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Way Too Big To Fail


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From today?s WSJ, regarding the JPM/One merger:

 

Over the past decade, hot banking models have come and gone, but during the last economic cycle, consumer finance proved a winner during the recent economic downturn.

 

Banks, once eager to build flashy investment banks catering to big corporate clients, are now more eager to build businesses around consumers, many of them who spent lavishly right through the past recession.

 

American households spent a higher percentage of disposable personal income servicing consumer, mortgage, auto and other debt than at any point since 1980.

 

The combined JP Morgan/Bank One will be the biggest player in the credit card business, each with over $100 billion in annual receivables.

 

It all adds up to an enormous bet that consumers will turn to banks for more and more services, generating a torrent of fees through good times and bad.

 

Mark?s Translation:

 

Over the past decade, various central banking themes have come and gone, but during this past economic cycle, Wildcat Central Banking proved a winner.

 

The Matrix Institutions such as JPM and ONE have been tiring of constantly having to contribute ever increasing amount of Consumer Structured Exotica into the Al Green HedgeFund, otherwise known as The Atomic Particle Accelerator, otherwise known as The Derivatives Cyclone.

 

With gold and silver shorts on the brink of disaster, money supply declining, wildly gyrating interest rate, dollar, and T-Bone derivative problems, JPM had no choice but to merge with the biggest consumer bank available.

 

There was no other way to ?save? JPM from its out of control trades, the myriad Derivatives Tower entanglements, and its untenable precious metals short selling complex.

 

Bank One was recruited in order to accelerate the Consumer Structured Finance Machine to feed more money into the Credit Vortex and keep the credit growth curve going parabolic. This way, the ?combined JPM/One? could ?outrun? its derivatives losses by collecting more and more fees from consumer loan expansion.

 

And of course, the ?too big to fail? JPM is now ?way too big to fail JPM/One?, with total assets at $1.1 trillion and total notional derivative positions over $1.1 quadrillion.

 

It all adds up to an enormous bet that The Al Green HedgeFund can continue its spectacular trade for a little while longer, until Citibank gets its claws into the 2 billion Chinese Consumers, all of which are ready and willing to sign up to Capitol One Mermaid credit cards, CountrySlide Mortgages, and 0%, no interest, auto and appliance loans.

 

???????????

 

Doug Noland posted early. Some excerpts:

 

I am proposing today that the Federal Reserve, has lost control of the financial system. Here, I would like to stress a key point: Excessive credit creation distorts the market pricing mechanism. And with our financial system having experienced an unprecedented explosion of credit, particularly financial credit ? or borrowings made to finance the holdings of securities ? this has led to endemic distortions throughout both the financial asset markets and, importantly, the almost forgotten real economy. Massive credit inflation has impaired the ability of free markets to function properly. This has led to pricing distortions that have bred a massive misallocation of resources and a maligned economy - complete with an historic asset inflation, a subtle redistribution of wealth, over-borrowing by both the household and corporate sectors, and trade deficits that imperil the dollar and our standard of living.

In our view, the Federal Reserve allowed (and even nurtured) these credit excesses, yielding a financial system that has developed an extraordinary propensity for excess.

 

Within our financial system, an unending explosion of financial credit provides the perception of unlimited capital. This illusion only fuels devastating distortions to our economy. And with an asset bubble creating the perception of endless wealth, it is forgotten that real economic wealth is created only through saving and sound investment ? not by borrowing and consuming, not by massive credit creation and not by asset inflation. Today, credit excesses have fueled overheated domestic demand, with an historic consumption binge feeding both malinvestment and ballooning trade deficits that imperil the dollar.

 

Our system has created too much paper, of increasingly poor quality, while incorporating unfathomable leverage. To make this worse, much of this leverage is a mountain of accumulated debt owed to our foreign creditors. This is truly a "house of cards."

 

I see our highly leveraged financial sector as one massive interest-rate arbitrage made possible largely because the Federal Reserve pegs short term interest rates, and this massive arb is today quite fragile. In fact, I believe we are in the midst of what I refer to as a "hot money" crisis.

 

Like I said. Noland posted this early.

 

Early, as on September 21, 1999

 

Nothing has changed since 1999. The Al Green HedgeFund has multiplied the distortions by 5x and has succeeded.

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Noland has to be one of the most frustrated people alive. All of this sound analysis, all of which makes good sense, and yet it has proven to have no predictive value because bubbles can just grow and grow and no one can predict the end. You have to wonder what someone like that has done with his personal investments in recent years. He has to believe his own words, so presumably he is acting accordingly, and has been completely devastated. Yet he persists. Is he on suicide watch?

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Today's Soap Opera Actress Screamers:

 

http://stockcharts.com/candleglance?jnpr,f...pmcs,avci|C|B14

 

JNPR's +28.3%, EXFO +34.1%, DIGL +29.6%, AFOP +27.3%, AVNX +25.5%, CIEN +19.2%, APAT +18.8%, JDSU +15.7%, OCPI +14.4%, SCMR +13.3%)... Other percentage gainers include: VNWK +25.6%, PSIT +25.0%, VERT +24.5%, CREE +24.2%, HEII +22.1%, REAL +20.2%, INSG +19.1%, REDF +19.1%, MANU +16.5%, DPW +16.0%, WGAT +15.2%, CURN +15.1%, and SONS +15.0%.

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Now we have some cracks appearing in the Speculation Arena:

 

India market has gotten torched the last two days.

MAybe it was here, maybe it was elsewhere, but I think I've read that emerging markets are the canary in the coalmine for global liquidity non-protected risk-humping.

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Well, we are on the cusp of something huge.

 

Either Hyper-style destruction or the dawn of the American age in full glory, offloading all of our financial mistakes to the rest of the globe. Sucking the best and the brightest of world citizens into the matrix that is the US economy.

 

We are a few points away from SP 1145 which is the target from the bottom pattern formed in 2002-2003. The 55 month MA is at 1160 area. This is the last stand for the bears. Above these levels and you have a ABC target of SP 2100, calculated as such:

 

A = 1987 lows of 220 (approximately) to 1550

B = 1550 to 770

C = A @ 2100

 

I'm sure it will pause for a 5 point retracement here and there as hedgies short every downtick to 2100.

 

Point is be careful, the bottoming pattern target is almost upon us. I expect whipsaws, as the future winners position themselves for the ride to 2100 or to 300.

 

I wouldn't consider a top confirmed until trading below the neckline of the head/shoulder pattern on a monthly close basis which is near 1105.

 

Best case scenario for the bears is a top at 1160 and months of churning to use up the incredible demand for stocks, then a multiyear drop to 300-500

 

Best case scenario for the bulls is up 5-8 SP points every single day for the next year to 2100.

 

Scenario that would harm the most participants is a crash, as bulls have NO inclination to sell at any price and bears will probably never short again.

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scott: Which is why we will crash. Fornicate the fed, the gd statist pigs are going down in history as the most corrupt, inept, incompetnent, amoral, arrogant, to ever walk the planet earth. YOu can take a crash to the bank, that is a given, for anyone that has spent anytime around mkts . The only question is where and when. From what level is unknowable, that we will crash is a given.

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