Trader Talk

Dow Rallies 120 Points on...What?

A tour bus passes the Wall Street bull in the financial district January 22, 2007 in New York City.
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What a morning! We have Greece with a 436 million euro bond coming due next Tuesday, Spanish authorities want higher loan loss provisions against bad debts (more dilution for banks), and ...and we move into positive territory on a 120 point swing in the Dow.

The market can take Greece, France, Spain and JPMorgan and still rally on the day. Wow.

And please don't tell me we just moved the Dow a hundred points in an hour on better than expected April PPI, which seems to be due to lower energy prices. Really? Is there massive worry about inflation at the moment? I don't think so.

And don't tell me that JPMorgan's mistake is a company-specific issue. Bad hedge, nothing more, I have heard traders say. There are no systemic implications despite what others may be saying.

You've got to be kidding. At the very least, something is wrong with JPM's risk strategy. This is going to put more pressure on them to deleverage and de-risk, but it will likely mean more pressure on ALL banks to trade less.

Bottom line: less liquidity in the markets.

There will also be calls to speed up the Volcker Rule for everyone. JPM is supposed to be the best-managed bank — what does that say about the rest of them?

It goes beyond that, to the larger "too big to fail" issue. Analyst Richard Bove, I think, struck the right chord this morning in a note: "JPMorgan just gave those who want the big banks broken up an incredibly strong reason for doing so."

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