| Last | Change | Percent | |
| S&P Futures | 1349.3 | -8.3 | -0.61% |
| Eurostoxx Index | 2231.1 | -16.3 | -0.72% |
| Oil (WTI) | 96.03 | -1.0 | -1.08% |
| LIBOR | 0.467 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 80.19 | 0.078 | 0.10% |
| 10 Year Govt Bond Yield | 1.85% | -0.02% | |
| RPX Composite Real Estate Index | 175.3 | -0.1 |
Markets are lower this morning after J.P. Morgan announced a $2 billion trading loss in its Chief Investment Office unit. April PPI showed inflation is behaving at the wholesale level. Bonds and MBS are higher.
The JP Morgan story is interesting. The position was supposed to hedge the bank's credit exposure. However, if you read the Blooomberg story, it suggests the bank had sold protection on the Markit Series 9 CDX North American investment grade index. Which means it wasn't hedging anything at all - selling protection and extending credit (which is what the bank does) are similar risks. The story goes on to speculate that it may have been some sort of spread bet, where the bank was short long-dated protection and long short-dated protection. Regardless, this position in no way hedges the bank's overall business, at least as far as I can tell. Good luck getting out, guys. J.P. Morgan is going to get their eyes ripped out on the exit.
This incident will not cause a systemic risk in any way - if anything it will simply give ammo to the proponents of the Volcker Rule. A $2 billion loss for a bank that made $19 billion the year before and has $176 billion in equity is not fatal in any way. It also shows (again) the fundamental weakness in Value at Risk (VaR), which basically tells you the best case scenario when the fit hits the shan. JP Morgan stock is down 9.2% this morning.
The CFPB has proposed rules for mortgage origination costs, which bans origination charges that vary by the size of the loan. Rob Christman summed it up perfectly: "I'm sure that consumer groups are happy about it - just wait until they can't find anyone who's going to do a $100,000 loan." The CFPB has also re-affirmed the anti-steering rules by the Fed.
The Facebook IPO is supposedly garnering lukewarm interest, at least at the price being discussed. It must be bad - I heard Mark Zuckerberg was seen this morning in a suit and tie, eschewing his traditional hoodie. The underwriters still have time to whip up excitement for the deal which should list on May 17 under they symbol FB.
What went wrong, JP Morgan is facing a trading loss this can actually affects JP Morgans position in todays market.
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