both Comex and OTC). Anyone who thinks it will is not paying attention to the Truth.

9 comments:

AnonymousWednesday, 01 September, 2010
Hi. His name is spelled "Volcker". Good blog.
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Dave in DenverWednesday, 01 September, 2010
Hey. Thanks for the edit and feedback. Appreciate both!
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SatyaPranavaWednesday, 01 September, 2010
i must admit that when i read that article on jesse's site yesterday after waking up that it sounded like a nice little propaganda piece to make everyone think that regulation works and that the big companies are just going to comply. but that would be a historical anomaly, in general, especially considering all the money put into lobbying for a toothless FinReg bill.

i still think that the administration has them "covered," as you say to the right.
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Dave in DenverWednesday, 01 September, 2010
SP, you got that right. That news announcement was one big blow job for the public.
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SatyaPranavaWednesday, 01 September, 2010
well i think they need to tinker with their technique a bit! :)
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Dave in DenverWednesday, 01 September, 2010
LOL
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AgAuPM.comFriday, 03 September, 2010
Just looked at latest CME report that says that Comex and Nymex will be delivering physical gold, copper and palladium BUT there is 0 physical silver reported for delivery on Sep 7th 2010.

So, in first 7 days of this month, Comex will deliver only 23.6% of entire physical silver that needs to be delivered by the end of this month (3.5 out of 15 million ounces).

If Comex reported inventory is 110 million oz of physical silver, then why are they paying every new day additional storage and insurance fee instead of delivering 15 million ounces?

Is it just maybe that they don’t even have this 15 – out of supposedly 110 million ounces in their warehouses?

Interesting month indeed.
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AnonymousFriday, 31 December, 2010
Great! Thanks for the heads up. I hope you could also post something new about JP Morgan for 2011. I will also include this in my research regarding stocks because i am teaching a group of students in brooklyn and they would love to hear updates.
irving Shutters
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Jennifer AllanSunday, 27 February, 2011
Well they need to think a bit more before investing because if they are not getting ROI then they should just stop the investment in that area.
plantation shutters
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Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

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Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Here is the link to his entire commentary, well worth a read:

http://jessescrossroadscafe.blogspot.com/2010/07/gold-daily-chart-shock-and-awe-for.html

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie?

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source: www.clusterstock.com

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.