I asked a friend who works on the Street to comment on the news of the colossal mishaps at JP Morgan Chase under golden boy Jamie Dimon's watch.
One of the more bizarre signs of Jamie Dimon's fall from grace is the way he is now often referred to in the media as "James Dimon." (You feel like saying, "Private eye?") The real money loser, though, unless the initial $2 billion, which has already widened to $5 billion, turns out to be only the beginning of a chasm, is his loss of the ability to argue down regulation in Washington. That regulation, whatever its virtues, and there's no doubt in my mind that the regulation is needed, just as there's no doubt it won't prevent future stealing, mismanagement, recessions, and depressions, is going to cost JPM and the other banks a fortune. And do you remember the way they howled when Spitzer forced them to cough up $1.4 billion for the privilege of not admitting guilt to collusion between research and investment banking? In the real world it's called a plea bargain; on Wall Street it's known as the "settlement" (sometimes inital capped) or, occasionally and longwindedly, the "settlement agreement." Of course enforcing the separation between IB and research cost, and costs, the companies a lot more than the one-time fine. Volcker will be expensive, too.
In other financial goings on. . . in the last twenty-four hours I have heard from pros that the best place to put your money at the present time is
a) A thirty-year mortgage at the lowest rate you can get from a reputable bank. "Cash is going to be a lot more expensive when prices and costs start to rise, and inflation comes back big."
b) Cash in US dollars as the last stable currency in a worldwide flight to safety. "The chances of a global recession beginning in the fourth-quarter approach 100%, not so much because of the mess in the Eurzone but because China and India are slowing."
c) Dividend paying blue chip stocks with healthy balance sheets and free cash flow -- Exxon Mobil, Chevron, Microsoft, Intel, Coke, Pepsi, Johnson & Johnson, Bristol Myers Squibb, Caterpillar, Disney, IBM, Procter and Gamble, GE, American Express. "The size of the dividend is less important than the company's record of growing the dividend."
d) Gold (always the default position for 5 to 10% of the investment public).
e) Kenneth Koch's poem in which the crazed poet gives away "the money you had been saving to live on for the next ten years. / The man who asked for it was shabby / and the firm March wind on the porch was so juicy and cold."
The only thing they all agree on is to avoid bonds, especially long-term bonds, and Treasury notes. -- DL