Global Currency Crisis & Gold – What’s Really Going to Happen in 2011 – 2012

Following on from the first 2 parts in this series: Whats really going to happen in 2010 Whats going to happen in 2010/2011 – part II Another great writer and analyst makes it into our categories section, Bob Chapman of Global research with a seminal must read piece outlining the road ahead towards a new [...]

So Max Keiser’s “crash JPMorgan” campaign didn’t manage to do much, but in a surreal twist of fate they seem to have crashed themselves in the course of activities they are not supposed to be doing any more, ie proprietary trading on their own behalf.  From Zerohedge

The world’s largest prop trading desk just went bust.

A month ago we warned that JPM’s CIO office is nothing short of the world’s largest prop trading desk. Not only were we right, but what just transpired is just shy of our worst possible prediction. At the end of the day, the real question is why did JPM put in so much money at risk in a prop trade because we can dispense with the bullshit that his was a hedge, right? Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least “net” is not “gross” and we know, just know, that the SEC will get involved and make sure something like this never happens again.

As for what we said before, we will just repost the whole thing as we were, once again, right.

From April13: Why JPM’s “Chief Investment Office” Is The World’s Largest Prop Trading Desk: Fact And Fiction

For the fiction, we go to JPM’s conference call transcript where we had the following disclosures.

  • “I did want to talk about the topics in the news around CIO and just take a step back and remind our investors about that activity and performance. We have more liabilities, $1.1 trillion of deposits than we have loans, approximately $720 billion. And we take that differential and we invest it, and that portfolio today is approximately $360 billion.We invest those dollars in high grade, low-risk securities. We have got about $175 billion worth of mortgage securities, we have got government agency securities, high-grade credit and covered bonds, securitized products, municipals, marketable CDs. The vast majority of those are government or government-backed and very high grade in nature.We invest those in order to hedge the interest rate risk of the firm as a function of that liability and asset mismatch.”
  • “We hedge basis risk, we hedge convexity risk, foreign exchange risk is managed through CIO, and MSR risk. We also do it to generate NII, which we do with that portfolio. The result of all of that is we also need to manage the stress loss associated with that portfolio, and so we have put on positions to manage for a significant stress event in Credit. We have had that position on for many years and the activities that have been reported in the paper are basically part of managing that stress loss position, which we moderate and change over time depending upon our views as to what the risks are for stress loss from credit. And I would add that all those positions are fully transparent to the regulators. They review them, have access to them at any point in time, get the information on those positions on a regular and recurring basis as part of our normalized reporting. All of those positions are put on pursuant to the risk management at the firm-wide level. They are done to keep the Company effectively balanced from a risk standpoint…. “ Of course, when you own the regulators, it is not much of an issue… And would it be the same regulators who we have now confirmed don’t understand the first thing about markets?
  • “The last comment that I would make is that based on, we believe, the spirit of the legislation as well as our reading of the legislation and consistent with this long-term investment philosophy we have in CIO we believe all of this is consistent with what we believe the ultimate outcome will be related to Volcker.”

For the facts, we go to Bloomberg again, which was the first to break the Bruno Iksil story, and which exposes without shadow of a doubt why the Chief Investment Office is nothing but the world’s largest prop desk. But hey, just as Goldman named it frontrunning service the “Asmymetric Service Initiative” thereby magically not making it a frontrunning service, naming the world’s largest prop desk the “Chief Investment Office” makes it no longer be the world’s largest prop desk.

Here are the highlights. First on the CIO group:

  • Achilles Macris, hired in 2006 as the CIO’s top executive in London, led an expansion into corporate and mortgage-debt investments with a mandate to generate profits for the New York- based bank, three of the former employees said.
  • Some of Macris’s bets are now so large that JPMorgan probably can’t unwind them without losing money or roiling financial markets, the former executives said, based on knowledge gleaned from people inside the bank and dealers at other firms.
  • The CIO’s growing size and market power have made it an increasingly important customer to Wall Street’s trading desks and a market influence watched by hedge funds and other investors, the former employees said. Iksil’s positions in credit-derivatives have become so large that some market participants dubbed him “Voldemort,” after the villain of the Harry Potter series who’s so powerful he can’t be called by name.
  • What Bernanke is to the Treasury market, Iksil is to the derivatives market,” Bonnie Baha, head of the global developed credit group at DoubleLine Capital LP in Los Angeles, where she helps oversee $32 billion, said in a telephone interview.
  • Macris’s team amassed a portfolio of as much as $200 billion, booking a profit of $5 billion in 2010 alone – equal to more than a quarter of JPMorgan’s net income that year,one former senior executive said.

And far more importantly on the background of the guy behind it all. It kinda, sorta sounds like he is a… gasp…. prop trading kinda guy

  • It’s Macris, not Iksil, who was behind the strategy that led to an unprecedented build-up of credit risk in JPMorgan’s chief investment office, three former employees of the bank said. While they expressed doubt Iksil can unwind his positions without causing a dislocation in the markets he trades, they also said JPMorgan probably can afford to hold the assets until they mature and so won’t be forced to sell them.
  • In 2011, corporate revenue of $3.3 billion included $1.6 billion of securities gains and produced $411 million of net income, the bank said in an annual filing on Feb. 29. By comparison, JPMorgan’s investment bank reported $26.3 billion in revenue and $6.8 billion of net income in 2011.
  • Since 2007, the value of securities held in JPMorgan’s chief investment office and treasury has more than tripled to surpass $350 billion from $76.5 billion, according to company filings.
  • Profit, not risk management, guided the purchases, according to the former employees. One of the employees, who previously held a senior executive position at the bank, said Dimon even ordered some of the trades himself.
  • Dimon pushed the unit to seek bigger profits by buying higher-yielding assets, including structured credit, equities and derivatives, and ramping up speculation, according to two former employees.
  • In London, Macris expanded his team, adding expertise in credit and fixed-income trading. A Greek citizen, Macris previously was co-head of capital markets at Dresdner Kleinwort Wasserstein before joining JPMorgan in 2006. In that role he helped oversee a unit that made proprietary trades, or bets with Dresdner’s own money, according to two people who worked with him at the time.
  • Before joining Dresdner, Macris oversaw currency trading at Bankers Trust, now part of Deutsche Bank AG. Macris was an idea- generating machine who was blunt and didn’t suffer fools, said Duncan Hennes, who worked with him at Bankers Trust.
  • At JPMorgan, Macris hired Evan Kalimtgis, a former head of credit portfolio strategy at Dresdner, to help with risk management, according to one former employee.
  • In 2007 Javier Martin-Artajo, who had been Dresdner’s head of credit-derivatives trading, joined JPMorgan in London. George Polychronopoulos, who worked at hedge fund Endeavour Capital LLP, also joined the London office in 2009.
  • Martin-Artajo, Polychronopoulos and Kalimtgis didn’t return calls and e-mails seeking comment.
  • While Macris had a mandate to make money from the beginning, he didn’t start putting on big bets until after the credit crisis in 2008. Two of the former executives said the following year he bought AAA-rated pieces of collateralized debt obligations. As competitors dumped securities and prices slumped, Macris’s group at JPMorgan emerged as the biggest buyer in some markets, said one former executive at the bank who was familiar with the trades at the times.
  • In one example, a New York-based CIO trader named Jonathan Horowitz bought about $1.1 billion of AAA-rated portions of collateralized loan obligations for about 80 cents on the dollar in November and December 2008, people familiar with the matter said at the time. Horowitz declined to comment.

Finally, the most damning evidence that JPM’s World’s Biggest Prop DeskTM, elsewhere known as the CIO, has to be dismantled lest it suffer the fate of all other massive prop desks, which promptly blew up in the days after the Lehman failure, is the following:

  • One public sign that the chief investment office does more than hedge: Its trading risk is on par with that of JPMorgan’s investment bank.
  • JPMorgan’s annual report for 2011 shows that the CIO stood to lose as much as $57 million on most days of the year. That compares with $58 million for the investment bank, which includes Wall Street’s biggest stock- and bond-trading units.
  • Another sign: The relationship between the CIO and the investment bank’s sales and trading desks is strained, two former employees said. Employees in the CIO get a smaller share of their trading profits than those in the investment bank, giving Dimon a cost-management incentive to direct more trading through the CIO, one former executive said.

Hence: JPMs “Chief Investment Office” = World’s largest prop trading desk. But hey, just repeat “Assymetric Service Initative” … “Assymetric Service Initative”  … “Assymetric Service Initative” three times … and it becomes truth.

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Could be..  William Weytens from http://profitimes.com explains why it’s entirely possible in a great article, but you do also have to factor in that if Europe causes a global banking meltdown, that the metals might drop more instead, firstly though, watch the video to your right to understand why you ought to be buying physical.

Silver Ready For Take-Off?

After a very turbulent year, silver now looks set to take off again. In this article I will tell you why I think so. First of all, let’s look at the Commitment Of Traders reports. Commercials have yet again reduced their Net Short position in Silver, which is now close to the low of 2003 at the beginning of the Bull Market. Commercials are generally seen as the “smart money”, so if they reduce their Net Short Position, they expect price to rise (or at least not drop substantially).

The reason why Commercials are the “Smart Money”, is that – unlike the millions of small investors who burn their hands by buying high and selling low – they tend to “Buy” low (reduce short positions as price declines) and “Sell” high (increase short positions as price rises). This can be seen in the following chart. There seems to be a very high correlation between the Sentiment charts of Sentimentrader.com and the Net Short Positions of Commercials:

The fact that one should “Buy Low” and “Sell High” is the best way to invest can be seen in the following chart. As Sentiment (or Commercials Net Short Positions) climbes into the orange area, it’s time to become cautious.

It sure can rise (substantially) higher, but cautiousness is the first step in detecting tops. The second step is to look at perspective. Sentimentrader indicators are overlaid with standard deviation bands that show you how extreme the current reading is compared to its recent history. So if sentiment rises above the red standard deviation band, we know that this is an unsustainable situation, and that sentiment has to reverse (decline) over time.

On the other hand, when sentiment drops below the green standard deviation band, we know that this is also an unsustainable situation, and that sentiment has to reverse (rise) over time.
The red circles on the chart below show that good Exit points occured when sentiment was above the red standard deviation bands.

The green circles on the chart below shows that good Entry points occured when sentiment was below the green standard deviation bands. However, the best entry point of the last 5 years was in 2008. This was a time when both Sentiment and Commercials Net Short positions reached extreme lows. Currently, we are in a similar situation, which could mean that silver is at or at least very close to a bottom, and that it could take off pretty soon…

In fact, when we look at the chart below, we might be in an even BETTER position now than in 2008. As price declined in 2008, the Accumulation/Distribution index declined as well. Unlike 2008, the Accumulation / Distribution index has made brand new highs recently, despite the fact that Silver is off about 35% from its all-time high…

Another bullish factor now is that, as price declined, volume declined as well, which was not the case in 2008. It looks like the massive drop a couple of weeks ago – which took silver down to $26 – was the “perfect” entry point, price wise. However, in my opinion there are “better” entry points at levels slightly higher than today. Let me explain why. If you would have bought when silver hit $26, you would have done an AMAZING Job. Congratulations to those who did.

However, if you did, you were catching a falling knife. There was a huge risk that silver would drop even lower, maybe as low as $20, which is about the breakout point of the autumn of 2010. I personally always look at Risk to Potential Reward. At $26, the risk of Silver dropping another $6.5 was too high for the potential $6.5 I could make. That’s a 1-1 ratio, since you can loose just as much in case you are wrong as you can gain in case you are right.

I like better those kind of situations where you get a risk-reward ratio of 2 -3 (you can gain twice or 3 times as much as you can loose), and I don’t have to think twice when I get a situation that gives me a Risk-Reward ratio of 5.

Look at 2008. As long as price was below the 50EMA, you shouldn’t have bought. The best time to buy in my opinion was early December 2008, when price broke above this 50EMA and both the RSI and MACD broke out above the red resistance lines.

At that point you had a BUY point.

You wouldn’t have bought at the extreme lows, but taking this 50EMA as a stoploss, would have minimized your losses, while you could have let your profits run. In fact, this 50EMA was at that point at the same level as the horizontal resistance line underneath the lows of 2006 and September 2008. A breakout above that level was extremely important going forward.

We are currently in a similar position, as there is resistance at $34 which acted as support in the first half of 2011.

The 50EMA is now at the same level as this red resistance line, and both the MACD and RSI look set to brake out above their red resistance lines…

Combine that with the severely depressed sentiment in Silver and the low Net Short Positions of Commercials, and we have the ideal cocktail for a nice rally in silver prices…

Silver tends to follow Gold, so we should also look at sentiment in Gold.

Once again, we can see that the Standard Deviation Bands provide good Entry and Exit points. Sentiment in gold is now pretty bearish, and is close to the green standard deviation band.

When we look at the Gold:Silver ratio, we can see that the ratio is now facing strong resistance at the 38.20% Fibonacci Level. IF the ratio would take out this resistance, it looks headed towards 60, which is the 50% Fibonacci Retracement level.

However, if that were to happen, both the RSI and MACD will most likely make a lower high, causing negative divergence, meaning this “rally” should be “sold” (which means one should BUY silver in favor of Gold in my opinion).

The MACD looks set to roll over, which means the ratio looks ready to drop.

Silver is ready for take-off. The question is, ARE YOU?

If you are interested in similar analyses, trading updates, or if you would like to know how to trade options, make technical and fundamental analyses, please visit www.profitimes.com and feel free to sign up for our services!

BuyGoldSilver.org say..

..what we always say, we are 100% all in Gold & Silver, and we are still buying now, it may be 10 or 20% higher in a few months

 

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