Ad Hoc Commentary – death of proprietary trading
JP Morgan’s exit from commodities trading will probably be remembered as the beginning of the true exit from proprietary trading by big banks.
Cynics are probably right for alleging that, until recently, the closing down of proprietary trading desks were superficial. Cynics allege that proprietary traders were simply renamed to market-making desks on the veneer, but actual roles of risk taking remains largely untouched. The modus operandi is to blame the occasional failures of proprietary trading on rogue trading.
Senator Elizabeth Warren (D-MA) had, for some time, been pushing for the reinstatement of Glass Steagall. It probably does not matter. Even if the political elites want to, there will likely be neither political nor financial capital left to bailout the banks in the next crisis. Big banks will be on their own when the sovereign debt crisis hits at the end of this US dollar strength.
Some pundits claim that JP Morgan’s exit signals that the commodity boom is over. Saying that the commodity boom is ending is tantamount to saying that US dollars will be strong over the next two years. Yours truly agree on US dollar strength. But the link to JP Morgan’s exit is tenuous. The best can make money in both bull and bear markets. But the best can’t generate profits when capital costs are high due to Dodd-Frank, and where there are no Bernanke-put to heap trading losses on.
Thus, we can expect more big banks to exit capital hungry businesses like commodities. Ms Yellen, the most likely successor to Uncle Ben, will not be providing Yellen-puts that socializes trading losses on taxpayers.
Good luck in the markets.
Senator Elizabeth Warren…thanks for the reminder, I wanted to email her to explain, as she had been wondering, how the banks could have been making so much money recently. Could it be, she may have been wondering, that the banks have been lying about prop trading and have in fact just been relabelling their prop traders as market makers or sales or whatever, giving them phoney roles and letting the whole stinking business continue as usual?
Yes, it could be. In fact, if given a multiple choice of :
A. they have just gotten back to old fashioned banking and they have been doing really well lending to businesses and hard working families and helping their clients and also going to Church on a regular basis
B. they found it
C. they are lying sacks of excrement and have been lying to us
then what would the answer be, A, B or C?
By the way, it is C.
Haha.
Having worked in an american bank before, I can personally attest to the headcount on my desk (in Asia) ballooning overnight during the re-labelling process.
Yet that is not the problem now. It is top down i.e. bank as the hedge fund model now.
Well, I will not be too hypocritical here because I would go back to work for the 5 mio job tomorrow if I was offered one but I will not be stupid enough to challenge any of the 16,000 applicants for the Goldman Sachs internships. The best and brightest are still flocking to banking.
And the best part is my latest peeve – How Do Banks Get Around the New Regulations ?
Answer : They simply hire the regulators to work for them instead !!!
But it is the geeks and nerds that own the world now.