Monday, May 21, 2012

The Facebook Belly Flop + Is JP Morgan Technically Insolvent?

JP Morgan will ultimately hit the wall on its enormous derivatives book and become technically insolvent.  But because JPM is the primary bank doing the Fed's manipulative bidding, the Fed will monetize it behind the scenes because otherwise JPM's catastrophic, fraudulent predicament will bring down the entire system.
That is pretty much a verbatim accounting of a discussion regarding JPM's off-balance-sheet, hidden-from-sight-debt and derivatives exposure between myself and a long-time colleague back in 2002, before 99% of those who now understand what is going on had any clue.  Gold was bouncing around the mid $300's at the time and I had just purchased my first 10-pack roll of 1 oz. Austrian Philharmonics.  Friends to whom I showed my gold bounty looked at me as if I had descended from Mars.

Quick note on Facebook:  the stock traded down over 13.5% from Friday's close at one point today.  It's currently down almost 11%.  This is the biggest follow-up trading failure for an IPO that I can ever recall seeing.  I've seen junk bonds go into default within a year of issuance, but even those never traded down like this on the 2nd day of public trading.  The people most hurt by this are the moronic retail daytraders and unsuspecting casual "investor" who chased this bubble.  As we learned ex post facto, Morgan Stanley created a lot of "spin" on this by limiting IPO orders in retail brokerage accounts to 500 shares, but right before issue they raised the limit to 5,000 shares.  Honestly, Morgan Stanley should be sanctioned and punished by FINRA and the SEC for this, but they won't be.

Needless to say, once QE3 hits - under whatever form it materializes - with the help of CNBC and an extensive network of captive retail investment advisers - I'm sure the underwriting syndicate will be able to juice some performance out of this stock with the help from the fresh flood of the QE3 liquidity...

Speaking Fed liquidity, we will likely never see any sign of it other than a big move of gold and silver, but based on some extensive reading and conversations about the JP Morgan situation, I believe the "tempest in a teapot" bad hedge loss at JP Morgan is running into the $10's of billions on a true market to market and collateral call basis and that it extends to many areas of JPM's derivatives positions.  Again, this is something that we will never know unless the Government forces JPM to open its books - something that will NEVER happen.

There are a lot of theories on how, what and why with regard to JPM's massive derivatives-related losses on a $100 billion portfolio of supposedly hedged positions.  Since it is likely that taxpayer insured money has been employed, there is no reason for there to be any speculation on what is going on.  JPM should be required to provide full disclosure and transparency in order to protect the interests of the taxpayers.

We do know that Facebook underwriter Morgan Stanley was out this weekend with an analysis that shows why JPM's losses extend to at least $5 billion:  LINK.  Of course, I wouldn't trust Morgan Stanley to do a thorough job analyzing anything to do with financials anymore than I would expect a drunk like Jamie Dimon to understand the complex nature of derivatives trading, market making and hedging. 

Another interesting tidbit that has emerged is that the person in charge of assessing the overall risk for JPM's CIO department has a history of losing money on Wall Street AND of front-running his trading desk trades in his personal account:  LINK  Although he wasn't charged with front-running, that's what he was doing.  Nice hire there, Jamie - why don't you throw back another cocktail and tell us about your firm's hedge book...

As I like to do, circling back to the opening quote, we can only surmise the extent of JPM's real losses given the little amount of information that the Government requires too big to fail banks to disclose.  However, the fact that they formally suspended their stock buyback program tells me that there is likely some budding liquidity issues behind the scenes, that we can't see.  Furthermore, we can expect that the Fed will make sure that JPM's solvency requirements stay funded.  After all, if JPM were to blow up, it would likely take down the global financial system.

Here's a long term chart of gold.  I am calling a bottom to this latest violent price correction.  As you can see from the chart, there have been two previous big price corrections since 2001 and they all have very similar chart pattern.  Each correction coincides with underlying problems embedded in the financial system that have deteriorated and are about to be monetized.  This time will be no different:

(click on chart to enlarge)


  1. Just a note to those that announce their PM ownership on public media: You stand a chance of answering the door one night and having a gun shoved in your face. It won't matter that you actually do have everything in a vault somewhere else, the bad guys won't believe you.

    1. Most of us will go down fighting. If our system gets to that point, and it probably will, give me liberty or give me death. I'm not afraid of the Government and I'm not afraid to go down fighting.

      Only cowards and pussies run and don't stand up for freedom.

    2. I'm so used to Facebook I immediately tried to click "like" =) Keep up the good work.

  2. I wasn't thinking of the government, more like local criminals. For example Practice OPSEC against all enemies.

  3. I do believe this says it all:

    Which is an elegant way of stating that the entire IMF$ is one big fucking LIE.

    BUT ... consider that most of the above ground gold in the world today rests in strong private hands. Yes, CB's are scrambling for it, as they hold less than 18% of it, and they know it must be used to re-collateralize the emerging system ... or else.

    Generational wealth dynasty's do not manufacture stealth demand in the manner that the ESF, the Fed, the US Treasury and the BIG 5 do using the swap complex price fixing grid.

    They do not have to. The banks agree to destroy themselves gaming debt, while tons of gold lie still in vaults undisclosed for many decades. They lie in waiting to make good on the promises of fools reaching to the stars.

    Reality is motivation enough. History will prevail. Gold will endure.


  4. Yep. Remember this one?

  5. Von Greyerz told KWN that a major Swiss bank did not have a substantial amount of allocated gold which they claimed to possess for their client.

    So much for Switzerland's involiate safety and security.

    He also said "We still have the UK and the Swiss banking systems, which are too big for the countries. They will come under pressure also in the next few months. That’s absolutely certain.”

    So here comes stage 3, first clean out all the Rothschild banks, next clean out London and Zurich and then you are left with New York.

    Cui bono?

    1. If you want to hold gold in Switzerland, I recommend that you go to a single branch, privately-held, brokerage-only, storage-only (no loans, very little investing for its own account) bank. Contact SafeWealth Advisory. Their recommended Basel bank has been in existence for 200 years.

      Stay far, far away from UBS, CS, and the other behemoths.

  6. Count me in Dave!

    "The path of the righteous man is beset on all sides by the inequities of the selfish and the tyranny of evil men. Blessed is he who, in the name of charity and good will, shepherds the weak through the valley of the darkness. For he is truly his brother's keeper and the finder of lost children. And I will strike down upon thee with great vengeance and furious anger those who attempt to poison and destroy my brothers. And you will know I am the Lord when I lay my vengeance upon you."

  7. Honestly who is selling AUMN down here???

    1. The same retards who are selling GSS and Osisko

  8. I say again, to "print away" is the only way. It's baked in.

    We will NEVER know how much more dollar-based "liquidity" the FED will provide the international monetary and financial system until we have all drowned in it.

    700 billion for TARP? What a joke. 23 trillion later can't the people see it was just a warm-up to begin the desensitization of "shock and awe". Paulson made millions for that Oscar worthy performance.

    With each new OUTRAGEOUS headline at ZH and elsewhere the sheople become acclimated to the fraud, cronyism and Ponzi scams that define the dollar reserve system.

    It's like having to root for the Black Sox, even when you're not "in" on the scam, because it's *your* team and if you don't the CIA is blackmarking you a terrorist.

    We're not quite there yet, but ... sit tight. This game of overtime could end if Jamie's CIO actually hit that trade "over the fence".