In The News Today

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Jim Sinclair’s Commentary

God bless Saturday mornings.



Jim Sinclair’s Commentary

Is this a Lehman white wash or just the darn Lyme tic disease?

Bank Regulators Under Scrutiny in JPMorgan Loss
Published: May 25, 2012

Senior JPMorgan executives assured the bank’s watchdogs after the financial crisis that the chief investment office, with hundreds of billions in investments, was not taking risks that would be a cause for concern, people briefed on the matter said. Just weeks before the trading losses became public, bank officials also dismissed the worry of a senior New York Fed examiner about the mounting size of the bets, according to current Fed officials.

The lapses have raised questions about who, if anyone, was policing the chief investment office and whether regulators were sufficiently independent. Instead of putting the JPMorgan unit under regular watch, the comptroller’s office and the Fed chose to examine it periodically.

The bank pushback also suggests that JPMorgan had sway over its regulators, an influence that several said was enhanced by the bank’s charismatic chief executive, Jamie Dimon, long considered Washington’s favorite banker.

Now, as regulators scramble to determine whether the chief investment office took inappropriate risks, some former Fed officials are asking whether the investigation should be spearheaded by the New York Fed, where Mr. Dimon has a seat on the board. Some lawmakers and former regulators also have reservations about the comptroller’s office, which is investigating the trade and was the primary regulator for JPMorgan’s chief investment unit.

“The central question is why Jamie Dimon was able to so successfully convince both its regulators that there was nothing to see at the chief investment office,” said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve Bank examiner in Boston and San Francisco. “To me, it suggests that he is too close to his regulators.”


JP Morgan Had $101.3 Billion One-Sided Exposure, Fed Data Show
Published May 24, 2012

While J.P. Morgan was increasing its net long–or CDS selling–in investment-grade protection over the long term, it simultaneously held a bearish position over the short term, helping to offset some of its losses, Fed data show. It increased its net short position by owning $53.8 billion of investment-grade CDS protection lasting one year or less as of March 31, compared with $3.64 billion as of Sept. 30. The Journal previously reported that some of the firm’s coverage expires in December this year.

This protection was designed as a hedge in case the bullish positions soured, said people familiar with the bank’s strategy. But at least as of March 31, the firm didn’t appear to be holding enough of the offsetting trades because the amount of protection it sold dwarfed what it had purchased.

As of March 31, the firm had net sold $36 billion of CDS lasting more than one year but less than five years, the Fed data show, whereas by the end of September it had bought more protection than it had sold, with a net short position of $16.3 billion.

While J.P. Morgan works its way out from underneath the losses, the potential risks to the broader financial markets are hard to quantify. The trades were made by the firm’s Chief Investment Office in London, but the CDX.IG9 index trades it made were likely put into ICE’s clearinghouse in the U.S.

Dealers like J.P. Morgan have been clearing their CDS for a few years, and they mostly use ICE to do so. Clearinghouses take fees for mutualizing risks among their members and guaranteeing trades in the event of member defaults; J.P. Morgan Chase Bank is one of 27 members of ICE Clear Credit; all are banks or bank affiliates.


Jim Sinclair’s Commentary

One more step in the sundering of the dollar in the transactional mode.

Yen-Yuan direct trading to start in June

TOKYO — Japan and China are expected to start direct trading of their currencies as early as June as part of efforts to boost bilateral trade and investment, according to reports.

With the planned step, exchange rates between the yen and the Yuan will be determined by their transactions, departing from the current "cross rate" system that involves the dollar in setting yen-Yuan rates, Kyodo News said on Saturday.

The two governments are eyeing setting up markets in Tokyo and Shanghai, the Yomiuri Shimbun said.

The Yen-Yuan exchange system would help businesses in the world’s second- and third-largest economies reduce risks associated with exchange rate fluctuations in the dollar and cut transaction costs, Kyodo said.

It will be the first time that China has allowed a major currency except the dollar to directly trade with the Yuan, Kyodo said.


Jim Sinclair’s Commentary

This is one hell of a way to book a recovery.

Number of the Week: Half of U.S. Lives in Household Getting Benefits
May 26, 2012, 5:00 AM
By Phil Izzo

49.1%: Percent of the population that lives in a household where at least one member received some type of government benefit in the first quarter of 2011.

Cutting government spending is no easy task, and it’s made more complicated by recent Census Bureau data showing that nearly half of the people in the U.S. live in a household that receives at least one government benefit, and many likely received more than one.

The 49.1% of the population in a household that gets benefits is up from 30% in the early 1980s and 44.4% as recently as the third quarter of 2008.

The increase in recent years is likely due in large part to the lingering effects of the recession. As of early 2011, 15% of people lived in a household that received food stamps, 26% had someone enrolled in Medicaid and 2% had a member receiving unemployment benefits. Families doubling up to save money or pool expenses also is likely leading to more multigenerational households. But even without the effects of the recession, there would be a larger reliance on government.