Besides a slight scare from the Speaker of the House today, the market rallied in fine style. It could not break out over 1422 on the SPX but most of the market did well. Volatility did come down a touch too as the short end of the market started to catch up with what the longer end of the volatility market has been doing. It looks like we are setting up for a rally to the end of the year as long as some sort of something comes out of Washington. We would have a nice Hollywood moment if the politicians got it together before Christmas. Wishful thinking anyway and I won’t bet too heavily on it.
Two years into the Euro Crisis and the only thing I have to show for it is a joke. How long does it take a Euro Finance minister to screw in a light bulb? Two years and counting…. Anyways, the strange state of the equity markets usually spill out into the volatility markets, and today was not a whole lot different.
The market is getting the flush this evening, as JP Morgan announces trading losses coming out of their CIO (Chief Investment Office). It was widely reported that this group was, pretty much, single-handedly crushing the insurance market for name CDS and other similar securities in the 1st quarter of 2012. Now it appears that the risk management office in the bank sold a little too much prior to the recent upswing in volatility. This is probably a good time to review “synthetics” (what JPM said they had on) and “selling volatility”, which, somewhere, it is assumed they are long.
After hours, JPM stock looks down around $3. In an iffy market like this, it won’t take much to have that crater- like opening market participants are getting used to.