Trade With Dave

, but as Kenny Loggins says…. “This is it!”

photo: Wikipedia

Dave has been sitting on his hands for nearly a week trying to see how this was all going to go down. Dave’s really close to making a call and this is what it’s based on.

Jim Rickards comes out and calls for Jamie Dimon’s resignation based on the fact that banks are immoral. Rickards wants to inject morality into the banks because they have an FDIC backing and somewhere in his mind that creates a connection with morality because it’s backed by the citizens of the United States of America. Dave feels like he can hear the President speaking. The entire basis of John Locke and Adam Smith were the Judeo-Christian ethic of people, not businesses. A business can’t be moral any more than a business can charter itself into existence.

The way Dave sees it, Mr. Rickards is backed by Mr. Soros.  The way Dave sees it, Mr. Soros is backed by Mr. Obama.  If Mr. Obama is calling (albeit indirectly) for the resignation of Mr. Dimon and the injection of morality (or is that moral hazard as in the Dukes of Hazzard), then the gig is up and it’s roll-up time for the too big to fail institutions that Dave has been harping on for the past two years.

Dave’s been saying for some time and that the first week of June could be reset time for the banks and the introduction of a new global standard in the form of a version 2.0 of Special Drawing Rights.  Dave is not ready to say for sure, like Kenny Loggins, that “This is it!” but Dave is willing to say for sure that President Obama wants Jamie Dimon out and JP Morgan to be nationalized and that’s a pretty big statement in itself.

Is Dave talking about nationalized like you would nationalize the oil and gas industry in Venezuela?  Not exactly.  Is Dave talking about nationalized in the way that we created the Resolution Trust Corporation to address the Savings & Loan debacle.  That would be a closer version of it?  It will be some sort of tipping of the scales whereby the government gets control over the top six biggest banks.

The one pattern Dave seems to be recognizing in this is that when you get close to President Obama, eventually you fall.  In the case of MF Global, they were just outside “the creepy line” when it came to being a broker dealer rather than an FDIC institution. The company is destroyed, yet there are no investigations to speak of.  In the case of JP Morgan, they would be well inside the creepy line. In the case of JP Morgan, the company would have been fine, but the man who symbolizes banking is supposed to take the fall… evidently.

Does President Obama need to make sure this happens before the election?  Dave would be willing to bet that if he pulls this off, it doesn’t even matter if he wins the election. There’s a catch though. The folks that control the Fed, and all the global central banks for that matter, aren’t so beholding to the President of the United States. For those folks, it’s business… not personal. Will they go along with this? Well, breaking the Bank of England gets you a private audience with the Queen as Mr. Soros knows first-hand. They could be the very ones behind this scheme. Just type in the words “divorced currency” into the search box on this site and you’ll have more reading than you can finish this weekend.

I need a little bit more substantiation before claiming that this is all going down in the next two or three weeks, but the Rickard’s call comes close enough for horseshoes to make Dave believe that this time, it’s the skinny man who may be singing but Dave is getting the distinct feeling this opera is nearly over.

Here’s the Rickard’s video that takes Moral Hazard to its end game:

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All I can think about at this point is how much JP Morgan may have moved from precious metals manipulation into the business of manipulating its own stock… good business when you can get it.  My Dad was a fairly serious investor even up until the 1990′s.  To my knowledge he never once owned a stock where he didn’t have the actual printed shares.  He was a Benjamin Graham value man, but he never went  in for the DTCC Cede & Co. street name scam. 

I guess the question is;  if you were down to your last $35 to spare, which of the following would you choose.

a)  one share of Facebook

b) one share of JP Morgan Chase 

c) one silver eagle from the U. S. Mint

d) 6 lemonades for you and your friends at Fenway Park…. didn’t Aramark freeze food prices recently at Fenway? 

http://blogs.smartmoney.com/advice/2012/05/16/j-p-morgan-may-turn-loss-into-gain/

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For once Dave is nearly speechless.  Between the media melee swirling around JP Morgan’s loss, Mervyn King saying that the Bank of England is preparing their contingency plans, Greek banks experiencing a run on their deposits and gold continuing to drop as selling precious metals becomes the risk on trade, Dave only has one thing to say. 

Keep your eye on the ball because it sure feels coordinated to Dave in a macro-prudential, too big to surveil, mortgage jubilee, election cycle, all bets would be off if I could just get my counterparty to call me back, daytime talk show kind of way.  Is the stage being set for a first week of June bank holiday?  When you’re key currency is confidence, what purpose does it serve exactly to announce that there are ”major problems ahead” unless your plan is to capitalize on those problems?

Under normal conditions Dave would say, go about your business.  However, under these conditions Dave would suggest some preparations are in order.  One other thing.  On that gold trade of Dave’s called on April 27.  Don’t be greedy.  Time to start reversing that trade in earnest, that is after you call your financial adviser… if he/she answers.  That is unless you know how to pick a bottom.

http://tradewithdave.com/?p=10093

Dave on jubilees and bank holidays

http://tradewithdave.com/?p=9428

http://tradewithdave.com/?p=9901

Mervyn Majors On Problems Ahead

http://www.forexlive.com/blog/2012/05/16/full-text-of-boe-kings-inflation-report-opening-remarks/

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“This is a stupid thing that we should never have done.”  Jamie Dimon, CEO – JP Morgan Chase

I was at a construction site most of the day today and the radio was playing.  I don’t normally listen to the radio.  The guys working there changed the station several times and every radio station was covering this story and people were buying into this hook, line and sinker.  Watch the video for yourself and then tell me that you believe it.  You believe that JP Morgan does stupid things that they should never do. 

Dodd-Frank was signed into law July 21, 2010.  For all practical purposes the law went into effect this past Friday.  What exactly is this “reform” that we need for Wall Street?  A law was signed nearly two years ago and just now went into effect resulting in this writedown.  Now the chatter is that we need a new law.  Don’t you see… we had a law, but the law came out before they were ready to comply and they only complied after the April decision defining swaps.  This is what happens when you get the cart in front of the horse. 

I guess you believe President Obama’s statement on the tv show The View that “JP Morgan is why we need Wall Street Reform.”  If you believe this was unexpected and unplanned, then Dave only has one thing to say.  No more Kool-Aid for you.

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Will the setting of Facebook’s stock price be the equivalent of The Crying Of Lot 49?

Dave’s had a Yahoo! account like since he got rid of his Prodigy account… or was that his Compuserve account.  Suffice it to say Dave’s been around even longer than the internet and if you think because Dave is old, Dave doesn’t know what’s up… you would be wrong.

For less than $10 million, as a matter-of-fact, entirely for free (i.e. cognitive surplus) Dave is going to tell readers exactly what he would do if Yahoo! decided to TradeWithDave by making Dave CEO of Yahoo!  Keep in mind Dave had his first fully e-commerce enabled website in 1997.  That means if you got your driver’s permit this year then Dave was on the web before you were born.  Once again, don’t confuse being old with being dumb just because it is old people at Goldman Sachs that are taking Facebook public and young people that are cashing in.  There are plenty of young people who are dumb too… it’s not an age-specific condition and neither is lying on your resume’.

What’s Dave’s great idea for Yahoo!  It’s simple really.  Charge people 99 cents for the URL they are looking for.  That’s it.  Sell URL’s.  Sell URL’s?… you ask.  That’s right!  Sell URL’s.  Is Dave talking about selling domains like Danica Patrick for GoDaddy?  No.  That’s domains and web hosting.  Dave’s talking about selling domains like bit.ly links to domains for Twitter.  Is Dave talking about setting up something like Twitter?  No.  Dave’s talking about setting up something like Gumroad.  To be more accurate Dave is saying Yahoo! should simply become Gumroad.  How does this make money exactly you ask?  That’s simple.  Dave will explain.

Okay, do you remember Demand Media.  They are the guys who gamed Google’s search engine and went public at $20 per share and now trade for $8.50 per share.  How did they do that?  Well, they paid writers like Dave to write three page articles answering questions such as “How do I get stink bugs out of my home?” or “What country was Barack Obama born in?”  These articles are then published to the web and when people go to Google and type in “stink bug” or “birth certificate” the pages that contain the Demand Media articles are supposed to pop up on your screen and there are advertisements on those pages that make money for Demand Media (that is if you call spending $20 to make $8 making money).

This is called gaming an algorithm and if you don’t know what an algorithm is you can ask Google and Demand Media has probably paid someone $40 to write an article about algorithms that will be one of the search results.  If you find the page it will probably have an advertisement for Phoenix University where you can spend your student loan to get a math degree who in turn pays Demand Media for the advertisement on their article page.

Back to what Dave would do with Yahoo!  Like I said I would sell URL’s, but not in the Godaddy way, instead, I would sell hidden URL’s that you can’t find easily by searching the web.  These URL’s would be ranked by users who used the system (that is the new Yahoo! system where Dave is the new Yahoo! CEO) just like Reddit ranks posts.  Instead Dave’s new Yahoo! would rank the semantic web rather than the regular web.  Then Dave would take those highly ranked pages and sell access to them for 99 cents bypassing the advertising industry and Google entirely.  Just giving you the best possible answer to the question you asked while not relying on a paid writer for Demand Media, an algorithm from Google that supposedly ranks “relevancy” or lists from Craig, or Angie or some blogger named Dave.  Nope, you’d be looking at a fully curated document based on the rankings of millions of web users just like Wikipedia is a curated document based on the unpaid contributions of millions of web users with a key difference.  Dave would pay you to trade your time with Yahoo!

Are you confused yet?  Well, first of all you need to know what the semantic web is.  Secondly you need to understand how Gumroad works and how you can sell a “ticket” to view a page rather than selling the page itself by making you look at advertising that may or may not be relevant.  Here’s an example.  You want to know what the best cure for Dandruff is and you’re not really that interested in looking at advertisements for Head & Shoulders because you’re not buying what they’re selling.  Enter the semantic web, but not just a semantic web for free like Google and the internet, but a semantic web you can sell so you don’t end up like Demand Media’s stock price.

Dave could spend an hour trying to explain the semantic web to you, or you can just watch a video at this link.  Suffice it to say, that the semantic web is the difference between typing in the words “trade” and “dave” into Google and hoping that you can find that blog you forgot about, as compared with typing into a search engine “I used to read a blog written by this guy.  I can’t remember his name but he wrote about business and ideas and it was free” and for 99 cents it would take you right to tradewithdave.com.  That’s the semantic web.  How does it do that?  It does that because of all the relationships you have to everything that you do that the semantic web knew exactly what you were asking about.  Here’s the explanation:  http://www.youtube.com/watch?v=bd8zR0v7Jts

So how do you do something like this?  Well, you do it the same way Reddit.com works through human curated up-votes, but within the realm of relationships that is relevant to you or relevant to what you are doing… your projects.

SilkApp.com just offered their new semantic database as a free download.  Gumroad just offered their 99 cents URL ticket sales model to anyone that wants to use it.  What’s keeping us from mashing up Reddit with Gumroad with Silk and calling it Yahoo! by turning Yahoo! into the first human curated web search engine where you pay for human curated rankings in answer to your questions?  The obvious question is who is going to pay human beings to curate web pages while we’re waiting for Tim Berners-Lee version of the semantic web to be built in the form of everyone loading their data up on to the internet.  The answer is you are in the form of the 99 cent payments to quickly find the answer to the question that you’re asking.  That is assuming that the answer to the question you are asking is increasingly not found in the “relevant” results pages of Google search or in the publishing of advertisements along the right-hand column of your results pages.  If you’re happy with those results, then you can simply keep using them and if you’re not, then you can use the human-semantic web.

Dave has corresponded a bit with Craig Newmark, the founder of Craig’s List.  Now that Craig has successfully wrangled up the equivalent of classified ads for the world, he’s trying to figure out how to get the concept of trust into his corral.  If you look at another listmaker of the fairer sex at AngiesList.com you find a website that uses human-curated reviews to help you find a trustworthy person to refinish your bathtub or to add that third bedroom onto your home.  Angie’s List is an increasingly successful approach to a relatively narrow niche market (home improvement) and an attempt to combine human curation with the great list-making ability and search capabilities of the web.  The same basic feedback loop model applies to the Yelp.com and dozens of other personal review sites.  In other words, you can say that no one would pay to search the semantic web, but Angie would tell you people don’t pay to search the web, they pay to get their bathtub reglazed while not having their purse stolen from their own house.  That’s worth 99 cents or in Angie’s case a bunch more. 

Just look at Fannie Mae, Fair Isaac and Beacon Scores and their impact on the mortgage meltdown.  What would it be worth to Wall Street to be able to monetize subjective reputation as ranked by real people rather than by a credit score that may have been impacted by unforseen outside forces or positive and negative impacts that had little or nothing to do with credibility?  This next round of development is about reputation management and using software to game your Facebook account is what this is all about.  All your friends are rich, then you’re probably rich.  You’re friends are meth users, then you’re probably a meth user.  It’s behavioral economics enabled by the user whether that user is using a platinum American Express or a stolen bicycle. 

Is Dave suggesting that Yahoo! simply turn into Angie’s List or Yelp?  Not exactly.  What Dave is suggesting is that if Google is Visa and MasterCard and Bing.com is American Express then Yahoo! should become Discover Card.  Yahoo! needs to be the first major internet portal, search engine, news aggregator and email service that pays its customers to use the site the way Discover Card pays its customers to use the card.  Through taking Google’s cost-shifting strategies one step further and turning them into downright cash rebate models, Yahoo! would overnight become relevant again.  To take this a step further, Yahoo! could pay web publishers to build their sites based on new semantic data-driven protocols such as Silk.com and to publish them to an exclusive Yahoo.web.com type of semantic web and what you would have is the equivalent of Wolfram Alpha meets a Bloomberg Terminal overlayed by the Library of Congress.  Folks like Lexis-Nexis, Hoovers and many of the other pay-to-play databases that are still standing would be stunned.  Would such a model for the web have high-paid young analysts at every investment bank and private equity group shaking in their Gucci loafers?  No.  Their loafers would be sitting on the shelf in a pawn shop. 

Dave ran a simple test last week of putting up a link to a video interview of the founder of Gumroad.com explaining how the service worked.  Dave said “Pay me 99 cents to see a video that explains the future of the web” and people did it.  The response rate and the conversion rate were classic direct marketing metrics.  Of the people who read the opportunity about 7.5% clicked through to find out more.  Of the people that clicked through about 5% actually executed a transaction by putting in their credit card and paying the 99 cents.  Dave has run direct marketing companies before and knows that response rates of 2, 3, 4 % can be very profitable in a conventional surface mail based direct marketing business.  In an web-based model figures like the ones I experienced would be off the charts for profitability.

Does Dave think that Yahoo! is going to hire him to be the CEO?  Would Dave even take the job if they did?  Will Yahoo! simply go the way of Compuserve, Prodigy, AOL.com and MySpace?  Most likely that’s what will happen.  What is the future of the internet if a URL itself becomes a form of exchangeable currency?  Will you walk the streets of China Town in New York and find shops with direct URL’s that start with http:// instead of www. being sold for half of the 99 cent minimum price of Gumroad’s business model?  Will people approach you wearing a trench coat only to open the coat revealing counterfeit URL’s hanging alongside fake Rolex watches… “Hey buddy, want some smokin’ URL’s?”  Is the semantic web just the harsh reality that when we built the web the first time we judged the book by the cover rather than the content and as Clay Shirky says that in reality “Content isn’t king” but labels on your web pages actually are.

Dave was around when bar code labels were developed for retail and Dave even remembers competing standards before the global standard of UPC codes won the day nearly forty years ago.  Dave knows what it means for business to operated on a standard that everyone agrees on whether you’re talking about Tim Berners-Lee HTML code of the UPC code on the back of your Peter Pan peanut butter.  Dave also knows that once we do operate on a single standard that whoever hands out the codes will control the web through the development of proprietary standards similar to GS1: http://en.wikipedia.org/wiki/GS1

Sounds like Dave is saying that for Yahoo! to be successful it needs to set the new global standard of paying people to help it re-build the semantic web and in doing so it would create another dimension of tracking.  That’s the problem.  As we all become increasingly dependent on a virtual network and its subsequent effects for our own existence rather than physical networks (think Amish and  you get the picture) we find it necessary to submit to that network whether in the form of exorbitant monthly fees for connectivity and never-ending technology upgrades or simple 99 cent transactions.  For those of you who haven’t been entirely sucked in yet, Dave’s suggestion for Yahoo! is that it start paying you to use your credit card so to speak because the information gathered from your participation is so valuable to the building out of the global technology system that Dave simply calls “The Beast.”

We’re going to witness first-hand how what was the richest young man in the world who was the legacy of building the Olde World’s communication system was displaced by a new richest young man in the world who replaced that system.  You have probably never heard of The Princely House of Thurn and Taxis and Albert Maria Lamoral Miguel Johannes Gabrial, but you have heard of Facebook and Mark Zuckerberg.  Mark Zuckerberg replaced Albert Prinz as the richest young man in the world.  Interestingly Facebook replaced the post office and a good chunk of the home telephone line as a form of communication.  It was the post office network of Europe that made Thurn and Taxis one of the most valuable businesses in the world for four hundred years.

The semantic web and Facebook for that matter are the equivalent of not only replacing the post office, but allowing the network to read the mail as it passes from one destination to the other.  It may only be your Facebook “friends” who can read your messages or the National Security Agency that scans blog posts and emails for the word bomb, but once folks start getting paid to fill out the missing information with cash back rewards like so many cash payments for recycling aluminum drink cans, how long will it be before every loose piece of data floating around out there will be tagged, bagged, redeemed and recycled.  Dave’s paying 99 cents today for photos of Bruno Iksil as a perfect example of the diminishing returns when TMZ meets the semantic web. 

If Dave is correct and in the search for alternative currencies, yet another has been uncovered in the form of URL’s themselves, then we are one step closer to the semantic web which means you are one step closer to needing a URL yourself to buy or sell anything… and that no man should be able to buy or to sell, save he that hath the mark, even the name of the beast or the number of his name.  Revelation 13:17

Here’s a link to Dave’s post from last week where he stepped on something sticky called Gumroad.com:  http://tradewithdave.com/?p=10246

Here’s Dave’s historical and epic perspective on what makes Facebook combined with your mobile phone a “moveable beast” :

http://tradewithdave.com/?p=4261

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Barry Zubrow, Executive Vice President – Corporate and Regulatory Affairs, JP Morgan Chase & Co. wrote the following in February as the final black swan song in what Dave views as this past week’s fat lady singing and too big to fit other shoe falling in the JP Morgan public relations  ($2 billion lost while $8 billion gained) victory.

Those concerns highlight the extraordinary difficulties of proscribing proprietary trading while protecting client-driven and risk-mitigating trading activities. Nevertheless, we do not propose to debate the merits of the underlying statute in this letter. Instead, our comments focus on the potential implications of the proposed rule for our client franchises and risk management activities.

from page 28 of the letter

E. Commodity Forwards Should Not be Included in the Final Rule.
The statute does not expressly encompass forward contracts in nonfinancial commodities (“Commodity Forwards”). Certain agencies have noted that Commodity Forwards are commercial merchandising transactions, whose primary purpose is to transfer ownership of a commodity.  The Department of the Treasury has noted that they are more similar to funding instruments, such as repurchase agreements.   Although Commodity Forwards are excluded from the definitions of the terms “swap” and “security-based swap” in the derivatives-related provision of the Dodd-Frank Act, the agencies propose to exercise their discretion to expand the statute to encompass those instruments by including them within the Title VI definition of a “derivative.” We believe that there is ample evidence that commercial agreements such as Commodity Forwards should not be considered “financial instruments” as that term is used in Section (h)(4) of the statute and, as such, should not be made subject to the restrictions of the statute. However it may be implemented, the statute will, to some extent, impair liquidity in every asset class that it touches. This liquidity concern is made particularly acute by the lack of certainty currently surrounding the meaning of the term “spot” in relation to commodities where standard delivery periods can extend to weeks and perhaps even months. As we discuss further below, we have very similar concerns and comments with respect to the proposal to extend the reach of the statute to foreign exchange forwards and foreign exchange swaps. We strongly encourage the agencies to refrain from extending the statute to asset classes that are clearly commercial, as opposed to strictly financial, in nature.

Here’s the full letter: http://www.sec.gov/comments/s7-41-11/s74111-267.pdf

Dave’s no analyst, so feel free to email if you think I am off on my rough figures.  The way Dave sees it, before the financial collapse, Bear Stearns had a book value in excesss of $10 billion.  JP Morgan paid $240 million for the business or $2 per share.  All things being the same, let’s say JPM got Bear Stearns at a 97% discount.  Basically they made the purchase because the U. S. Government told them to, but at the same time it was an amazing fire sale most likely driven entirely by liquidity concerns (aka a bank run).

So JPM inherits a potentially massive commodities forward liability, especially in relation to Bear Stearns short silver position because (as it clearly states in the letter above) standard delivery periods can “extend to months” and with the likelihood of new regulations, JPM knows (or Jamie Dimon in this case) that laws will be changed that will result in the closure of this massive loophole (or at least tightening of the noose) and that liability to deliver short silver “spot” will fall squarely on the shouldlers of the JPM shareholders.

Let’s say for arguments sake that Bear Stearns went from being really worth $84 per share book value ($170 per share market value) to $17 per share.  That would be a 90% drop in value in less than a year.  In that scenario, the business would be worth about $2 billion.  When you compare what JP Morgan actually paid ($2) for BSC and what it was probably worth ($17 per share) the difference would be exactly the $2 billion hit that was announced this week by the company’s CEO.

What’s the point in these estimates?  Dave say that the real purchase price that was made under the Paulson Trade ($2 billion + $240 million down payment) and not an unexpected writedown for losses under the Iksil trade as has been promoted in the financil press this week.  The Dodd-Frank “spots” adjustment was baked into the cake from the very beginning, but if it had been brought to the forefront during the sale and if Bear Stearns had been allowed the nearly five years to “unwind” the trade that has been given to JPM, then Bear Stearns stock would have been trading at $17 instead of the $2 per share that it ended up being sold for.

Dave would suggest that from a moral hazard standpoint during the meltdown that JP Morgan Chase was the lender of last resort when it came to the lending of confidence in the banking system.  The government may have been the one that pulled the rug out from under the bear, but they needed a bank to be the one to imbue the confidence into the market to avoid lines on the sidewalks at ATMS and the threat of a collapse in confidence under the fiat system.

In Dave’s opinion, this entire $2 billion loss was baked into the cake from the very beginning.  The fact that JPM ended up with Bear and Bear shareholders got the shaft… buyer beware.  In this marketplace, you need to understand that you’re not only in search of price discocvery from a relative competitor standpoint (i.e. Chase, BofA, Morgan Stanley, etc.), but you’re operating in a tyrannical and fascist system where sovereigns themselves (and they have weapons systems) are financial players too.  Unless you want to end up spread eagled on the floor like a bear rug, I suggest you get out of the counterparty game while the getting is good.

Zubrow said it himself when he wrote; “Nevertheless, we do not propose to debate the merits of the underlying statute…”   Why didn’t he argue the merits of Dodd-Frank?  It’s simple.  In the context of a backroom deal that handed over the equity of Bear Stearns to JP Morgan in exchange for a purchase of confidence in the global banking system, it was a small price to pay to engage in a transaction with no merit whatsoever.  At least that’s the way Paulson, Geithner, Dimon, Bernanke and Bush probably viewed it.  Dave on the other hand… not so much.

There was a time when price discovery was a Teddy Roosevelt style bear hunt and not a Franklin Roosevelt style turkey shoot.  There was a time in Mississippi when we drew the line on moral hazard and we didn’t tie shareholders up to a tree and assassinate them in an effort to save a system that had deteriorated into a tyrannically fascist farce.  More power to Jamie Dimon for pulling this off for his shareholders.  It was a smooth operation.  Just remember the next time you’re on a hunting trip with the government, don’t turn your back because the guy holding shotgun behind you must might have learned how to hunt from Dick Cheney.  Live by the sword, die by the counterparty risk of a credit default swap.

(hat tip to Bob English of Economic Policy Journal)

Dave sees this weeks events as the end of an era when it comes to blogging about the CFTC and it’s sideshow circus ringmaster, Mr. Bart Chilton.  If you’re trapped in an airport somewhere and have nothing to do for the next three hours, you can read everything Dave has written that got us where we are today and saw Ace Greenberg one-upped by the government.  One other thing… Gary Gensler… you did it.  You pulled it off.  How does it feel?  You get the prize.  Pick out the teddy bear of your choice.

http://tradewithdave.com/?s=bart+chilton

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From The Smithstonian Institution’s National Museum of American History’s Original Bundt Limited Edition Pan

Dave likes a good Bundt cake as much as the next guy.  Yesterday, the CEO of JP Morgan speculated as to just how Dave might respond to the emergency conference call and ensuing explanation of the $2 billion and could ”easily get worse” loss from credit default swaps.  Jamie said that the bank’s loss   “plays right into the hands of a whole bunch of pundits out there.”  Dave was as dumbstruck as a hungry man standing at the dessert table at a Methodist pot luck supper in the fellowship hall.  All Dave could think about at first was Blythe Masters’ famous comment about how JP Morgan’s competitors are “scared s*%$less of us” and how it was Dave’s understanding all along that Ms. Masters was the inventor of the CDS.  Then Dave did what Dave does… he looked at the calendar. 

As far as who played into whose hands, this appears to Dave to be a classic case of hide the trojan more than Dr. Frankenstein’s monster rising up to destroy him.  Wasn’t it Mr. Dimon who said in his congressional testimony in 2008; “We shouldn’t be surprised, but we need to do better.”  As far as how many trips to the Fed’s punch bowl of liquidity is too many?  From the looks of things, Bruno Iksil’s attempt to spawn his whale up the Thames appears on the surface to have created quite the tea party for hedge funds in what is now JPM’s attempt to unload the portfolio in a “responsible” manner.  However, upon further consideration everything is not as it seems and there just may be some Jonah-inspired trojans inside that whale once the hedge funds cut it open. 

Mr. Dimon also made the following two statements:

“We will admit it, we will learn from it, we will fix it and we will move on.”

“It puts egg on our face and we deserve any criticism we get.”  

 Dave knows we all make mistakes, but admitting it, learning from it and moving on from is not the equivalent of “fix it” any more than $2 billion and counting is a “tempest in a teapot” as described by Dimon on April 13 (http://articles.marketwatch.com/2012-04-13/industries/31335210_1_london-whale-tempest-jamie-dimon).  Dave’s getting the distinct feeling that “fix it” part was already included in the recipe.   Dave couldn’t stop talking about how the Iksil trade was connected with the CFTC’s definition on credit default swaps http://tradewithdave.com/?p=9866 and it’s the timing of that CFTC decision and this JPM announcement that has Dave thinking that the plan all along was to let the market eat cake and it appears they’ve just done it.

You see, way back when JP Morgan inherited Bear Stearns and all those short silver positions, they basically intervened on behalf of the government in the same way your brother-in-law (in this example Gary Gensler) might bail you out of jail and keep it on the lowdown… that is until he needs a favor.  The problem is that there’s payback eventually and it took about five years for the other shoe to fall in the firesale of Bear Stearns to JP Morgan and that shoe was the CFTC decision on April 18th of this year (http://tradewithdave.com/?p=9982).  That bigger than life shoe (or in this case trojan boot) was worn by one now near-mythological figure, Mr. Bruno Iksil. 

Taking a beating in the press for this $2 billion loss is for Mr. Dimon the equivalent of taking one for the team.  This is also how you get to be the next Secretary of the Treasury of the United States, especially with Jon Corzine conveniently set on the window sill to cool.  This entire recipe to fool the American people into believing that everything would be okay during the Lehman meltdown has been wrapped up in the just desserts of financial engineering that was baked into the cake from the beginning.  Jamie Dimon and JP Morgan/Chase were the biggest beneficiaries of the meltdown and yesterday they paid the price (an a small price it was) for all the value the company gained during the crisis and for acting as butcher, baker and candlestick maker for the TBTFB  (Too Broke To File Bankruptcy) business model that is the American free market manipulation system. 

So when you’re watching TV for the next 24 hour news cycle and you hear pundits opening their pie holes and talking about Bruno Iksil, Jamie Dimon and Blythe Masters taking a hit, think twice before you eat that cake.  The next time you find yourself in Hank Paulson’s shoes and you are trying to figure out how to avoid your grandchildren ending up speaking Chinese, do what all good revolving greek diner pie display politician/businessman types do.  Cut out the middle of the cake for yourself and then bunt.

P.S.  Anytime a press release comes out on a Thursday, you can bet the folks that put it out want everyone and their brother to be talking about it.  Feel free to trade with Dave, just don’t play with Dave.  Now, where’s that cake?

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The original shallow Hal 9000 now available for 99 cents on Itunes. 

Dave stumbled across a debate over who’s making dinner that evidently has been raging for several years and I entirely missed it.  Nicholas Carr, author of The Shallows; What the internet is doing to our brains, has been locked in a debate with Yochai Benkler over just who is the executive chef of capitalism.  Dave has written a lot about Benkler and his books The Wealth of Networks and The Penguin and the Leviathan.  Dave disagrees with Benkler and I’m not sure yet if I agree with Carr, but I plan on finding out.

Why is this important to you?  It’s important if you like your internet because it is these issues that will drive the legal arguments that will ultimately result in the Wild West approach to freedom of speech on the web ultimately being locked down by the double barrels of government intellectual property rights enforcement and anti-terror laws. 

Here’s a link to Carr’s post on why Benkler needs to tend his garden, milk the goat and check the status of the health permit for his Cambridge neighborhood cooperatively owned and managed slaughterhouse on the Charles unless he plans on eating his words for dinner.  Then again, will Carr accept payment in Zynga dollars redeemable down on the Farmville? 

http://www.roughtype.com/archives/2012/05/pay_up_yochai_b_3.php 

Here’s Dave’s comment posted to Carr’s site in response to the Benkler wager:

Interesting debate. I’ve written quite a bit about Benkler’s thesis and what I believe are its existential roots.  I also have an independent blog that strangely gets about 100,000 reads per month and is growing nicely. 

My expectations are that if and when there’s a policy change along SOPA/PIPA lines, it will set a new hurdle for independent bloggers of say $1,500 per month to keep your seat at the table and maintain compliance with whatever terror or copyright angle the lobbyists are able to slip through (as contrasted with Godaddy’s current $10 per month).

I somewhat expected it to happen six months ago and expected some sort of consolidation of independent bloggers to respond in what I would call a publishing cooperative.  The feedback loop for independent bloggers (or for Facebook users for that matter) is so compelling that it tends to squash the economics as it can be viewed simply as a replacement of television as a use of free time or simply a self-expression outlet.

However, if you have to pay more than a nominal amount to mitigate “reasonable” copyright liability, then that hurdle will wipe out most of the chorus and those that remain will consolidate into some guild of sorts I would expect.

Those independents that have taken the direct marketing approach to selling low ROI product advertisements on their site may have survived round 1 of Carr v Benkler while at the same time exposing their site to some higher level of commercial obligation towards digital rights management.  One of the most interesting things I have seen in the tragedy of the creative commons space since its discovery by Berners-Lee occurred only this past week… gumroad.  

This fellow at gumroad.com has set up what is effectively a ticket master franchise for the monetization of URLs rather than their resultant content.  While the debate over digital rights management rages on, who would have thought that you could make a bit of money off the bit.ly itself.  URLs as a surplus currency.  I didn’t see that coming.  Would you pay me 99 cents for access to a treasure map showing where $100 is hidden in your neighborhood?  If so, is it the map you’re buying or access to the map.  The gumroad paradigm really displays the Achille’s heel of the nature of virtual goods… they’re virtual. 

Dave Harrison
www.tradewithdave.com
http://tradewithdave.com/?p=8422

http://tradewithdave.com/?p=8402

plus 14 articles that include Benkler reference: http://tradewithdave.com/?s=benkler

 UPDATE:  After reading my own writing, I wanted to make the following addition.  Gumroad really highlights the Achille’s heel of virtual goods in that you can’t eat, drink or sleep with virtual goods much less wear them as your emperor’s wardrobe of your domain.  On the other hand, selling virtual keys to virtual sites that contain virtual information is, in Dave’s humble opinion, a currency in itself and one of the best metaphors for information as money that Dave has ever seen… for everything else there’s mastercard and Gumroad honors them all including Diner’s Club.

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A seven minute lesson in debt money and our banking system.  Wait until Mom sees this.  All I can think about is those seven fateful words… if Momma ain’t happy, nobody is happy.

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We’ve all heard the saying, bulls make money, bears make money and pigs get slaughtered.  Well, being from North Carolina, there’s plenty of debate on different types of barbecue sauce, but there’s one thing for sure.  Barbecue is pig.  Barbecue isn’t beef ribs like my friends in Texas claim it is and it isn’t a verb like my friends in California claim it is and it’s not the noun that the salesman at Home Depot thinks it is.  Barbecue is chopped up pork. 

You can pick your own sauce, but you can’t control everything and when Dave called for a $150+ plus drop in the price of gold on April 27, he had no idea what was getting ready to happen.  So, if you TradeWithDave and you also have a financial advisor (cause Dave’s not one), then you may want to consider taking a few hushpuppies off your plate and whatever you do, don’t go back for seconds.  This fall is too far and too fast to keep going.  Like everything else in the precious metals market this is engineered. 

Don’t count on this fall to continue this fast (nearly $100 in ten days?  pluuueeezz) and be like Dave… don’t be a pig.  Instead, take your little piggy bank to market and ease back in a bit. 

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