Trader Talk

Fallout From JPMorgan Mess Will Not Be Good

JP Morgan Chase headquarters
Bloomberg | Getty Images

Risk management is still no science. Is it not ironic that JPMorgan Chase announced a in the chief investment office, which is designed to hedge risk for the entire organization. There may be more. They re-hedged synthetic credit exposure (credit default swaps? ) designed to hedge its corporate credit risk. Not a successful strategy. It isn't working.

We have very little visibility in the trading part of these firms.

This may good news for those who want more regulation — and those who want to break up the largest banks — but it is not good news from a stock and volume perspective:

a) Banks engage in all sorts of "tactical trading" around their positions. If word goes out that banks will be even more restricted than it was thought, there will be another drop in trading volumes. Liquidity is already low; it will get lower.

b) Bank stocks have had a terrific run this year — the KBW Banking Index is up 19 percent this year vs. 7.9 percent for the S&P 500 index. Prices topped out in March; this is another excuse to take profits from those gains.


1) More caution from retailers on the second half: The last reports of the retail earnings parade were not terrific: Kohl's beat, but second-quarter guidance was light, with May same-store sales will likely to be down year-over-year (Macy's also a bit wary).

Nordstromoutright missed ($0.70 a share vs. $0.75 a share estimate), with weak full-year guidance ($3.30 to $3.45 a share vs. consensus of $3.49 a share).

First-quarter retail earnings are expected to be up 11.5 percent (most retailers end in April); second-quarter still strong at 8.6 percent.

Bottom line: It does not behoove any of these guys to be optimistic on guidance in this environment.

2) PSST! Anyone want to buy a commodities exchange? The London Metal Exchange is up for sale; the Hong Kong Exchange, as well as NYSE Euronext, are in the second round of bidding, as is the CME and the Intercontinental Exchange.

It's a tough time to sell a commodity exchange, with prices down everywhere. This week French bank Natixis said it would closed its commodities brokerage division which trades at the LME.

Front runner seems to be Hong Kong, it's the world’s biggest commodity exchange and enables them to go East, with a stronger presence in London. They seem willing to overpay.

3) Another choppy week for global markets, with U.S. in the middle.

This Week:

S&P 500 -0.8%
Germany -1.3%
Spain +0.4%
China -2.3%
Brazil -1.8%

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