Saturday, May 19, 2012

Markets May Keep Trending Until the London Whale Dies

The WSJ is out with a JPM update.  It reports on its public site:

J.P. Morgan Struggles to Unwind Huge Bets

By Gregory Zuckerman and Scott Patterson

J.P. Morgan Chase & Co. is struggling to extricate itself from disastrous wagers by traders such as the "London whale," in a sign that the size of its bets could bog down the bank's unwinding of the trades and deepen its losses by billions of dollars.

The nation's largest bank has said publicly that its losses on the trades have surpassed $2 billion, and people familiar with the matter have said they could over time reach $5 billion.

But the losses could be even bigger if the company sells its positions into a market that has turned against its positions, ...

I was going to make other comments.  Absent dramatic words/action from an actor such as the ECB supervenes, I am going to treat the macro markets as if a whale is being eaten alive.  I did dip a toe in the stock water again Friday, buying a little of Deere (DE).  Deere had a "beat and raise" quarter.  It is at 10X TTM earnings and yields 2.5%.  I have been chasing it down for a couple of months now and think it goes much higher over time.  Even my tiny remaining AAPL stock yields more than a 10-year Treasury.  What has happened is that stock yields have finally begun exceeding Treasury yields (10 year bond, not the 30-year yet) as they always had before 1960 or so because of the "wrong thing", namely rising Treasury prices rather than rapidly rising dividends or more attractive (much lower) share prices.  Oh well.  The Japanese endgame, till now, was for the 10-year to yield 1%, the 30 year and stocks to yield 2%.  Of course, stocks sporting rising dividends likely did the best.

In any case, my working hypothesis is that so long as the sharks are eating away at the whale, the good values that are appearing in the stock market will get better (LOL), and incredibly we could see yet more upside in the favored government bond prices.

Of course, no one necessarily rings a bell for the benefit of us outsiders when the whale is fully eaten, but sometimes inferences can be drawn.


  1. Dr.

    Are there any mutual funds you'd recommend that are good buys?

    VDIGX and VWELX are what I had in mind. If the overall stock market declines further, there could be further downside in these funds.

    I'm a small investor and I prefer basket of shares as opposed to individual.:)

  2. Excellent comment from the Doctor. I'd love to see a few hedgies gang up and take JPM down for the count. Screw the consequences........... I'm ready for market Armageddon.

    PS, lead is a better investment than gold right now.

  3. In this London traders business they are having a god profit from them and that is why they are interested to leave this company so easily.So for this i really appreciate their effort.

    Laser Printers

  4. er: If you are a long-term holder of "safe" stocks, both Vanguard funds you name are OK w me. I think there's a high likelihood of a lower low, perhaps after a sucker rally right now-- but if you're prepared just to let the assets do their thing over the years, I like Vanguard for most people. Please tho be aware that corporate profit margins are very high by historical standards; in essence the large governmental deficits have been transfered to corporate profits. Will that continue? I think not and I certainly think it's grossly unfair to the 99%. Thus, P/E's are the wrong metric to use, and by more fundamental metrics, stocks are richly valued. But they are not insane as they were in Y2K, so, again, OK for boring Vanguard funds of boring, safe companies. Beats FB!

  5. JohnG: Is there a way to "play" Pb? LOL if there is...

    Speaking of raw materials, I am going to throw out a quick post on what may be worsening news for the commodities bulls.