“Thar” She Blows By Charles Payne
Long/Short Equity, Portfolio Strategy
Contributor Since 2009
Today's stories revolve around an easy enough theme of getting so big for your britches you lose touch with the rest of the world.
A few weeks ago a lot of stories popped up about the London Whale trading with JP Morgan whose positions were north of $100.0 billion and sending alarms all over the nation. As a single trader that is a lot of money and a lot of hedging and risk. That kind of money means the firm had to have positions that essentially were betting against its own customer. That was the narrative out of Washington as there was an immediate outcry from some to make the Volker rule stronger or beef up Dodd Frank. These rules ostensibly were supposed to protect customers but really a direct attack on bank profits.
Apparently the London Whale lost more than $2.0 billion on a bad hedge that backed up a bet on recovery in Europe. In many ways this is just part of the job, and the idea of losing money on a hedge is normally no big deal-par for the course. But this is about so much more. A contrite Jamie Dimon had to pause between collecting "man of the year" awards to hold a conference call where he called the loss "egregious" among several other choice words. I think his anger was aimed more at Washington than at the Whale as he understands at this precise moment in time his firm has served up more ammunition for lawmakers to tighten the noose on investment banks.
Ironically, you would think Washington would be happy to see the latest smartest guy on the street take a hit. In fact, I'm confused about outrage that comes when a Wall Street firm makes a couple billion is only matched when that same firm loses a couple of billion. Go figure. There is no doubt the sole goal of corralling Wall Street has been misplayed by all from day one. It's an amazing contradiction. President Obama and company aren't trying to kill the banks other than their reputation they want the money and power of these banks. It's like owning the prized bull at the state fair, but these bulls have the attitude and cunning of Moby Dick-and only BAC and C are willing to be pranced around for the crowd's pleasure.
So, Washington keeps pumping in money while layering more rules at the same time, at once fattening its prize but empowering the belligerence of these very banks. At the same time it's the little people (in this piece I guess the analogy would be the krill) whose needs go unmet. Many key Washington lawmakers are stuck in their own little bubble, moved by ideology and hatred for businesses that has made their decision-making a myopic crusade akin to chasing the big whale even as they pass other opportunities and put their own people at greater risk. If Washington uses this $2.0 billion loss for even more egregious (to borrow a word) rules, they will get no closer to owning the banks, and America will get no further to healing.
Fattening up the Banks
Not only has Washington given your tax money to prop up banks, the Fed has provided them with trillions in low cost loans and bailouts. All the quantitative actions (money printing) haven't worked because that Fed money goes to banks that have used it to fatten up their own balance sheets, hike salaries and restore bonuses. They are paying dividends and buying back stock all great things in a normal business environment but not cool if it's coming from funds that should be finding its way to Main Street. TARP had no strings attached and now that it's become the personal piggy bank of President Obama future bailouts (there will be more somewhere down the road) will be structured the same.
Remember no fine print was great for banks and for the administration which continues to tout the auto bailout the way banks are buying back stocks-in other words all success. Yet, here we stand in a nation that is not living up to its potential. In a nation that's awash in a sea of food stamps, unemployment checks, and general despair. Sadly the Federal Reserve can only pump out more money to these very banks in the hope they get so sated they finally push money out to would-be small business, would-be home buyers, and good customers that have been treated badly. As for this stupid trade, I have to say it's stupid to think a trader no matter how smart and connected will not take a 2% hit from time to time. The real story is knowing you can take a hit like that because the Fed is going to pump in fresh cash.
Of course because nobody can make money in this environment from the saver to the Wall Street firm because interest rates are so low. For banks it means taking on the kind of risk that makes them parishes on Main Street but normally out of jealousy when those bets pay off big time. The fact is Main Street should be pissed their money was used to bail out banks, the Fed keeps bailout out banks and while saving accounts accumulates dust, Wall Street banks get bailed out on a daily basis. Keep in mind I have written over and over again the change in FASB in March 2009 helped to set this scenario up as assets can be marked to make believe.
By the way there are other things going on and I know people that think this whole thing is a distraction from another serious development. I'll have more on Monday.
Keep Forgetting
Last night President Obama made a comment about forgetting how bad the recession was, and while it was clear he was suggesting things are so much better now it backfires for many reasons.
It was a house of cards, and it collapsed in the most destructive worst crisis that we've seen since the great depression. And sometimes people forget the magnitude of it, you know? And you saw some of that I think in the video that was shown. Sometimes I forget. In the last six months of 2008, while we were campaigning, nearly three million of our neighbors lost their jobs. Eight hundred thousand lost their jobs in the month that I took office. And it was tough. But the American people proved they were tougher.
First, how the hell can such a compassionate guy forget about the recession that might be over on paper but is truer for as many Americans now as it was back in late 2008? Moreover, it speaks to a serious kind of arrogance that comes with a zillion rounds of golf, hobnobbing with Hollywood royalty and campaigning every day since the inauguration. It's been a selfish crusade for president Obama he the Captain Ahab and a second term Moby Dick.
Today's Session
Banks will get hit, but I wonder if there could be rotation elsewhere. I'm watching Apple as a defensive play along with other tech names. That would be an odd reversal of fortune, but there is already so much money on the sidelines, and additional selling could trigger an avalanche that longs may want to avoid. We aren't going to force the issue this morning. I like the early pre-market action in NASDAQ futures but not enough to take the plunge.