Hi Ray, JPM is by definition too big to fail. It really is. But that does not mean that there is not more downside.
I'm posting that for posterity.
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Will JP Morgan do an Enron?
by Michael Kosares*
TNA News with Commentary
Monday 18 February 2002
Gold is moving sharply to the upside in early New York trading as more concern surfaces over troubled JPMorgan/Chase — the huge trading/banking operation many analysts feel has played a critical role in the gold market over the past several years. Many gold analysts believe that that involvement has been as a deterrent to higher prices. Yesterday, reports began to surface that Morgan/Chase may have its credit rating lowered — a circumstance that started Enron’s uncontrolled tailspin into bankruptcy last year. While the public focuses on the Enron committee hearings in Congress, a far more pervasive and potentially crippling problem — the possible collapse of JP Morgan — is festering behind the headlines.
The public was blindsided by Enron; it will be blindsided by JP Morgan. The financial community is certainly fully aware of what a JP Morgan breakdown might mean for Wall Street and the rest of the economy. That's probably why gold remained strong during the recent corrective phase and moved up smartly this morning. Money people around the world are buying the yellow metal ... and for good reason.
But back to JPMorgan:
In just the past few months, JP Morgan took a $2 billion loss on Enron, a $2.25 billion loss on Global Crossing, and a $1.6 billion loss on KMart. Reuters reports this morning, it has a $14.4 billion exposure at troubled TYCO. The full story is still out on its exposure in collapsed Argentina (but it is likely in double figures). Now it surfaces that it has exposure at another company on the ropes, Qwest. And that’s just what we know about. All of this led James Cramer from TheStreet.com to exclaim this morning: “Unless you know of a takeover at JP Morgan Chase, I think you should still sell that stock. I don’t think these guys have a clue about risk right now, not a clue.”
In recent years, it has been evident that what was good for Microsoft and Intel was good for the stock market. I think we can safely say that was is bad for JP Morgan is good for the gold market, not only directly through the possible ramping down of its gold derivatives trading, but indirectly through the effect that bad debt and trading problems within that banking giant might have on the rest of the financial markets.
If all of that weren’t enough, Doug Cliggott — it’s most accurate and bearish analyst — has decided to leave for Sweden adding to the questions swirling around the firm. Cliggott was a consistent critic of the stock market bubble in the late 1990s and added a great deal of credibility to JP Morgan’s sagging reputation. It’s difficult to assess the potential overall effects of a JP Morgan breakdown on the gold market, but we’ll just offer this as a starting point: It can’t hurt. The market action thus far today might be indicative.
*Readers can reach Michael Kosares at www.USAGold.com |
