By: greedometer

greedometer — Sun, 20 May 2012 11:37:10 +0000

Here’s the part that puzzles me. This loss is being spun as a hedge position gone bad. How’s that? Apparently JPM has a $2B trading loss because it bet the economy would improve and turned out to be wrong. Here’s the thing. If you employ derivatives (apparently in a big way) as a hedge and suffer a big loss because the economy doesn’t improve, that’s not hedging. In order for this to be hedging, JPM would have to have a considerably larger position that would rise in price if the economy worsened. Either that or its so-called derivatives hedge position was really not a hedge position at all, but was a speculative unhedged long bet that the economy would improve (more likely). If JPM had a big bet the economy would improve (and it did / and still does), keep that conflict of interest in mind when anyone from the firm is quoted indicating they see the economy improving. If they’ve got a big 1-way bet the economy is going to improve, what else would they say?

Comments on: Investor group seeks JPMorgan governance changes

By: greedometer