Edunology - Saumya Aggarwal

Tweet

JPMorgan Chase, the biggest U.S. bank by assets, suffered a trading loss of at least $2 billion from a failed hedging strategy. This post looks at deeper reason and analysis of what triggered this loss.

What happened?

It is believed after the entire loss math that JP Morgan did hedging or rather entered into bets with CDX family of investment grade, popularly known as Markit CDX IG. The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Tele-communications. Markit CDX indices roll every 6 months in March & September. Current series is 18.

With index, your exposure is broken into various assets rather than one CDS or company. Since it was Investment Grade, JP Morgan believed these companies would never default or credit spreads would remain low.  Let us look at CDX IG Series 18 movement for 5 years, the credit spreads widended in April and May. If JP Morgan betted against increase in spreads and named it only hedge then trouble was round the corner.

Even if these companies may not default, but from pure trading perspective JP Morgan positions into CDX made a loss due to credit spread widening. Since the size of exposure was huge, losses were also huge.

The results:

1. JP Morgan stock tumbled on New York Stock Exchange. It has been more than 20% loss in stock prices since the news is out.
2. Regulators and lawmakers are now likely to push Dimon for more details about the trades. Those details will guide how regulators now view the issue and its impact on the Volcker rule, said Karen Petrou, managing partner of Washington-based Federal Financial Analytics.

3. Likely changes in risk management of banks globally. CEO, Jamie Dimon opposition to Volcker rule to ban proprietary trading by big banks may be criticized.

Courtsey: Bloomberg, Markit

Tweet

Tweet

Last quarter Apple sold iPhones like banana in China, the figure touched 8 million. No doubt that it is the best smart phone available, still I think it is unsustainable going forward.

This exorbint sales helped Apple post record breaking profits in U.S. Analysts have praised the effort and seem too bullish for my liking. I have three main reasons why it seems tough:

A.) More than half of 30 million iPhones in China are unlocked and being used on unathorized China Mobile that limit the user experience to 2G only.

B.)  Apple is far from getting right product for China market. It is a pain to use iPhone for texting as Chinese input on iPhone is not user friendly. Multiple Chinese bloggers and community experts have expressed their concern. The only option is to jailbreak and install third party software to make iPhone work smoothly.

C.) The third seasons arises from first two. Since Chinese users have unlocked and jailbreak their phone, they can download App Store applications for free. Chinese apps are limited Siri does not work in China.

Apple iPhone comes with entire ecosystem. In China, it seems this ecosystem is broken. Local players provide much better solution to Chinese users at fraction of cost.

Tweet

Google has come hard to big blog networks with huge links and term them as "Fake SEO" techniques. Below is screenshot of what big webmasters are receiving:

When did it start?

It seems all the buzz started with de-indexing of large link networks. It means that Google will remove these networks (inter-linked, self sustain planet of sites) from its crawler. Strangely, few of these networks have been running for years and made millions of dollars already.

Why is it happening?
Few of the reasons that I have collated are:
> Involvement in any artificial link networks
> To and fro content from low quality blogs
> Usage of link blasts
> Excessive use of rich anchor text
If you have used one or more of above, then removing it is the only way out.

If you’ve received this message, then remove the links and send reconsideration request to Google. It might not restore your lost rank but still worth trying.