Dimon is No Diamond and Gold is Misleading
May 13, 2012
The stock market story for this week, no doubt, is the massive losses posted by JP Morgan Chase – a company, no doubt, considered "too big to fail."
The company’s CEO, Wall Street sweetheart Jamie Dimon, announced in an ad hoc news conference that his company lost $2 billion in the most recent fiscal quarter and that another billion dollar loss is expected in the near future. As irony would have, Dimon, who has said on numerous occasions that the European contagion wouldn’t threaten U.S. banking in the least, lost billions on bad "bets" on Europe. A "humble" and "contrite" Dimon said that they were "stupid" and broke his so called "Dimon Rule."
What is this so called Dimon Rule?
Dimon, a consummate Wall Street insider and CNBC star, cautioned investors not to make too much of the losing situation by trying to isolate the stupidness to just his bank, stating "just because we were stupid doesn’t mean everyone else was." In other words, he is the only stupid large bank CEO.
Is he saying that the Dimon Rule is to not be stupid? Because if he is, I’d say losing $3 billion like he did during the post Lehman Brothers era is really stupid. So I ask: Why should we still listen to him?
That’s one point. The other is this: in a post 2008 Crash era the American people should insist that persons running company’s "too big to fail" not be really stupid. Companies "too big to fail" are reliant on taxpayer bailouts should their management prove to be really stupid. Dimon, in fact, did the same really stupid things that were done industry wide in 2008. And he should be fired because of it -- that from a taxpayer's perspective.
Like Sarbanes-Oxley, Dodd-Frank has proved to solve nothing, as large financial institutions continue to engage in the same risky hedge fund practices that brought the industry to its knees just a few years ago. Consider these massive Chase losses as another red flag warning to a troubled financial system, which is additionally affected by the disaster in Europe. Birds of a feather flock together. Dimon isn’t the only one – and Chase isn’t the only one. This kind of nonsense is not limited to them. It can't be.
That said, my good advice to you is that financials be positioned no higher than IS: 5-1 – or better yet, completely eliminated from conservative and moderate 15-51 portfolios – starting now at the latest. It's really not worth the risk.
And though the Chase news was extremely significant, indeed, it produced little more turmoil in the investment markets, which continued on their moderate downward trends. The Dow Jones Industrial Average lost 1.7% this week, the 15-51 strength Indicator lost just .3% - but gold dropped a bunch, losing 3.7%. Here’s a look at the most recent 12 months.
As the 15-51 Indicator shows, stocks are extremely inflated and starting to correct under more apparent recessionary evidence. The Dow average shows it, too, but to a lesser extent as one would rightfully expect. Gold, in theory, should be on the rise. But it too is in decline, which can be seen even more clearly in the chart below.
Gold’s move in these two charts screams one thing to me: uncertainty. Wishful investors have sent above-average performers soaring on positive earning reports while "the market" average has produced only meager results; and gold appears less sure about financial instability.
Two things are clear to me: Jamie Dimon is no diamond and gold is misleading.