Brillanter Beitrag von Hamilton! oT.

verfasst von BossCube, 08.09.2001, 21:42

>In financial circles 10 to 1 leverage is considered very aggressive, 100 to 1 is considered to
> be in the kamikaze realm, but we don't ever recall hearing about large-scale leveraged
> operations exceeding 100 to 1 outside of the horrible example of the doomed super hedge
> fund Long Term Capital Management. JPM's management may have effectively created the
> most leveraged large hedge fund in the history of the world by using $42b worth of
> shareholders' equity to control derivatives representing a notional value of a staggering
> $26,276b. After we shook off the blunt shock of learning of an implied leverage of 626 to 1
> by the United States' premier Wall Street bank and elite Dow 30 blue-chip company, we
> continued to dig deeper into the revealing OCC Bank Derivatives Report.
> The next pie graph was constructed from"Table 8","Table 9", and"Table 10" of the OCC
> report. It shows a breakdown of how JPM's derivatives portfolio is comprised, of what
> classes of derivatives constitute the JPM Derivatives Monster. The total pie size in this graph
> is nine-tenths of one percent smaller than the earlier totals in the OCC report. The OCC
> explained this small delta in a footnote claiming it was caused by the exclusion of some credit
> derivatives as well as rounding differences. The large green slice of this pie is comprised of a
> small amount of credit derivatives and other derivatives of which the OCC does not require
> specific disclosure including"foreign exchange contracts with an original maturity of 14 days
> or less, futures contracts, written options, basis swaps, and any contracts not subject to
> risk-based capital requirements."
> Once again, this graph exclusively represents only JPMorganChase's enormous $26t
> derivatives portfolio, no other banks' or trusts' data is included in this gargantuan pie. The
> sorcerer's apprentice is playing with powerful financial magic indeed!
>
> As the pie illustrates, JPM's largest position by far is in interest rate derivatives. The huge red
> king-sized slice of the pie graph represents interest rate derivatives with a notional amount
> of a staggering $17.7t!
> In interest rate derivatives, the notional amount represents the implied principal of a debt on
> which interest rate derivatives are written. For instance, a debtor with $1m in debt and
> variable interest rate payments may contract with JPM to hedge its interest rate payments
> into a fixed interest rate scheme instead of a variable one. By having a fixed interest rate
> payment schedule, the debtor company will not have to worry about market fluctuations in
> interest rates as their counterparty JPMorganChase assumes that risk for a fee. Although the
> interest streams in this small $1m debt example are swapped, the actual cash changing
> hands may only be a few tens of thousands of dollars. The $1m in principal, however, is the
> notional amount for our interest rate derivatives example and provides a true picture of JPM
> positional exposure in the deal.
> Gold investors may be surprised to see what a trivial portion of JPM's total derivatives
> portfolio is deployed in the gold market. Only two tenths of one percent of JPM's notional
> derivatives exposure is in gold. Of course, gold is an exceedingly small market compared to
> the huge debt or foreign exchange markets so JPM's position in gold derivatives is still quite
> large relative to the gold market itself. JPM reported $56.8b in gold derivatives in the Q1
> 2001 OCC report. By comparison, with only 2,500 metric tonnes of gold mined on the entire
> planet each year, the whole freshly mined annual world gold supply is only worth $22b at
> $275 per ounce.
> JPM is controlling a notional amount of gold through derivatives equal to the value of every
> ounce of gold that will be mined in the entire world for the next two and a half years
> assuming gold production does not continue to plummet due to dismal gold prices, which it
> probably will.
> Why is a sophisticated superbank like JPM even interested in the small and devastated gold
> market, let alone motivated enough to maintain derivatives exposure equal to more than
> 6,400 tonnes of gold? Why does JPM management want to maintain derivatives gold
> exposure worth 1.35 times the capital owned by the shareholders of the company? With Wall
> Street perpetually telling the world that gold is a"barbaric relic", why does the premier Wall
> Street bank have such large gold derivatives positions? Ever more intriguing questions!
> In the lower left corner of the graph above note the percentage of derivatives market shares
> that JPM controls out of the entire US commercial bank and trust derivatives universe. JPM is
> the utterly dominant player with 64% of the interest rate derivatives market, 49% of the
> foreign exchange market, 68% of the equity derivatives market, and 62% of the gold
> derivatives market among US commercial banks and trusts. JPM's management, for whatever
> reasons, has effectively built up a derivates powerhouse that has almost cornered the entire
> US commercial bank and trust derivatives market.
> Zeroing back in on the $17.7t in interest rate derivatives, we wonder why such enormous
> exposure to interest rates has been shouldered by JPM's management. In terms of interest
> rate derivatives alone, JPM has an implied leverage ratio of notional interest rate derivatives
> exposure to stockholders' equity of 422 to 1. Are JPM shareholders aware of this? It is hard
> to fathom why anyone would want to have leveraged exposure to chaotic interest rates with
> 422 to 1 leverage, but an intriguing hypothesis has recently emerged that may illuminate the
> decision by JPM to dominate the enormous interest rate derivatives market. Here is a quick
> outline of this provocative theory.
> As growing numbers of investors around the world realize, American attorney Reginald Howe
> filed a landmark complaint against the Swiss-based Bank for International Settlements on
> December 7, 2000. In his lawsuit, which is highly recommended reading and available for
> free download in PDF format at www.zealllc.com/howepla.htm, Mr. Howe carefully builds
> the case that certain large banks that deal in gold derivatives were involved in an effort to
> actively manipulate the world gold market in violation of key United States laws. Shortly
> after Mr. Howe filed his complaint in United States District Court, we wrote a summary essay
> outlining his lawsuit called"Let Slip the Dogs of War" which also has further background
> information if you are interested in digging deeper.
> In Howe v. BIS et al, both the pre-merger JP Morgan and Chase Manhattan were named as
> defendants with the BIS. In his complaint, Howe points out anomalous gold derivatives
> activity at both banks documented on earlier OCC bank derivatives reports that correlates
> extremely well with unusual activity in the gold markets and gold price. The evidence is
> highly suggestive that both banks, now a single entity, used carefully targeted strategic gold
> derivatives transactions to help rein in the out-of-control gold rally that was sparked in late
> 1999 after European central banks agreed to curtail their gold sales and leasing with the
> Washington Agreement.
> Mr. Howe's complaint filed in the federal court elaborates on this odd activity by the two
> banks that have since merged to form superbank JPMorganChase. Interestingly, Mr. Howe's
> case will soon be heard before a federal judge in Boston, Massachusetts on October 9, 2001,
> when defendants will present their arguments in support of their Motions to Dismiss.
> With both ancestor banks of the new JPMorganChase already documented as having
> well-timed anomalous gold derivatives activity prior to their merger, chances are the banks
> had some level of insider-type knowledge of what was really transpiring in the gold market.
> There is no way that JPM management would have acquired gold derivatives with a notional
> value worth 1.35 times the total of their entire shareholders' equity base unless they knew
> and intimately understood the gold market.
> On May 30, 2001, ace researcher and analyst Michael Bolser and GATA Chairman Bill Murphy
> co-published an analysis of JPMorganChase's interest rate derivatives in Mr. Murphy's
>"Midas" column at the excellent www.LeMetropoleCafe.com contrarian investing website. Mr.
> Bolser titled his research"GoldGate's Real Motive?". Current subscribers to
> www.LeMetropoleCafe.com can see this analysis in the archives of the"James Joyce" table
> at LeMetropoleCafe. In his analysis, Mr. Bolser pointed out that JPMorganChase had $16t
> worth of notional interest rate derivatives exposure at the time and how incredible this fact
> was. He noted that JPM's interest rate derivatives notional amounts had doubled since the
> middle of 1998, an astronomical increase given the absolute amounts of dollars involved.
> Mr. Bolser offered the stunning tentative conclusion that perhaps a suppressed or
> shackled-down gold price was a necessary prerequisite to JPM assuming enormous amounts
> of interest rate derivatives, as a managed gold price would ratchet down inflationary
> expectations and make interest rate positions much less volatile and risky than in a truly free
> market. Mr. Bolser planned to continue his research and was seeking earlier OCC reports to
> model JPM's derivatives trading activities and exposures further back in time.
> After Mr. Bolser's interest rate derivatives report revealing JPM's enormous and massively
> out-of-proportion derivatives positions, there were a few tangential comments made about
> this hypothesis over the summer by various market analysts, but for the most part it
> remained an obscure area of inquiry that appeared to generate little popular interest.
> Then, just a few weeks ago on August 13, 2001, Reginald Howe published a fascinating
> commentary entitled"Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices"
> available at www.GoldenSextant.com. In his essay Mr. Howe quotes a 1988 academic paper
> from the Journal of Political Economy co-written by President Bill Clinton's future third
> Secretary of the Treasury, Lawrence Summers. Among other things, Mr. Howe discusses Mr.
> Summers' interpretation of an observation by the famous economist John Maynard Keynes on
> the behavior of gold prices and real interest rates. Lord Keynes called the relationship
>"Gibson's Paradox".
> As Mr. Howe points out, per Lord Keynes, Gibson's Paradox, the solid relationship between
> price levels including gold and interest rates under a gold standard regime was,"one of the
> most completely established empirical facts in the whole field of quantitative economics." Mr.
> Howe shows, using the writings of Professor Lawrence Summers and legendary economist
> John Maynard Keynes that there is a rock-solid inverse relationship between gold and real
> interest rates in a free market. We investigated this phenomenon as well in our essay"Real
> Rates and Gold". In effect, real interest rates could be used to predict inverse moves in the
> price of gold or gold could be used to predict inverse moves in the real interest rates.
> For us, Howe's fantastic"Gibson's Paradox Revisited" essay finally lit the proverbial
> lightbulbs above our heads that triggered a solid understanding of Michael Bolser's shrewd
> earlier hypothesis on JPM's enormous interest rate derivatives exposure! Gibson's Paradox
> helped to reconcile the puzzle and answer nagging questions about JPM's gargantuan interest
> rate derivatives position and how it could relate to the active management of the price of
> gold.
> If factions of the US government in the Clinton years from 1995 to late 2000 were really
> actively manipulating the gold price (as the latest amazing research of government records
> by James Turk and Reginald Howe certainly strongly suggests through ever-increasing
> evidence), and if JPM really had inside knowledge of some of these operations as its
> anomalous gold derivatives activity seems to imply, then it is only a short logical step to
> assume that a possible catalyst for the explosion in JPM's interest rate derivatives operations
> was the artificially pegged price of gold!
> Gibson's Paradox, defined by Lord Keynes, effectively claims that under a fixed gold price
> regime real interest rates remain predictable. If JPM top management was participating in
> any US efforts to cap gold, they had full knowledge that a de facto fixed gold price regime
> had been stealthily established and they would have had a carte blanche to massively balloon
> potentially highly lucrative interest rate derivatives exposure. After all, if JPM was convinced
> gold was under control, and that gold prices were a prime driver of real interest rates, then
> what better time to become the king of the interest rate derivates world than when gold was
> being quietly hammered down through massive sales of official sector gold from Western
> central banks' coffers?
> Our superficial presentation here certainly does not do this startling hypothesis justice, but
> the JPMorganChase interest rate derivatives explosion due to JPM upper management
> knowledge of and possible involvement in stealthy government machinations in the gold
> markets is a very intriguing hypothesis that definitely warrants further investigation and
> discussion. We may write a future essay on this topic alone after we dig deeper, and we
> certainly hope other analysts and researchers follow Michael Bolser's original lead and do
> some serious investigating.
> Back to the JPMorganChase Derivatives Monster for now, we have to wonder how many JPM
> shareholders realize just how incredibly leveraged their superbank has become. Do they
> think they are holding a safe conservative blue-chip elite Wall Street bank, or do the average
> shareholders desire to hold a hyper-leveraged mega hedge fund with 600+ times implied
> leverage on stockholders' equity? Do JPM shareholders understand how dangerous large
> derivatives positions have proven historically for other companies?
> JPM currently has something like 2,700 large institutional shareholders who hold almost
> 61% of its common stock. Do the managers of these mutual funds and pension funds
> understand that JPM management has built the biggest most highly-leveraged derivatives
> pyramid in the history of the world per US government OCC reports? Do fund managers
> understand the inherent risks in leveraging capital hundreds of times over? These are
> important questions that ALL JPM investors should carefully consider, especially in this
> incredibly turbulent and volatile market environment we are experiencing today.
> One of the most dangerous possible events for high derivatives exposure is unforeseen
> market volatility, especially that caused by unusual and unexpected major discontinuities in
> market pricing. The following graph is also shamelessly taken from the OCC report,"Graph
> 5C", which shows the"charge-offs" taken on derivatives written off in each quarter since
> 1996 by commercial banks and trusts alone. Note the enormous loss that occurred in the
> third quarter of 1998 coincident with the Russian Debt Crisis/LTCM debacle and the large
> losses in late 1999 following the Washington Agreement gold spike.
>
> When a non-linear market event that is inherently unpredictable like the Russian Debt Crisis
> occurs, its effects on carefully crafted derivatives portfolios can be catastrophic. Long Term
> Capital Management folded during the 1998 crisis. It was an elite hedge fund run by some of
> the most brilliant market geniuses of the entire last century. The all-star brain trust at LTCM
> could probably have helped put men on Mars, as the stellar IQs and acclaim of the founders
> were without equal in the financial world. The gentlemen helping to build the sophisticated
> computer derivatives trading models for LTCM were Nobel-prize winning economists who
> understood more about markets and volatility than pretty much everyone else on the planet.
> Here are a few paragraphs on LTCM from an earlier essay we penned on gold derivatives
> volatility titled,"Gold Delta Hedge Trap (Part 2)".
>"LTCM employed Scholes' and Merton's work to hedge and protect its bets. Through Black and
> Scholes based hedging strategies, LTCM became one of the most highly leveraged hedge
> funds in history. It had a capital base of $3b, yet it controlled over $100b in assets
> worldwide, and some reports claim the total notional value of its derivatives exceeded an
> incredible $1.25 TRILLION. LTCM used extraordinarily sophisticated mathematical computer
> models to predict and mitigate its risks."
>"In August 1998, an unexpected non-linearity occurred that made a mockery of the models.
> Russia defaulted on its sovereign debt, and liquidity around the globe began to rapidly dry up
> as derivatives positions were hastily unwound. The LTCM financial models told the principals
> they should not expect to lose more than $50m of capital in a given day, but they were soon
> losing $100m every day. Four days after the Russian default, their initial $3b capital base
> lost another $500m in a single trading day alone!"
>"As LTCM geared up to declare bankruptcy, the US Federal Reserve believed LTCM's highly
> leveraged derivatives positions were so enormous that their default could wreak havoc
> throughout the entire global financial system. The US Fed engineered a $3.6b bailout of the
> fund, creating a major moral hazard for other high-flying hedge funds. (Expecting the
> government or counterparties will bail them out of bad bets once they get too large, why not
> push the limits of safety and prudence as a hedge fund manager?)"
> Long Term Capital Management had $3b in capital allegedly supporting $1,250b of
> derivatives notional value, an implied leverage ratio of 417 to 1. JPMorganChase, per its own
> reports filed with the US government, has $42b supporting $26,276b of derivatives notional
> value. Incredibly, JPM's implied capital leverage on its derivatives is far, far higher than
> LTCM's at 626 to 1. Isn't it disconcerting to realize JPM management has further leveraged
> its shareholder equity than even the infamous Long Term Capital Management?
> LTCM had the best economic minds in the world running the fund, unlimited brain and
> computer power, but still an unpredictable volatility event spurred by the Russian Debt Crisis
> caused their painstakingly developed computer derivatives models to blow up. By many
> reports, including from the Federal Reserve, the LTCM failure was so dangerous it threatened
> to take the whole financial system down if LTCM's obligations to its counterparties were
> defaulted upon.
> We are NOT suggesting that JPM is another LTCM. We know that the men and women running
> JPM are very intelligent and have a deep understanding of the global markets in which their
> company operates. We know they have cross-hedged and carefully modeled their enormous
> derivatives portfolio to try and make it net market neutral and therefore resilient to shocks.
> But, just as a tiny imperfection can cause a massive hardened-steel shaft connected to a
> nuclear aircraft carrier's propeller to vibrate uncontrollably until it shatters, even a
>"balanced" net derivatives portfolio of massive size is highly vulnerable to market shocks
> that can push it out of proper equilibrium and spin the computer hedging models out of control
> far faster than derivatives can be unwound.
> There comes a point when leverage becomes so extreme that even a tiny unforeseen event
> can break down the complex contractual glue that holds the various components and players
> of the convoluted derivatives world together and cause the whole structure to shake or
> crumble.
> We believe that JPM's management is taking a mammoth gamble with the wealth of its
> shareholders by supporting derivatives with a notional value of over $26 TRILLION dollars
> with a relatively trifling $42 billion of shareholder equity. Any discontinuous market volatility
> event that is unforeseen and beyond JPM management's control could conceivably cause this
> immense pyramid to rapidly unwind, utterly annihilating the company's capital in a matter of
> days or weeks.
> Also, JPM, just by virtue of having extreme leverage, is placing itself at risk for a Barings
> Bank type scenario, where a rogue trader hid derivatives trading activities from management
> until it was too late and the damage was irreparable. What if some twenty- or
> thirty-something derivatives trader working for JPM accidentally makes a big mistake in his
> or her trading and destroys that fragile balance supporting the whole massive JPM
> derivatives pyramid and the whole structure comes crashing down?
> By its own reporting to the US government, JPMorganChase has shown itself to have evolved
> into a real-life Derivatives Monster. Derivatives offer extreme leverage and the potential for
> mega-profits, but with that they carry commensurate extreme risks. Until the JPM
> Derivatives Monster begins to deflate its leverage and exposure, we believe individual and
> institutional investors alike should be very careful in assessing the potential extreme risk of
> holding JPM stock.
> We can't help but feeling that essentially unlimited leverage is the modern financial
> equivalent of Walt Disney's sorcerer's apprentice in"Fantasia" unleashing forces he couldn't
> possibly hope to control.
> Adam Hamilton, CPA, MCSE
> aka Zelotes
> 7 September 2001
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> Due to my staggering and perpetually increasing e-mail load, I regret I may not be able to
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> appreciate your feedback!
> Mr. Hamilton, a private investor and contrarian analyst, publishes Zeal Intelligence, an
> in-depth monthly strategic and tactical analysis of markets, geopolitics, economics, finance,
> and investing delivered from an explicitly pro-free market and laissez faire perspective.
> Please visit www.ZealLLC.com for more information, www.zealllc.com/samples.htm for a
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gesamter Thread:

• Der Rest - es geht darum dass JPM aus 1 Dollar 650 Dollar Falschgeld macht - R.Deutsch, 08.09.2001, 12:20
  • Re: Eine bez. des leverage leider reale Geschichte u. interessante Goldhypothese (owT) - André, 08.09.2001, 15:13
    • Re: Eine bez. des leverage leider reale Geschichte u. interessante Goldhypothese (owT) - R.Deutsch, 08.09.2001, 16:27
      • Re: Eine bez. des leverage leider reale Geschichte u. interessante Goldhypothese - André, 08.09.2001, 18:39
        • Re: Sehe ich ganz genau so, André, danke! (owT) - dottore, 09.09.2001, 17:13
  • Brillanter Beitrag von Hamilton! oT. - BossCube, 08.09.2001, 21:42