Global Macro Trading Journal

Quote from Daal:

I'm going to take a small position on JPM monday. Stock sell off seems to be mispricing the stock

The Gordon Growth Model adjusted for earnings shows that there is a big difference between one time hits to earnings and changes in the growth rate of earnings. The former should impact how much you pay for a stock by only a little bit, while the latter should have a big impact

I understand one might say 'but what about the Volcker impact and how it will affect the growth rate going forward' but thats not what the stock market is pricing in, XLF went down 1% only, so clearly people don't expect a Volcker impact. They are afraid people will drive the position against JPM against them and force them to sell(Giving a couple of bad quarters in their earnings). I listed to the conference call and it didn't seemed the end of the world like the midia is making of this. Dimon already said they won't 'do anything stupid, we will hold through volatility', they are not going to sell

They have $180B in equity capital, this seem to be completely different from a LTCM type situation. And LTCM only survived because it got equity capital from the banks, JPM has plenty of capital to ride through the HF market manipulation. A mistake like this will probably help them have discipline back in terms of risk control, at least this is has been my experience with myself and other people, there is nothing like losing money for one to stop reaching for yields

Also, my macro exposures tend to be bearish most of the time(And I might take a large EUR short soon), this gives me a change to balance the other way
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Not really a fan of this one. The main problem I see is that there are so many factors which can knock around the price of bank shares in a violent and unpredictable fashion, especially with the Euro-crisis heating up again, that even if your basic thesis and analysis is correct it'll be hard to hedge away these other risks. I'm also not sure how you'd know when it's time to exit the trade. Seems like a much better play for generating a little extra alpha in an early or mid-life bull market where you can be confident that earnings will grow steadily, versus a punt at multiyear highs in the wake of a massive QE rally when you have a bearish macro view.

If you really wanted to do this I think it would make the most sense in the context of a macro XLF short, where you are basically hedging away a portion of your short JPM exposure for some limited time - but it's still unclear how you'd know when to remove the hedge, and in practice it makes little sense to do this rather than just shorting the individual names in XLF ex-JPM.
 
The Economist has a few articles this week discussing the consequences of a 'Grexit'. The major take-away for me is that a Greek exit from the Euro, default and reintroduction of the Drachma (with associated re-denomination of liabilities and deposits etc.) is widely anticipated by market players, Euro-area banks, big companies and so on and has been for some time, even if politicians and the Eurocracy seem to be fumbling in the dark. I find it very hard to believe that it's not priced into the market and I just can't see how shorting EURUSD in response to the news makes any sense, except perhaps on a very short timeframe with a hair-trigger exit condition.

I would see it more significantly as 1) a chance to take meaningful exposure to Greece once the exact outlines of the exit etc. have become clear, and 2) a possible starting gun for the next bearish global-macro 'recognition phase' - perhaps similar to the Bear Sterns failure in 2008, which marked the point where the crisis started to really intensify even though it wasn't a direct "cause" as such, in the way that e.g. Lehman's failure is considered to have caused the fall '08 crash.

If this view is correct one would want to at once establish a bearish or at least neutral overall portfolio stance (short equities, long USTs, lots of cash, perhaps long gold) while being ready to move into Greek shares and perhaps go long EURUSD, if a 'sell the bad rumor/buy the bad news' effect starts to show itself.
 
http://marginalrevolution.com/marginalrevolution/2012/05/facts-about-jp-morgan.html

The banking unit of JPMorgan Chase alone made $12.4 billion last year. The holding company has over $2.26 trillion in assets and is the largest U.S. bank and 8th largest in the world. The holding company made $29.9 billion in operating income and just over $20 billion in net income for 2011.

So, this initial loss of $800M [TC: with more to come] represents approximately 4% of its total net profit for all of 2011, less than 2.7% of its operating income. Certainly it’s not a good thing. But the reported losses, in and of themselves, are not likely to have a dramatic impact on JPMorgan’s long-term financial stability.

Frankly I'm more concerned about Dimon being forced out either due inadequate disclosures or just the media frenzy. I'm quite certain if he goes out the stock will tank
 
The reason I say that is because big money investors look at the numbers and results to build their opinion. They don't make up their mind based on what Andrew Ross Sorkin says
 
http://dealbreaker.com/2012/05/the-tale-of-a-whale-of-a-fail/2/

This seems the best explanation I've seen so far of JPM trades. The short CDS bets seem it were a hedge of a long CDS bet that were a hedge of the corporate exposure of the company

At this point what holds me back are 2 things
-Since I believe risk aversion is lurking in global markets, JPM might become the Piñata for people that are afraid. Just like MS gets sold harder when there are EU issues(Even if the fears are incorrect). The JPM XLF spread could widen further. They will be more easily subject to rumors as well.

-The CEO said “We were meeting constantly,” he added. “Believe me, for the past couple of weeks, it was the primary thing going on in my world.”. This could be a violation of SEC disclosure rules. It will create all kinds of uncertainties(And thus a sell off in the stock) to have higher management change, specially if the stock becomes the Piñata

I might have to wait for a bigger sell-off. I hope the media tanks this stock because it will be a good buy. I'm going to take a look at their bonds as well
 
Quote from Specterx:

The Economist has a few articles this week discussing the consequences of a 'Grexit'. The major take-away for me is that a Greek exit from the Euro, default and reintroduction of the Drachma (with associated re-denomination of liabilities and deposits etc.) is widely anticipated by market players, Euro-area banks, big companies and so on and has been for some time, even if politicians and the Eurocracy seem to be fumbling in the dark. I find it very hard to believe that it's not priced into the market and I just can't see how shorting EURUSD in response to the news makes any sense, except perhaps on a very short timeframe with a hair-trigger exit condition.
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Not true at all. People have only began to seriously consider a Grexit after the elections
 
If the Grexit were priced in I would expect all Greek banks to be bankrupt due lack of liquidity by now(Plus reports of ATMs failling, people not being able to get cash from banks, wires being delayed etc). Once the Grexit becomes consensus the banks will collapse pretty quickly(If the don't do it correctly). I've read that deposit outflows have increased after the elections so its starting to become more likely the in the eyes of the depositors but the banks are still in business
 
As much as I wrote about the possibilities of a Greek exit, I don't necessarily believe its the most likely scenario for this year. Simply because I don't trust the politicians when they say 'accept terms or you are out of EUR zone'. Its going to create a lot of panic and contagion to kick them out like that, I'm not sure the politicians would have the balls to do that(Effectively triggering another Lehman times X)

A rather distinct possibility are public sector writedowns of Greek debt(By the ECB and EFSF), bringing their debt to GDP ratio down and decreasing the need for austerity. Its going to look really bad to the voters, those are effectively fiscal transfers to the Greek people(ECB will need a bailout as well). But the alternative is send the European VIX to 80+(proxy for panic) and create bank runs in other places, I just don't think the politicians would go there fully knowing what is going to cause, even if they say that they will

What makes this specially attractive to the core countries is the fact that if they don't give these fiscal transfers, then they will lose everything(Greece does 100% defaults and leaves EUR). So its a choice between losing 50%+ and diminishing panic and losing 100% and triggering a banking panic of large proportions

It looks likely that they would pick the first option. Either way its not looking good for risk assets because in that scenario some panic will be needed in order to get them to act(Ala TARP)
 
Quote from Butterball:


Apparently it didn't get much love back then. Then it rises 20%, quickly drops 15% and it becomes a value-investor's dream? I love the logic.
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Real value investors wouldn't touch JPM with a 10-foot pole.

The very idea of buying a black box financial, where nobody has a clue how to intrinsically assess the risks -- apparently including the CEO -- goes against the entire Ben Graham ethos.

The supposed value guys who thought financial stocks were cheap enough to back up the truck on in 2007 / 2008 met their waterloo. Those who don't learn from history etc.
 
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