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Fall Down Friday – JPM’s Face Plant Might Give Us A Bottom

Posted on the 11 May 2012 by Phil's Stock World @philstockworld

That's right, who cares about JPM and their little $2Bn mistake when a new Mayan calendar has been discovered that goes all the way to the year 3,500?  That kind of puts JPM's loss in perspective as it's only $1.34M per additional year to get back – hardly seems worth mentioning, does it?  

I'm certainly not going to talk about it because it's as silly as planning the end of the World around a calendar that was carved into a rock (and now we know they simply ran out of rock or 2012 would not have been the end).  JPM MAKES $18Bn a year – much of it from trading.  That trading is not without risk – so of course they will have the occasional loss.   There is nothing about JPMs loss that indicates an industry-wide problem – other than highlighting the generally insane levels of risk that our TBTF Banksters take on a daily basis.  

FXI WEEKLYWhat we SHOULD be concerned about is systemic problems in TBTF Nations such as China, where April Industrial Production rose at the slowest pace since 2009, Retail Sales are also slowing and, worst of all, Fiscal Revenue grew at just 6.9%, down sharply from 18.7% in March.  India's Industrial Production fell 3.5% in March vs a 1.7% gain expected by "experts" like the idiots at JPM who bet on Global Markets making new highs in May and lost their assets.  Meanwhile, the EC says the EU is in a "mild recession," with the Eurozone GDP forecast to contract 0.3% this year and, hopefully, expand 1% next year while running a 3.2% deficit in 2012.

Contracting 0.3% while spending 3.2% more than you have is not a "mild recession" folks – it's a catastrophe that is being paved over by tons of QE and other stimulus.  Not like America, where our $1.4Tn deficit is close to 10% of our GDP and that's how we can expand by 2% – see Europe, you just don't know how to spend your way to prosperity!  

Bernanke spoke to a group of senators yesterday about the potential harm to the economy from the expiration of several pro-growth policies, according to senators who attended the meeting. Bernanke discussed the scheduled end of programs including the Bush tax cuts, the payroll tax holiday and extended unemployment benefits, as well as budget cuts that are set to take effect in January of 2013, said Kent Conrad, a North Dakota Democrat. "It's clear to all of us and he stressed that if all of these things occur it could drive us back into a worse recession," said Richard Durbin of Illinois, the chamber's No. 2 Democrat, after the meeting. "The sooner we can resolve these issues, the more likely we are to give confidence to consumers and investors across America."

Fall Down Friday – JPM’s Face Plant Might Give Us A BottomThat's right, what America needs is even more FREE MONEY because, people, without an endless supply of free money – we'd have to face up to the complete and utter mess our economy is actually in.  Our Post Office, for example, will run completely out of money in October after losing $9.1Bn for the 12 months into September 30th and that's not even including the $5.5Bn payment they are skipping for promised retiree health benefits.  Unfortunately, the Republicans in Congress have used the Post Office as a political football and have neither allowed them to raise rates or cut costs for two years – so that they can use it as an example of what a failure a Government organization is.  

"The Postal Service can't afford to continue hemorrhaging money like this," Senator Tom Carper, a Delaware Democrat who co-sponsored a Senate bill to address the issues, said in an e-mailed statement. "Congress can't stand idly by and allow it to continue to creep towards collapse. The Postal Service supports a trillion-dollar mailing industry and over 8 million jobs."  The service wants to eliminate as many as 220,000 jobs and close mail-processing plants to reduce costs. It said yesterday it can save $500 million annually by cutting hours of operation at as many as 13,000 small-town post offices.

EWP WEEKLYIn Spain, the government is saving money by not fixing their highways, causing drivers to careen around the country in almost total darkness as the lighting has been the first thing to go.  “In some stretches it looks like they’ve been switching off the lights, in others they are missing the bulbs or the cables,” says Pascual Cabello, who runs a fleet of eight trucks. “It’s only going to get worse.”  

To appease European officials and bond investors, Prime Minister Mariano Rajoy is trying to pare the country’s deficit by 27 billion euros ($35 billion), an amount equivalent to almost a third of central government spending in 2011. At the same time, Rajoy is battling Spain’s second recession since 2009. Unemployment has edged up to 24 percent, pushing up social security payments and damping tax revenue.

Yep, that austerity is a genius solution in every country, isn't it?   

While the world's attention has been focused on sovereign debt issues in Spain, Greece and elsewhere, Japan will emerge as a problem area as well as the European developments accelerate, Kyle Bass told attendees at the Skybridge Alternatives, or SALT, conference:

"Greece will circle the drain and be ungovernable in the next 30 to 60 days," said Bass, founder of Heyman Capital and famous for presciently shorting subprime mortgage bonds before the industry collapsed. "Japan is in the crosshairs of the market…I've never seen more mispriced optionality in my entire life." The Bank of Japan, the nation's equivalent of the U.S. Federal Reserve, is effectively monetizing the national debt by buying up 50 trillion yen-worth of Japanese Government Bonds, commonly referred to as JGBs in the marketplace, Bass said.

Greece's Alexis Tsipras has rejected Berlin’s austerity program as “barbaric” and counter-productive as Youth unemployment in Greece was yesterday revealed to have overtaken even that of Spain, at an almost unbelievable 53.8 per cent.  This for an economy which, if it sticks to the German program, has a further 150,000 public sector jobs still to shed.  Those who think that, with the requisite degree of structural reform, the private sector will automatically move in and fill the gap can forget it.  The banking system is insolvent, credit is plummeting, the flight of capital continues unabated and businesses are going bust in record numbers.  As long as Greece remains in the euro, there is no plausible path back to growth as the only Nation on Earth with a worst tax to expenditure ration is the United States

Fall Down Friday – JPM’s Face Plant Might Give Us A Bottom

Meanwhile, Moody’s has warned that the tendency of global banks to avoid new capital requirement rules and load up on debt will continue to put pressure on their creditworthiness. The credit rating agency announced it was placing 17 banks on review for a downgrade earlier this year, citing “vulnerabilities” in the companies’ vast and volatile capital markets businesses.

Keep in mind that none of this is "news" – the markets are simply beginning to recognize all the flaws I have been pointing out all year and risk is being slowly priced back in to the equity markets and that's a GOOD thing.  Hopefully JPM's little boo-boo will give us a nice panic sell-off with some volume so we can find a proper floor to buy into.  It's not that I think things are suddenly going to get better – more like they can't get much worse and NOW we are at the point where it's time to give the can another kick down the road.  Sure, long-term, we are all doomed but, like the Mayan's – our Central Bankers can always give us another 1,488 years – or at least days – before the end really comes.  

Have a great weekend, 

- Phil

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