Do you remember what I said on January 6 (Amid the rally, I look at the Doo Doo 32 and their receipt of the TARP)? Well, believe it or not, Mr. Market along with members of the Bush Administration and certain CEOs are allowing members of BoomBustBlog to actually get paid from the same set of research for a 5th time in less than a year. This has got to be a record! I am of the mindset that this type of behavior will not continue for much longer, for I get the feeling that Barack and crew are a bit more serious about putting the bank issues to bed than the previous administration. Be that as it may, until they get their machinations firmly entrenched, and as long as banks are shuffling taxpayer money out the door in the form of dividends a la Ponzi scheme et Madoff, my subscribers have the opportunity to profit immensely.
I have said it before, and I'll say it again - JP Morgan (JPM) is insolvent! Anybody from JPM who wants to correct can simply email me via the contact form at the top of my site to show me where I'm wrong. I am always willing to admit that I am wrong when I actually am. I don't think this is one of those times. Keep in mind that throughout this entire credit debacle, I haven't been wrong about a bank or insurer yet. I have called all 32 of the Doo Doo 32, Bear Stearns, Lehman, GGP, MBIA, Ambac. Simply search my blog for the articles, for most of these companies have fallen in share price more than 98% (with the Doo Doo 32 being an exception since that was more of a macro call).
Despite heavy government subsidies (in my opinion, JPM is the beneficial recipient of over $100 billion of government aid and other capital, between the Bear Stearns subsidies, backstops and guarantees, WaMu sellers' concessions and TARP) I am still confident in declaring JPM insolvent. It has pre-announced earnings to coincide with the feel-good aura of the Obama inauguration - good move, but it didn't work. I can still count even if I do feel good.
JPM incurred an operating loss, masked by accounting shenanigans (these things don't fool me, I can count) and one time asset sales. Basically, the JPM dividend is being funded by tax payer monies (TARP) and asset sales, hidden by accountants who may been smoking some of those creativity tea leaves I hear they sell in Jamaica, you know that dark green Sensimilia! I've decided to divulge a bit of the top secret subscriber research to the public through an open post available to all. I've done this as to illustrate to those who are not part of our closed community the travesty and trouble that is what appears to be the MSMs (mainstream media) most respected and well run bank. The real juicy stuff (valuations and a sample trade optimized for risk/reward) will be available for download to retail and pro subscribers, accordingly.
Here is some JPM accountants' Sensimilia inspired food for thought:
- While the banking world is bustin' its neck to delever, JPM is currently sporting a ~30x leverage ratio.
- In 4Q2008 derivatives increased substantially to $163 bn from $118 bn in 3Q2008 and $77 bn in 4Q2007. Much of the increase in 3Q2008 was due to acquisition of Bear Stearns. As of September 2008, JPM has a $118 bn worth of derivatives on its balance sheet while the notional value of these derivatives is $84.3 bn.
- As a reminder, JPM is the WORLD's largest credit derivative counterparty. With that note in mind, realize that JPM's trading VaR is up 50% while its increase in derivatives receivables are up nearly 40%. This is all occuring as JPM is trying to delever by shedding assets,
- According to September 2008 filings, although banks had sold credit derivatives of $4.5 bn and purchased credit derivatives of $4.6 bn (net is nearly 0), the bank has recorded a fair value of $28.5 bn (as of September 2008) against notional amount of $9.2 bn.
- JPM’s level 3 assets have increased significantly due to purchase of Bear Stearns, reaching 17.5% of total assets at fair value from 11.2% as of December 2007.
- As of Q3 08, JPM sported an adjusted leverage of 32x! That is just what we could find on balance sheet. You know there has to me some stuff off balance sheet somewhere that is hidden from me. And to think, some people thought Bear Stearns and Lehman were highly leveraged... Oh yeah, that's right! JPM bought Bear Stearns and Lehman went bankrupt. Hmmmm!
