Found an answer to my question re: JPM's derivatives:-
Excerpt from Ed Steer in Doug Casey's free daily newsletter:
caseyresearch.com
From Ed Steer:
On Tuesday evening and Wednesday morning, gold and silver prices rose gently until the London a.m. fix was in, then they started an equally gentle decline. That lasted until the Comex open, then down they went. When they finally reached a temporary bottom, they rose into the p.m. fix and then were taken down smartly into the London close...and that's where they stayed as of this writing.
Tuesday's open interest in gold showed a decline of 1,665 contracts and silver was down 931 contracts. Without doubt, Wednesday's o.i. numbers will show monstrous open interest declines in both metals, when the numbers are released later this morning.
It's obvious that the flush-out of the spec longs in both gold and silver is on in earnest...and it's been a vicious one so far. The 50-day moving averages for both metals are a short ways below yesterday's closing prices in both metals. This flush-out isn't going to last long...and I doubt that the cartel is gunning for the 200 day m.a. this time around. But it looks like they may be able to pull off the 50-day m.a. with really good volume...maybe by the end of tomorrow, if they work at it. Don't forget that the cartel is mega-short both these metals...more than any other commodities in the history of any of the commodity exchanges. In case you need a quickie refresher on that, please re-read Ted Butler’s essay that was in my commentary yesterday.
My opinion is that (hopefully) we're in the same position that we were in in March of 2006...just before the monster run-up that lasted until the second week of May. If that's the case, then this bottom we're about to have, either today or next week sometime, will be another buying opportunity of a lifetime. I took some serious money off the table last week and I'm itching to put it to back in the market. Below is a three-year graph of gold (silver's is similar) showing where we are today compared to this time two years ago. The similarities are quite amazing...except on a much larger scale this time. If what happened two years ago is indicative of what's happening now...then look out to the up-side when this clean-out is done. Time (and not too much of it) will tell if this will be the case. Click here.
I want to switch gears and spend a little time talking about the Bear Stearns debacle. I know for sure that everyone was stunned that the stock went from $30 to $2 over just one weekend. I certainly was. We've heard all the usual reasons as to why it went belly up and why it was saved. I now doubt that that was the real reason at all...and one of my stories today is along those lines. However, the clincher was an e-mail that I got early yesterday morning on that very subject. Here it is, untouched and unedited...
“I am utterly baffled by the Bear Stearns buyout. It has been everywhere seen as a rescue of Bear. But it seems to me more critically a propping up of Chase.
“Why? Because JPM is the mothership, the epicenter, the Queen Bee, of the financial derivative complex. You have seen the page from the Comptroller of the Currency stating the notional value of derivatives held by JPM at $91 trillion, far in excess of all the competitors. It’s like the US defense budget as against the rest of the world, with a fifty/fifty split.
“I have tried at various times to get some kind of handle on what this consists of, but frankly have no idea. My vague sense is that it’s some kind of bundle of the contracts, in all their diversity, that one can find at Markit.
“Now the great thing that seems utterly impossible to me is that a big fat bureaucracy (JPM) could sit on top of this big pile of futures, options, and forwards, while levered at 74 to 1, in the midst of astonishing volatility, and without foreseeing the gravity of the crisis, and come out without staggering losses. Maybe I exaggerate. Whatever JPM’s derivative complex consists of, surely it’s not like the Carlyle fund’s 32-to-1 leverage based on the spread between government and agency debt, which was just demented. But if it is not like that, then why don’t they give some kind of hint as to what it is? What we seem to have learned from the conference call is that it’s just like Bear Stearns; that’s why they’re ‘very comfortable’ with assuming Bear’s portfolio. Should this not make the rest of us appalled?
“Another thing I don’t understand is how much of the liability JPM has taken on. It seems the Fed has backstopped $30 billion, most of the mortgage related stuff. But isn’t there a lot more than that? The markets have reacted as if JPM got the building for practically nothing and had all the liabilities of the purchase (lawyers apart) covered by the Fed. This doesn’t seem possible to me.
“Since I’m baffled, I don’t have a conclusion, only an intuition: that the ‘buyout’ is more about JPM/Chase than it is about Bear Stearns, and that the real book that prying eyes need to understand and that holds the key to the crisis sits on top of that $91 trillion derivative structure.” - J.C.
Now that's the best explanation I've heard that really makes any real sense to me. I have a pdf file below from the Office of the Comptroller of the Currency (OCC) that will help explain this. There's a lot of 'stuff' in this thing, but for the purposes of this commentary, just check out two pages...8 and 21. Page 8 shows that the end producer/user derivatives represent only 2.8% of the entire derivatives market. The rest is held by the banks. If this isn't the tail wagging the dog, I don't know what is. On page 21 you'll find a list of the top 25 banks and their total derivatives holdings. Note the top five in particular. None of the Wall Street firm's derivatives positions are here...just the banks. Does this mean that all of the Wall Street firms with huge derivatives holdings will be rescued? That's a good question. Here's another. Who will the buyer be for the next one...and the one after that? Just asking. To open the pdf file, click here.
(Millions of $)
Total Total
Assets Derivatives
JPMORGAN CHASE BANK NA $1,244,049 $91,734,451
*as of Sep 30, 2007
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