JP Morgan’s $2 Billion Loss Possibly Indicative of Bigger Problems Behind the Scenes

Jon

Update May 16, 2012: In contrast with Jim Willie’s speculation below, a much more renowned Jim Rickards has a much more probable thesis on the JP Morgan loss. The trade was actually a bet on the spread between the bond index and the bonds themselves. Time ran out, resulting in the loss. Read about it at USNews.

Here’s an interview with Jim Willie (TheGoldenJackass) discussing his speculation on what’s really going on regarding JP Morgan’s $2 billion dollar ‘whale trader’ loss.  Jim speculates that JPM’s declaration that it involved European bond investments that have gone bad doesn’t make sense because in the last 6 weeks those bonds haven’t changed so much to warrant such huge losses. More likely, according to Jim, is that these losses are much larger and they reflect losses in the credit derivatives markets. Furthermore, eastern nations like China are likely causing the rout in precious metals because they’re forcing the western commercial banks to sell to cover these losses in the derivatives markets.

Eric Sprott on CNBC

Jon

Eric Sprott is interviewed on CNBC and gives some new perspectives on gold and silver investing for main-stream viewers.  He mentions how the central banks of the world do not like to see the price of gold go higher because that would be a sign of the true weakness in their fiat money as they continually print more to fight the contagion in their economies.  He also expects silver to out-perform gold and gives some interesting statistics for his reasoning.

Ron Paul on CNBC

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Which presidential candidate would you be most be confident would NOT lie to you?  Here’s Ron Paul on CNBC taking up the philosophical arguments no other candidates are discussing, including one hell of a debate on gold and the debasement of the dollar with Morgan Stanley’s Stephen Roach.

JP Morgan Stockpiling Physical Silver

Jon

JP Morgan Physical Silver Stock - www.chartsrus.comJP Morgan has taken delivery of almost 10 million ounces of silver over the last month bringing its current holdings to just under 14 million.  As the chart shows, something has changed and JPM is adjusting its strategy in the silver market.

According to analysis by Ted Butler, JPM has had an abnormally large short position of paper silver in the futures markets ever since they acquired Bear Stearns in 2008.  He estimates JPM’s current short position to be 18,000 contracts, which represents 90 million ounces of silver.

The new strategy being employed by JPM is likely to be one of the following:

  1. Acquire as much physical silver as possible to dump on the market, forcing silver prices to fall and enable JPM to unload its short position in the futures market.  JPM takes a small loss on the physical silver and a huge profit on their paper futures contracts.
  2. Acquire as much physical silver as possible prior to covering their futures positions. Depending on how quickly JPM covers, the loss on the paper contracts could be limited, while the long-term growth potential of the physical silver remains.
  3. Acquire as much physical silver as necessary to enable delivery to those parties taking the opposite side of JPM’s short issues.
  4. Perhaps some combination of all of the above.

Judging from past behavior of these Wall Street giants, one would suspect that JP Morgan is likely to chase after whatever gives them the most profits in the shortest time (option 1).  However, Mr. Butler has noted that over the past year of frantic turnover in COMEX silver inventories (in and out movement) there has been some big underlying demand that has not been so obvious to the main stream. Whether JPM plans to dump their accumulated physical silver at some point is unknown, but generally folks buy when they expect something to go up.

 

Geithner Admits Gold is Not a Relic

Jon

U.S. Treasury Secretary, Timothy Geithner and Federal Reserve Chairman, Ben Bernanke testified at the House Committee Oversight and Government Reform on March 21, 2012. In discussing the European debt crisis and responding to questions regarding IMF funding, the Treasury Secretary suggested that a default by the IMF or any of its borrowers was highly unlikely because the loans are backed by “a substantial amount of IMF gold …”

More commentary from Swiss America can be found here.

 

Fed’s New PR Campaign – Twitter

Jon

In an effort to keep that false front of openness and transparency, someone at the Fed had the bright idea to align with technology and start a twitter account.  But with all the tweets bashing the Fed and its policies, maybe it wasn’t such a good idea?  Maybe it won’t be long before the Fed terminates this Twitter account.  Here’s some streaming tweets:

Precious Metals Slammed – Fed Initiates Cover-Up

Jon

At 10AM on Wednesday, February 29, 2012 gold and silver were hit with massive paper selling on the COMEX. Gold was hit for about $100 (5.5%) and silver was taken down $3.75 (10%).  But the stock market was flat, untouched.

The sell-off in the precious metals was supposedly triggered by Chairman Ben Bernanke’s testimony before the congressional financial committee.  Main-stream media reported that many precious metals investors had been buying the metal in expectation of more easy money coming from the Fed soon, but the chairman’s comments on the economy were not quite as dovish.  While Bernanke’s remarks did not specifically mention any monetary easing coming any time soon, nothing was said about the $700+ billion of easy money the ECB was providing to European banks.

According to Jim Sinclair, this was a cover-up by the Fed chairman and the precious metals were manipulated to the downside on purpose. Because if the expectation of no more liquidity from the Fed was really the cause of the collapse of precious metal prices, then the stock market should have been hit just as hard, which it was not!  Furthermore, this $700+ billion for European banks was QE!  The ECB got those funds from two places: “It’s been coming in from the IMF and from swaps done by the US Federal Reserve.”  Here’s Jim Sinclair’s audio interview at King World News.

Indeed, here are three articles making the case that the sell-off was initiated by a seller who wasn’t at all interested in profit, but was motivated by taking the market down:

Ironically (or not), the precious metals were hit during this exchange between Ron Paul and Ben Bernanke, where Paul held up a silver ounce coin and asked the chairman why people aren’t given the option of using gold and silver as a “competing currency” with the US dollar.

 

The Truth Behind MF Global’s Collapse

Jon

James Koutoulas, a lawer representing clients of MF Global who lost an estimated $1.2 billion, reveals the ugly truth behind what caused MF Global to declare bankruptcy.

  1. MF Global moved investment funds to the United Kingdom, where there is no limit to the leverage that can be used in rehypothecating client assets.
  2. MF Global then invested those funds in European debt futures, leveraged perhaps 40-times, believing the troubled nations like Greece would eventually be bailed out.  (Note that higher leverage means tighter margins.)
  3. Then, with the extreme volativity in the latter part of 2011 when there were weeks of rumors coming out of the media hinting of both defaults and bail-outs, the investment went sour as margin calls forced MF Global to pony up more cash.  They had no other option but to go into their segregated client accounts and allegedly steal cash to cover the margin calls.

Fed Implicated in $15 Trillion Fraud

Jon

Three SWIFT transfers of $5 trillion each have supposedly been executed – initiated from the Federal Reserve Bank of New York, to JP Morgan Chase, to HSBC/London, and finally to the Royal Bank of Scotland. Executives at HSBC and RBS have verified the receipts of the transfers, but the money isn’t in any accounts and the purpose of the transfers is unclear.

According to Lord James of Blackheath, there are three possibilities:

  1. There may have been a massive piece of money-laundering committed by a major Government who should know better.
  2. A major American department has an agency which has gone rogue on and has created a structure out of which it is seeking to get at least €50 billion.
  3. This is an extraordinarily elaborate fraud, which has not been carried out, but
    which has been prepared to provide a threat to one or more Governments if they do not make a pay-off.


Read the entire transcript here.