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Long JPM

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May 11, 2012 – Comments (13) | RELATED TICKERS: JPM , BAC

Trading profits and losses are not a fundamental part of a banks earnings and are subject to volailitiy.  JPM has a great track record of trading.  Their earnings power is still phenomenal and this is a one-time event, and it reduces their book value by like 1%.  IMO, a PERFECT time to jump in on a sell off that was way unwarranted.

Thoughts?

Also a good time to buy other banks that sold off too on this news, as it does not affect them.

13 Comments – Post Your Own

#1) On May 11, 2012 at 10:10 AM, MNGPHR (87.03) wrote:

Dimon is still there if I had more cash I would buy right now

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#2) On May 11, 2012 at 10:11 AM, Frankydontfailme (27.31) wrote:

I like the idea of buying banks that sold off that DON'T TRADE (I like regional banks and some of the better run big banks like WFC). Maybe you are right that this is a one time thing.

The other possibility is the market may now begin to price in negative trading results for all of these banks that are really glorified hedge funds.... most hedge funds fail.

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#3) On May 11, 2012 at 10:40 AM, Teacherman1 (58.03) wrote:

If you are interested in banks, and are willing to hold longer term, I would recommend HBAN, RF, and KEY.

In the longer term, each of these is good at the current price, but would like them just a little cheaper for a short term cushion.

JMO and worth exactly what I am charging for it.

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#4) On May 11, 2012 at 1:04 PM, leohaas (32.57) wrote:

Listen carefully to this guy.

JPM is taking on more risk in its CIO when investing excess deposits. That has resulted in large contributions to JPM's profit (about $10B last year), but it will also yield losses like the one disclosed last night.

I am not so sure how to take this. You could argue that this is good for the company, because over long periods of time the extra risk will cause additional return. But for shorter times, the results will at the very least fluctuate. They can be negative, and in a next crisis, they could be hugely negative making the crisis worse.

What is most bothersome is perhaps the lack of  transparency of this operation. That would prevent me from jumping in if I were considering to jump in. I have had my thumbs up on JPM for nearly 4 years now, and clearly I was wrong. Good that CAPS is only a game!

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#5) On May 11, 2012 at 2:00 PM, Option1307 (29.73) wrote:

Not sure what to make of their release last night, seems sketchy to me.

I'm not a huge fan of banks currently and JPM would have to drop much lower, getting closer to their fall 2011 levels before I became interested. Although who knows that might happen!

For me all the large banks just are sort of a mystery, know one can really know exactly what they have on their books, trades, etc. etc. I don't like this. It basically just seems like a gamble of sorts, you're betting they will continue to make profits, which they may, but there will also be giant surprise losses such as this.

I'm not saying I expect to understand every single trade they make, but it seems as if even the CEO's have no actual idea of what is occuring under their own nose, and this scares me enough to want to avoid them. 

In the short term, this drop is likely an overreaction and you might be able to make a nice gain, but it seems too might like a straight gamble for my liking in the long term.

Best of luck, +1.

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#6) On May 11, 2012 at 2:34 PM, JaysRage (88.77) wrote:

I think people are finally starting to understand the nature of what has been going on in the major banks for quite some time now.  Banks are not able to find enough credit-worthy borrowers and are therefore investing in securities.   Well, the securities that they are choosing are getting riskier and riskier by the day. 

In addition to that, I think there is a misconception of how much of the profitability of the bank as a whole has been coming from these units (large percentages, in my uneducated and suspicious opinion), as opposed to the still sick base business of borrowing and lending which are still bleeding from the housing crash and weak borrower base. 

Add into that the riskiness of the securities themselves and dependency on the loose money policies of the Fed, and you're taking a gamble here.   Could be a great one, but there is all kinds of risk here.....no more than there was yesterday.....but it's more visible than it was yesterday.  

Personally, I think there are better risk/rewards elsewhere than in banks.  

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#7) On May 11, 2012 at 3:37 PM, Mega (99.96) wrote:

"Trading profits and losses are not a fundamental part of a banks earnings and are subject to volatility."

Make sure you know what you are buying.  Trading is not a fundamental part of retail-oriented banks like WFC and PNC, but it is a fundamental part of JPM and GS.

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#8) On May 11, 2012 at 3:50 PM, TheDumbMoney2 (98.57) wrote:

This is a great example of why Buffett owns WFC, and not JPM.  And megashort is right above.

From a risk-management perspective, I would wait before buying in, if you are thinking of using real money.  First, they will likely announce greater losses within this month, as they are still unwinding the trade(s).  Second, after things like this stocks tend "drop, pop, and settle."  Every time I have ever bought a stock immediately after the drop part, I have gotten burned.  More information is always better, and give the institutions that decide over the next week or two to unload their shares time to do so.

 

 

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#9) On May 11, 2012 at 6:40 PM, thecherryz (91.06) wrote:

Thedumbmoney-  Buffett owns both WFC and JPM.  He does not hold JPM in his berkshire account, only WFC.  JPM is only held in his personal account because he says WFC is the better investment for berkshire hathaway.

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#10) On May 11, 2012 at 6:52 PM, Momentum21 (93.99) wrote:

Buy USB, WFC or even GS. Take a look at a 10 year, 5yr, 1yr chart on all three and tell me where you want to park your cash. JPM in the mid 20's might be more compelling for the yield. I wouldn't bet on trading being nearly as lucrative for them in the future...so where does that leave them?

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#11) On May 11, 2012 at 7:26 PM, walt393 (99.90) wrote:

Their earnings power is still phenomenal and this is a one-time event, and it reduces their book value by like 1%.

Keep in mind that they still have on the massive position that caused this loss. Jamie Dimon stressed multiple times in the conference call that the losses will likely get worse. Their position is so large that they cannot exit it quickly without crashing the market. Even if they try to exit slowly, market participants will front run them and they will get hurt, especially now that the entire world knows about their position. This is what led to the fall of LTCM. You never want to be in a defenseless position like this. And this does say a lot about their risk management. Not saying JPM is a good or bad buy here, but this is not a one-time event that is over and done with.

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#12) On May 12, 2012 at 2:44 PM, TheRuiner (77.12) wrote:

Is risky, because the bank sector sell-off is just not enought big to make it a bargain, right now. And much more that bank JPM Year to Date is 8.5% up, what means that for it to be considered to investment purpose, must fall like 19% from now level, just my opinion.

All the contrary the news, only can motivate and give incentive to the bears side, to enter in action now or very soon. And much more is investment firm start change the ratings, for the scandal. Risk and reward suggest more potential to the downside, than the upside.

Good luck any way, after all the market is for gambling.

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#13) On May 12, 2012 at 3:37 PM, EllisonStephen (< 20) wrote:

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