That sinking feeling

Written May 18th, 2012

In an economy based on debt and financial shenanigans, of course the market can’t go up without the leadership from the poster-children, namely the financials themselves. The big boy on campus? JPM.

That’s a 10 year monthly chart (wanted to have some perspective). Here’s the weekly for the past 2 years:

If this is the foundation of the financial industry, the 800-pound gorilla, the virtual monopoly of the derivatives market, then what’s in store for the smaller guys like Morgan Stanley (MS) and Goldman (GS). I’m sure there is some private money that will benefit in the form of being a counterparty to the levered derivatives that will bring one or more of these banks down. Here’s the kicker, tax payers will bail out JPM and shield the profits of the counterparty.

Imagine a world where there was no moral hazard. Would JPM still have taken the same risks? Would JPM have taken the same risks if it was a private company? Probably not. Just to juxtapose, Josh Brown ( recently put upĀ  this video from TD’s president:

What a difference in mentality. Counterparties vs. clients. Love it.

That was a long ramble to come to the point: financials as a group aren’t healthy. Without them, the markets aren’t healthy. Diversify and focus on quality.

Relevant ETFs: DBC, SPY, SH, XLF, SEF, GLD