The Impunity of the Market-Riggers

  • Being Jamie Dimon means never having to say you’re sorry
  • “Yes, we rig the forex markets. Whatcha gonna do about it?”
  • Who can slake China’s growing oil thirst?
  • “Pariah” businesses cut off from credit unions: an Operation Chokepoint update
  • “Whatever happened to Rickards’ snowflakes?” a reader wonders

  If you wanted to become a billionaire, banking wasn’t the way to go about it — until now.
“The odds are much, much lower for a bank CEO becoming a billionaire than a guy going to a hedge fund or private equity,” says New York University professor Roy Smith.
The guy who beat the odds is JPMorgan Chase CEO Jamie Dimon, according to a Bloomberg piece out this morning: “Dimon’s net worth is about $1.1 billion, according to the Bloomberg Billionaires Index.”

$1.1 billion easily buys admission to the World Economic Forum
in Davos, Switzerland [WEF photo]

“Dimon’s fortune,” Bloomberg continues, “derives from a $485 million stake in New York-based JPMorgan, where he’s been chief executive officer since the end of 2005, and an investment portfolio seeded by proceeds from Citigroup stock sales.”
It was Dimon along with Sandy Weill who built Citi into another too-big-to-fail monstrosity…
  Dimon manages to meld the ego of a Randian hero with the ethics of a Randian villain.
He has no time for lectures about moral hazard — the suggestion that maybe in exchange for an infinite taxpayer backstop the megabanks should be subject to some level of regulation.
Hell, he’s the aggrieved party, as he told a reporter for New York magazine in 2012. Regulation? “This is not the Soviet Union. This is the United States of America. That’s what I remember. Guess what? It’s a free. F***ing. Country.”
Yeah, he’s a regular John Galt there.
Dimon’s impunity showed up best in his 2013 Christmas card, featuring many panoramic photos of him and his family engaged in holiday family fun, like so…

Because it’s a free. F***ing. Country…

As we wrote at the time, damn, it feels good to be a bailed-out bankster. If Dimon had any sense of gratitude, the card to Ben Bernanke was accompanied by a bottle of Dom Perignon White Gold Jeroboam…
  Already by the time of that Christmas card, JPM had racked up $20 billion in cost-of-doing business fines for misdeeds before, during and after the Panic of 2008.
Since 2010, the bank has paid out $32 billion in litigation, regulation and related expenses.

But JPM can handle it. “Fortress Dimon,” quipped money manager and blogger Barry Ritholtz in 2013 — playing off Dimon’s infamous assertion that JPM possessed a “fortress balance sheet.”
“Its walls are made of lawyers, and its moat is made of burning money. Something is wrong with a board of directors that tolerates this sort of egregious incompetency and/or rampant illegality.”
But tolerate they do — which isn’t hard when your share price sits near all-time highs.
  Among the “Soviet” fines JPM has notched so far this year — close to $1 billion for rigging foreign currency trading. It’s one of five megabanks that reached a settlement with federal prosecutors last month.
Clearly, Dimon’s attitude permeates the ranks at JPM. Here’s part of a letter JPM sent to its forex customers after the settlement was announced…

“As a market maker that manages a portfolio of positions for multiple counterparties’ competing interests, as well as JPMorgan’s own interests, JPMorgan acts as principal and may trade prior to or alongside a counterparty’s transaction to execute transactions for JPMorgan…” [Emphasis added.]

As Pam and Russ Martens write at Wall Street on Parade, “The letter effectively tells JPMorgan’s customers, here’s how we’re going to continue to rip your face off.”
Citi and Barclays — also parties to the settlement — sent out similar letters with identical wording. It was boilerplate. So the attitude permeates the entire industry.
And why not? As of April 2013, forex trading totaled $5.3 trillion a day — more than any other asset class.
  Now you know why we’ve been saying for a while now that the forex markets are strictly for pros.
True, the Commodity Futures Trading Commission regulates the exchanges that trade currency futures and options. But underlying those futures and options are the trades on the “spot” forex market… and that market is subject only to self-regulation.
There’s an industry group that’s supposed to come up with “best practices” for the big-bank forex traders. Its chairman is a guy named Troy Rohrbaugh — the head of forex trading at JPM.
For real.
That’s why we’re so excited about Jim Rickards’ IMPACT system… and why we’ve been pounding the table about it since mid-April. If you want to make big money from medium-term moves in currencies — we’re talking weeks or months — IMPACT is the way to go.
IMPACT is a proprietary strategy inspired in part by Jim’s groundbreaking 2011 book Currency Wars.
Jim and his research team set out last fall with a basic premise: If central banks are bound and determined to wage currency wars on each other, there must be a way ordinary folks can profit.
Then his team performed a deep dive — refining and perfecting a trading strategy that exploits the currency wars. Extensive back-testing turned up consistent winners of 530%… 848%… even 2,196%.
Example: Last August, Australia’s central bank fired a shot in the currency wars — announcing plans to devalue the Australian dollar. The results were devastating for FXA, an ETF tied to that currency…

But applying the IMPACT system, you’d have been able to collect 1,628% gains in less than four months.
Over and over, comprehensive testing of the IMPACT system turned up gains like…

  • 173% in less than 4 months on moves related to the Brazilian real
  • 364% in less than 30 days on moves connected to the Russian ruble
  • 615% in 5 months on moves tied to the Canadian dollar.

[Ed. note: All good things must come to an end. And that includes the charter-subscriber discount we’ve been offering on Currency Wars Alert, Jim’s trading service that exploits the IMPACT system.
I just got the word moments ago: The discount expires a week from tomorrow. If you’ve been thinking about putting the IMPACT system to work in your own portfolio, now’s the time to act. Here’s where to go.]
  Markets are settling into summer mode today, with little meaningful movement.

The major U.S. stock indexes are all slightly in the green as we write. The small-cap Russell 2000 is the outlier, up more than three-quarters of a percent at 1,262.
No big surprises on the newswires: The European Central Bank is leaving rates unchanged. The U.S. trade deficit narrowed to $40.9 billion in April, recovering from the backlog left by the West Coast port strike.
The greenback is losing further ground, the dollar index down more than half a percent at 95.4. But gold is not benefiting — the Midas metal is down to $1,184. And crude is down more than 1.75% — but still holding above $60.
  “China has just surpassed the U.S. to become the world’s largest importer of foreign oil,” says our resident oil field geologist Byron King.
It was only 22 years ago that China still produced more oil than it used. “Since then,” Byron tells us, “China has become mostly dependent on foreign oil — to the tune of 58% imported at last count. In fact, analysts estimate that China will import a full two-thirds of its oil by the year 2030.
“That brings us to April, when, according to the Financial Times, China imported an average of 7.4 million barrels per day — 200,000 more per day than the U.S. imported during the same month — after cutting its central bank interest rate three times to stimulate the economy.
“And while China accounted for 43% of new global demand for oil last year, its neighbors are almost as thirsty. India has become the fourth-largest energy consumer.
“With growing demand,” Byron concludes, “we’re going to see a base form for long-term oil prices — and that spells opportunity for well-run oil producers.”
  Operation Chokepoint is moving into a new phase — targeting the credit unions.
Of course, that’s not how The Wall Street Journal described it in a front-page story today. Instead, we got milquetoast verbiage about “more than 50 credit unions identified in a confidential report from the Treasury Department’s Financial Crimes Enforcement Network that cited their increased vulnerability to potential money laundering.”
Let’s back up to May of last year, when The 5 first threw the spotlight on the guilty-until-proven-innocent world of Operation Chokepoint. The Justice Department and the FDIC were pressuring banks to close the accounts of legal businesses that might, hypothetically, have a tie to “money laundering.”
Payday lenders, firearms merchants, tobacco shops, even adult film starlets — they all got nastygrams from their banks saying their business was no longer wanted.
  Turns out many of them opened accounts at credit unions. And now the feds have come knocking at the credit unions — “which some regulators worry may not be as good at spotting illicit activity and reporting it to authorities,” according to the Journal.
One of the credit unions cited in the Treasury report is Bethex Federal Credit Union in New York’s Bronx borough. About one-third of its operating income came from businesses that help low-income New Yorkers send money overseas — that is, immigrants sending money home.
The National Credit Union Administration told Bethex to cut off those businesses. “We lost the income,” Bethex chief executive Joy Cousminer tells the Journal. “We don’t think we were guilty of anything,” she added. “We don’t think the customers were guilty of anything.”
But that’s how it goes in Operation Chokepoint… even if the Journal didn’t see fit to bring up the name of the operation in its story today.
You can see our original coverage of Operation Chokepoint here. Which is as good an opportunity to direct your attention to the new and improved Agora Financial website. Of course, The 5’s voluminous archives are there… but more important for you is the vastly easier way to navigate to your publications and portfolio recommendations.
Take a few minutes to check out the site right now and shoot us any feedback you might have.
  “Whatever happened to Jim Rickards’ snowflakes?” asks a brief email from a reader.
The short answer is they never went away. They’re still floating around out there.
As a reminder, Jim Rickards compares the state of the financial system to an avalanche in the making. You never know when an avalanche will start or which snowflake will trigger it. But a smart skier or climber does know when conditions are most dangerous and it’s best to stay in the lodge sipping coffee by the fire.
Still, it’s hard to resist the temptation to speculate about individual snowflakes. There’s no shortage. There never is. Take a geopolitical shock, for instance. “When Russia invades Crimea, that’s a snowflake,” he told us last year. “When the Islamic State declares a caliphate, that’s a snowflake. When Libya completely falls apart and they stop pumping oil, that’s a snowflake.
“I make the point that a snowflake can cause an avalanche. But not every snowflake does. So a lot of snowflakes fall harmlessly, except that they make the ultimate avalanche worse because they’re building up the snowpack. But one of them hits the wrong way and starts something and it spins out of control.”
And so the snowpack continues to build…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “South Korea Likely to Take up Arms in Currency War,” says a headline in the Financial Times.
“Currency war” went from an expression by Brazil’s finance minister five years ago… to the title of a book by our Jim Rickards four years ago… to the foundation of a revolutionary trading strategy.
That’s the aforementioned IMPACT system. It’s the only way we’ve ever found (using back-tested data) that could have allowed you to profit an extraordinary 1,246% from currency wars.
Jim Rickards’ IMPACT system is not forex trading. It has nothing to do with the stock market. This is a brand-new way to make money…
You can see how it works by going here.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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