16 May 2012

JP Morgan 'loss' - too much ado about nothing?

The reported 'loss' that JP Morgan took on its investment account may appear to be large but in the context of a portfolio size of $ 300+ billion and a total balance sheet of more than $ 2000 billion it really is small beer. Every investor or trader worth his salt will know that no investment goes up in a straight line. Daily fluctuations of one percent are the norm. That would mean that the investment book could be up or down three billion dollars on any given day. Hedging is no panacea. If you fully hedge all risk out of a portfolio you may as well stay in treasury bills as the cost of the hedge will eat up all the expected profit. I am sure that some aspects of the portfolio could probably have been handled better but loan books - even surrogate ones - are usually meant to be held to maturity so the mark-to-market loss should not have been of any consideration. That various busy-bodies (media, various officials like the department of justice or the New York Auditor) should feel competent to be backseat drivers for JP Morgan's investment department adds a twist of absurdity to the whole affair. Jamie Dimon also made a mistake to preemptively excuse himself in front of a baying media crowd rather than calmly explain the realities of the investment game.

8 May 2012

Poor start for Monsieur Hollande

Hollande has done surprisingly poorly in the second round of the French Presidential elections. Given the unpopularity of Sarkozy (due to his somewhat abrasive and erratic behaviour) and the strong headwinds due to the fallout from the ongoing financial crisis, one would have expected nothing but a landslide victory by the socialist contender. Now he uses the first days after his vapid victory to hit out (Daily Mail) at the Financial Sector, and in particular at the City of London. We have a simple switch to suggest to this party apparatchik: Give up all the costly subsidies that your farmers receive and we might think about protecting the City of London less vigorously. The cost of the subsidies that hundreds of millions of consumers have to bear is readily quantifiable while the damage that the financial sector is causing - if there is any at all! - is mostly based on smoke and mirrors (even the backing of 'Star' economists from Harvard etal is less than convincing, they only achievement they can be proud of is to get too much shelf space by the media).