Is J.P. Morgan is the Early Stages of Crashing?

The following letter was sent out to Bankers after the close of the US Stock Market for Thanksgiving. It is now circulating on the energy and money lists.

From: Central Bank Oversight & Monitor Committee
Sent: Wednesday, November 21, 2001 6:03 PM
Subject: JP Morgan in Early Stages of Crashing

To: Central Bankers, Secretariats, Governors, and Concerned Others

Sirs:

As we’ve been reporting JP Morgan is the key player in the financial derivative markets. What we could be seeing right now are the early tremors going through their common stock, reflecting in part a plunging US bond market, and massive debt repudiation by Enron and Dynegy.

The entire derivative pyramid will come down around this institution and other players having extreme risk exposure. The US Federal Reserve will be powerless to prevent this unraveling. To attempt a remedy would be to threaten the recovery of the entire world economy, and the political institutions of same.

As you can clearly see the Relative Strength Index (RSI) and Moving Average Convergence/Divergence (MACD) are sounding the alarm bells for the collapse of JP Morgan.

Be certain your institutions are not caught in the vortex with nearly all your foreign reserves in US dollars.

Sincerely,
CBOM

Adam Hamilton’s “The JPM Derivatives Monster”

A review by Boudewijn Wegerif

Two of the largest commercial banks in the U.S., indeed the world, J.P. Morgan and Chase Manhattan merged some months back to form a superbank, J.P.Morgan Chase and Co., or JPM for short. It is beginning to look as though JPM may have been formed to play the derivatives markets more forcibly, and especially the gold and the interest rate derivatives markets, and that it is now riding for a spectacular fall.

 For an easy to follow understanding of the nature of derivatives, an account of the big derivatives wipe-outs of the 1990s and the extent to which the folk at JPM are up to the eyeballs in digitised derivatives, I strongly recommend the newly posted essay by market analyst Adam Hamilton at www.zealllc.com (or at www.gold-eagle.com editorials, or the Kiki Table at www.lemetrepolecafe.com).

 In ‘The JPM Derivatives Monster´ Adam Hamilton reveals that the illegal gold price suppression, which has been exposed by the Gold Anti-Trust Action Committee GATA, is not just about upholding a grossly over-valued dollar; it also appears to be part of a game play by which massive derivatives interest rate speculations are deemed to be made ‘risk free´.

 Hamilton sources an essay by the litigate Reginald Howe in the HOWE vs BIS anti-trust action. In the essay, about which more later, Howe shows that U.S. Treasury Secretary Lawrence Summers, by his own writings, was well aware of John Maynard Keynes´ ‘Gibson´s Paradox´.

 According to ‘Gibson´s Paradox´, there is a ìrock-solid inverse relationship between gold and real interest rates in a free market”. And Lawrence Summers, during his time at the Treasury Department, from 1995 to 1999, will in all likelihood have encouraged a strong belief in ‘Gibson´s Paradox´ at J.P. Morgan, Chase Manhattan, Goldman Sachs, et al.

 So strong has been the belief in ‘Gibson´s Paradox´, a handful of commercial and investment banks are now owing the equivalent of over several years of gold production ? that is, gold which they have borrowed from the central banks of the world mainly to keep the price of gold suppressed. The suggestion is that they have continued borrowing, selling and recycling the gold loans to underpin interest rate and currency derivatives speculations of unimaginable magnitude.

 JPM´s SUPER-COLOSSAL DERIVATIVES POSITION

 It is very hard to believe that the total notional derivatives positions of U.S. commercial banks and trusts is $43.9 trillion dollars. That figure does not include investment banks like Goldman Sachs, which do not have to supply figures to the OCC Office of the Comptroller of the Currency, a bureau of the US Treasury. The total U.S. derivatives position could be over $80 trillion, and according to some estimates, the total world derivatives position is now well over $150 trillion.

 Whichever of these figures you choose for comparison purposes, you will agree, I am sure, that JPM´s control of $26.3 trillion worth of derivatives in notional terms has to be read as super-colossal!

 To underscore the comparisons, just one trillion dollars is about equal to $3,700 per every man, woman and child in the U.S. The sum total of all recorded, money measured economic activity in the U.S. is a little over $10 trillion, and in the world around $40 trillion. The market value of the 500 best and biggest companies in the United States, the S&P 500, is now around $10 trillion, and the total U.S. debt is now well over $18 trillion.

 Adam Hamilton explains in very easy to read terms in his essay ‘The JPM Derivatives Monster´, how we are to understand the ‘notional value´ of a derivatives contract. The notional value or ‘notional amount´ is not the amount of money that changes hands in a derivatives transaction. It is ìa quasi-fictional number that illustrates how much capital a given derivative effectively controls,” and it is used to calculate the actual payments that must be made.

 WHAT IS AT STAKE?

 How much has JPM put on the line, so to speak, to cover a derivatives position by which it effectively controls ‘capital´ of $26.3 trillion? I should think just about every asset it possesses, including the silver cutlery in the directors´ dining room. For $26.3 trillion ($26,376 billion to be more precise) represents $621 for every single dollar of JPM´s $42 billion equity balance, and $43 for every dollar of its mainly loan assets.

 Leverage of that order is mind-boggling even for already boggled minds.

You may recall how the derivatives debacle of one rogue trader, Nick Leeson, brought down the 223 year-old Barings Bank in 1995. The capital of Barings was not $42 billion, but 28 times less at under $1.5 billion; and the notional value of Nick Leeson´s failed derivatives bets, that the Japanese Nikkei index would rise by a few percentage points, was not $26,376 billion but a comparatively paltry .09 percent of that, at about $21 billion!

 Adam Hamilton explains how Howe quotes a 1988 academic paper from the Journal of Political Economy co-written by President Bill Clinton’s future third Secretary of the Treasury, Lawrence Summers. “Among other things, Mr. Howe discusses Mr. Summers’ interpretation of an observation by the famous economist John Maynard Keynes on the behavior of gold prices and real interest rates. Lord Keynes called the relationship ‘Gibson’s Paradox´.”

 For Hamilton, Howe’s ‘Gibson’s Paradox Revisited´ essay triggered a solid understanding of Michael Bolser’s shrewd earlier hypothesis on JPM’s enormous interest rate derivatives exposure! ìGibson’s Paradox helped to reconcile the puzzle and answer nagging questions about JPM’s gargantuan interest rate derivatives position and how it could relate to the active management of the price of gold.” Hamilton set down his conclusion in an essay ‘Real Rates and Gold´, posted at www.zealllc.com.

 In ‘The JPM Derivatives Monster´ Hamilton writes: ìGibson’s Paradox, defined by Lord Keynes, effectively claims that under a fixed gold price regime real interest rates remain predictable. If JPM top management was participating in any US efforts to cap gold, they had full knowledge that a de facto fixed gold price regime had been stealthily established and they would have had a carte blanche to massively balloon potentially highly lucrative interest rate derivatives exposure.

 After all, if JPM was convinced gold was under control, and that gold prices were a prime driver of real interest rates, then what better time to become the king of the interest rate derivates world than when gold was being quietly hammered down through massive sales of official sector gold from Western central banks’ coffers?”

 SO THERE YOU HAVE IT, IN BRIEF

 Would Keynes turn in his grave, I wonder, if he realised how belief in his ‘Gibson´s Paradox´ has turned a supposedly safe conservative blue-chip elite Wall Street bank into a hyper-leveraged mega hedge fund with over 600 times implied leverage on stockholders’ equity? ìAnd what do the shareholders themselves think about it?” asks Hamilton. ìDo they understand how dangerous large derivatives positions have proven historically for other companies?”

 JPM currently has something like 2,700 large institutional shareholders who hold almost 61 percent of its common stock. Hamilton asks: ìDo the managers of these mutual funds and pension funds understand that JPM management has built the biggest most highly-leveraged derivatives pyramid in the history of the world per US government OCC reports? Do fund managers understand the inherent risks in leveraging capital hundreds of times over?”

 Having once suffered the gambling virus, I can vouchsafe that one´s understanding of risks diminishes in inverse proportion to how well one is doing when winning and how certain one is that one has finally found the right formula for breaking the house. I also had a daddy to cover my losses.

 It seems that the gambling virus has hit hard at JPM. The inevitable downfall, when it comes, will be spectacular, to say the least. Who is going to cover those losses?

Read More at: What Matters , Rumor Mill

Happy Thanksgiving

State of the World’s Energy

Matthew Simmons

Speaking at the IRO Jubilee (11-15-01) — “Perhaps the biggest challenge facing future oil supplies, is that almost 70% of our existing daily supply still comes from oilfields found over 30-years ago. Anchoring this old production are 10 giant OPEC oilfields whose average age now exceeds 60-years. These 10 fields, alone, still produce probably 15% of our daily oil supply. Only a few of these old fields are now clearly in a high rate of decline.

“Sooner or later, all will begin a steady descent, like all oil and gas fields consistently do at some stage in their life cycle. Sadly, there is almost no public data available on what these giant OPEC fields even produce today, let alone whether most of then have now peaked. There is zero knowledge for what the current decline rates of any of these fields are, let alone what they might later become.

“The world knows from past experience with giant fields like Prudhoe Bay, all the North Sea giants, Columbia´s Cuisiana Field and many others, that once giant fields decline, their decline rate is as steep as smaller fields. The only difference is the amount of volume lost.

“In the past two decades, only a handful of new fields generated daily production that exceeded 500,000 barrels per day. The last field whose production exceeded 1 million barrels per day was Mexico´s Cantarell field which began production twenty-five years ago. No field discovered in the past 20 years, or on today´s drawing board is expected to exceed this 1 million barrel per day production limit.

“If all, or even most, of the new oil and gas fields needed to replace the 40 million barrels per day which will be lost by a modest 5% annual decline are small, (25,000 to 100,000 barrel per day fields) this implies an exponential step up in the world´s exploration and development activities.

“Gas supplies face a similar challenge, though the world apparently is still long on vast reserves of stranded gas that have no outlet to any commercial markets. But, most of this stranded gas has also never been produced, so a timing lag and investment dollars will always stand between these gas resources and when they can be consumed. In the current global gas supply base, over 50% of the world´s currently useable gas supply comes from Russia, Canada and the U.S.A. All of these basins are now experiencing steep decline rates from most of their producing fields. To assume any of these regions are able to grow their supplies quickly within the next decade could be a risky bet.

“Every single other global energy sources faces its own challenges. The world coal reserves are abundant, but coals future will be hotly debated as long as global environmental worries stay high. Bringing back nuclear energy is another issue where the debate is already intense and will get even more heated. If oil and natural gas finally begin to face serious and real challenges on how much further their daily production could grow, not because we lack the resources, but simply due to ever- rising decline curves, then we clearly have to rely more heavily on both coal and nuclear to pick up the slack. This puts a real premium on tackling ways to get coal-generated energy processed and generated on a far cleaner basis than now exists. It forces a faster resolution of how spent nuclear fuel is handled and fast-forwards a need to build small, far less costly nuclear plants than those built in the 1970-1990 era. It also raises the heated struggle between the environmental community and the energy business to an even greater pitch than now exists. And the rhetoric is already too hot.

“The role of non-hydro alternate energy sources faces many stiff questions. Too many well-intended people simply assume that someday, an enlightened population will suddenly take wind and solar energy seriously. Then, the world will quickly develop clean, affordable and renewable energy sources. Once this happens, they imagine that the world´s energy problems will all be over.

“This notion or fantasy belies that fact that billions of dollars have been spent already on commercializing both wind and solar energy. The cost to produce both has come way down but still remains far above conventional energy. But the physical limits both sources still face to ever become more than a sliver of global energy are as tough today as they were years ago. Neither wind nor solar energy has any ability to automatically dispatch whenever they are needed. The sun still must shine and the wind must blow for either to work efficiently. And despite all the research and development to date, neither shows any sign of scaling to a size that could begin replacing the energy needs of any major metropolitan area. They both remain great energy sources for small and remote areas and replacement energy during peak needs. But, both lack the physical ability to ever become significant energy sources, let alone begin to replace the bulk of the world´s reliance on fossil energy fuel.

“Beyond wind and solar energy, other more futuristic alternatives get discussed often. Fuel cells, hydrogen energy and natural gas from hydrates are all the subjects of many futurist energy articles. But each one of these possible energy sources face great obstacles and extremely high costs before they could ever become a meaningful substitution for today´s energy sources.

“If we do face limits to how fast we can increase the globe´s current production of oil and gas. I suspect the big substitute will end up being increased use of nonconventional oil and gas in the form of coal bed methane, and heavy oils in places like Venezuela and Canada. But these heavy oils also consume a vast amount of energy just to convert them into usable energy so the parasitic energy loss could devour as much energy as some medium size countries now consume. …

“Any time you think about the future of global energy it is critical to remember that 80% of the world´s population still use only a tiny amount of energy. Two billion of these five billion people currently use no modern energy at all.

“If we ever allow these people to have access to modern energy and stop their use of charcoal, agricultural residue and animal dung, all of which are so poisonous to the atmosphere and lethal to human health, it is hard to envision where all this new energy will come from. Some of us will need to find ways to use less than we now consume. “

Matthew Simmons is one of the leading energy advisors to President George Bush and the United States Congress. In view of our fossil fuel energy crisis, Mr. Simmons’ final sentence may be one of the greatest understatements of all times.

Read Simmons’ full speech

Sustainablity — One Family’s Story

Robert Waldrop

I have found a very interesting web site of a family of 5 in Pasadena, California, who are practicing urban agriculture on their typical lot in an older neighborhood (house was built in 1917).

They started in 1985, there are great before and after pictures of their urban homestead. They have 3,900 square feet under cultivation (1300 sq ft of this is in containers) on a 55′ x 132′ lot, which is about 8700 square feet; the house is 1500 sq feet and the garage/driveway is 1300 sq ft.

From April 20 to November 20 this year, they harvested 2054 pounds of food plus 313 ears of corn. See also their statistics page with lots of resources and links, plus pictures of their gardens.

Direction of Global War on Terror
Raises Unsettling Questions

By Patrick E. Tyler
New York Times

WASHINGTON, Nov. 20 – The seven-week military campaign in Afghanistan has given the world a stark view of a new American doctrine to make war on the sources of terrorism in the world. But with the defeat of the Taliban perhaps only days away and the hunt for Osama bin Laden intensifying, the force of the American destruction of Afghan targets has sent an unambiguous warning far beyond the war theater to a number of nations that continue to provide bases and training to terrorist groups. The warning is: this could happen to you.

Yet how President Bush takes the war campaign from phase one in Afghanistan to phase two against Al Qaeda and other “global reach” terrorist groups in dozens of other countries remains an unsettled and, in some quarters, an unsettling question.

Deep reservations exist among allies in Europe, the Middle East and Russia over the advocacy by some Bush administration officials who want to expand military operations to other countries, especially by taking the next phase of the war to Iraq to topple Saddam Hussein once and for all.

Read the full article

The Evolving Gift Tensegrity

Questions about the Gift Tensegrity

Arthur, I agree that commitment is essential for the system to work. I think a giftor is making a committment every time they offer a gift to some member of the Gift Tensegrity. Again the history of exchanges and comments on those exchanges become the mechanism to document their committement. As a giftor, I want to give away all I can. I want to give away all those things that I don’t need. I want to help as many individuals as I can. But, only I know what I don’t need and what I have to give. Therefore control of gifting remains in the hands of the giftor.

If you don’t register your offers of gifts and then start giving you will have a low giftor/giftee ratio and always be on the bottom of the giftees list. Some giftors may give to you out of pity or compassion, but that trend will soon end if you don’t ever give. And, there is really no reason for an individual to fear gifting. As a giftor, you are in complete control of when, if, and to whom you give.

 

What is there to fear? The more you give the higher your giftor/giftee ratio.

No! The Giftor gives volunatarily. No one knows what Giftor has to give until the Giftor makes an offer. No one has access to any information about your possessions, skills, abilities,  until you as a Giftor make a gift offer. That is when the information about a Giftor becomes visable and only to those giftees that the giftor selects.

 

However, that said. Those who really understand the system and who are seeking synergic relationship, will gift everything they can. Why keep anything you don’t really need? Why waste any time and skills that could be helping others?

I see the Gift Tensegrity as evolving. You can join and offer to give a few things and register the needs you would like to have met by the GT. Then you will limit your *risk* of participation. As people begin having good experience within the GT, they will want to offer more gifts and have more of their needs met their. At first, it is just an option to the *fair market* but as the process begins to grow, it is much more powerful than the *fair market* and you would first go there first. I will try to get as much as I can from the GT. Only using the *fair market as a last result.

Nobody will ask! The Giftors are never asked to give. They all gift voluntarily. There status in the GT depends not on the Gifts offered, but on the Gifts accepted. Why do I want to give? Because then I earn the respect and trust of more and more members of the GT. As an INTERdependent life form, I need the help of others to survive. The more individuals who respect and trust me the greater my chances for survival.

Again, easing into the system is easy with the structure of the GT. It is also easier for most humans. Anyone would be nervous about committing ALL to any organization, but most will be willing to try something new, if they can easily limit there risk at first.

Bill, I think you have helped me understand the GT better. First, let me point out that the Giftee is always choosing which gifts to accept and which to pass on. This is very different from social gifting. Today, I never turn down a gift from anyone because it would hurt their feelings. But, in a Gift Tensegrity, I am under no obligation to accept any offered gift.

 

In fact, I am encouraged to look the gift horse in the mouth. What is the history of this Giftor? What is his comment profile tell me. Is the described gift what I really need. If it is I will accept the gift.

 

Just as the giftor decides when, if, and to whom to give, the giftee decides when, if, and from whom to accept a gift. The GT creates total freedom. All choices are voluntary. No one is allowed to lose.

 

The Gift Tensegrity is not just for individuals. I expect we will see synergic organizations registering as production teams. They will use synergic organizational structures like the Organizational Tensegrity to great synergic production teams. Now as the GT matures, I can imagine these synegic production teams opening Gift Outlets.

 

These would be just like stores, but to use them you would have to be in the GT. They would make products available in the outlet using the synergic GT process rather than neutral *fair Market* process. I go into the Gift outlet, I can choose any gift being offered.

 

However gifting is always conditional so I would need a certain Giftor/Giftee Ratio to qualify for the more expensive items.  I can even imagine a GT plastic card that connects with the GT computerized database and registers the synergic exchange. Remember, whenever I accept any gift in the GT system my Giftor/Giftee Ratio goes down, and the Giftor’s Giftor/Giftee Ratio goes up. If I want the Gift Outlet to Gift me a new state of the art computer or other appliance, I would need a higher Giftor/Giftee Ratio than I would need if all I wanted was a paper back book. The GT offers humanity more than the fair market. Because it uses synergic mechanism, I will profit more by gifting my products than I will by selling my products. Make Products to Gift Products.

The GT is more than the *Fair Market*. It can do everything the *fair market* does and more. When you join the GT you will get a GT TRUST Card. This card identifies you to the GT database and gives Giftors access to your Giftor/Giftee Ratio and Comment profile. When a synergic help exchange is made offline this card allows you to have the transaction recorded on the central data base.

The GT will value those members who give more over those members that give less. It will reward those members that give more with more gifts than those that give less. But all Giftors are free to give to whoever they wish. I know I will occasionally give to individuals lower on the list because I want to. It will encourage them to use the system and hopefully become more giving. I will also sometimes give to those lower on the list because their need is great. But, generally speaking I will give to those higher on the list because they give the most not just to me but to all members of the GT.

I think the GT can be enormous is size. That doesn’t mean we won’t group within the larger organization. Within production teams groups must be smaller. The Organizational Tensegrity model recommends teams of seven or less. Then organizing into tensegrity groups of seven to create any size system. Using Decision-Action Tensegrities of seven persons you can organize 6 billion humans with just 12 levels!

 

However, I expect we will have global and regional synergic production teams that are making various products available as gifts using the GT mechanism. These synergic production teams could have more associates than even the largest *fair market* companies of today.

See what readers are talking about:

Gift Tensegrity

Economist Wayne F. Perg, Ph. D writes:  ìI see the Gift Tensegrity as a powerful new vehicle for first supplementing and then eventually replacing our present exchange economy that relies on money and barter to facilitate exchange.

ìI see the Gift Tensegrity as a powerful step forward from money systems and barter because it separates the acts of giving and receiving whereas both money systems and barter tie giving and receiving together into formal exchange transactions. It is this tying together of giving and receiving that creates “landlocked” resources and unemployment.

ìAlso, given my big picture vision for the Gift Tensegrity, I see givers and receivers including organizations (including for-profit businesses) and communities as well as individuals.”

Read a  description of the Gift Tensegrity  (brief)

 

Read a description of the Gift Tensegrity  (complete)