JPM relief rally pervades markets; China stabilization underpins opportunity
With China's growth rate seemingly stabilizing in the mid-7% area, that reassuring news laid the groundwork for the market to react positively to JPM's news that their huge failed macro trade will soon be behind them. While JPM "core earnings" were below securities analyst's estimates, that was immaterial compared to the certainty that has been introduced into the markets. Like rating agency analysts, sell-side equity analysts are relatively impotent. The market makes its own decisions and gave a big thumbs up to the JPM disclosure and actions.
The New York Times and various media pundits didn't get it and focused on all of the negatives of the JPM disclosure at the outset. Even Bloomberg television reporters repeatedly acted as if the JPM disclosure was some manipulated effort to hide information from investors. How stupid would that be. It is in JPM's interest to be as transparent as possible as long as it does not compromise proprietary trading information for the benefit of competitors. They want this episode behind them.
The biggest news from this perspective was that it was implied that actions were taken by the London trading group responsible for executing the hedge to, at a minimum, not disclose the full exposure of their trades to internal management. If actions there led to management reporting that did not reflect the full exposure, that certainly comes close to the definition of a rogue trader. This makes sense, because it seems apparent that Ina Drew and Jamie Dimon definitively did not have all of the information when he made that "tempest in a teapot" comment.
It's an old story in trading. Get underwater on a trade but, convinced that the underlying reason for the trade is correct, double up and them some to get out whole. The so-called London Whale and his two bosses did that so many times that they owned the market in this particular derivative and by the time the most senior management had enough information, it was too late to exit.
The conference call to discuss the bad trade and earnings in general was well handled, serious and informative. The market listened, even if some in the media did not.
The New York Times and various media pundits didn't get it and focused on all of the negatives of the JPM disclosure at the outset. Even Bloomberg television reporters repeatedly acted as if the JPM disclosure was some manipulated effort to hide information from investors. How stupid would that be. It is in JPM's interest to be as transparent as possible as long as it does not compromise proprietary trading information for the benefit of competitors. They want this episode behind them.
The biggest news from this perspective was that it was implied that actions were taken by the London trading group responsible for executing the hedge to, at a minimum, not disclose the full exposure of their trades to internal management. If actions there led to management reporting that did not reflect the full exposure, that certainly comes close to the definition of a rogue trader. This makes sense, because it seems apparent that Ina Drew and Jamie Dimon definitively did not have all of the information when he made that "tempest in a teapot" comment.
It's an old story in trading. Get underwater on a trade but, convinced that the underlying reason for the trade is correct, double up and them some to get out whole. The so-called London Whale and his two bosses did that so many times that they owned the market in this particular derivative and by the time the most senior management had enough information, it was too late to exit.
The conference call to discuss the bad trade and earnings in general was well handled, serious and informative. The market listened, even if some in the media did not.
posted by John Borden at 3:32 PM
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