Hedge Funds, Investments, and Frauds - BSC, JP

While the focus of the blog is on Mining, Argentina, and Investments - one cannot study investment without keep up to date with Wall Street.

If you recall earlier in 2008 when the house of cards imploded at Bear Sterns, the stock dipped from $60 to $2 nearly overnight. Despite Cramer's vehement push that it was a GREAT BUY literally days before the fateful weekend of Fed bailout.

On March 10, 2008, information leaked into the market about Bear Stearns’ liquidity problems, causing the stock to drop to as low as $60.26 per share before closing at $62.30 per share. On March 13, 2008, news that Bear Stearns was forced to seek emergency financing from the Federal Reserve and J.P. Morgan Chase hit the market and Bear Stearns stock fell to $30 per share. Then, on Sunday, March 16, 2008, it was announced that J.P. Morgan Chase was purchasing Bear Stearns for $2 per share. By midday on Monday, March 17, 2008, Bear Stearns stock had collapsed another 85% to $4.30 per share on volume of 75 million shares.

Yesterday afternoon we witness another chapter in the BSC saga - 2 fund managers arrested on evidence of insider trading, fraud, and essentially misleading investors to not pull money from the hedge fund even as its sliding down.

JP Morgan, one of the largest investment banks in the world, thought to be bulletproof for the problems of 2008 - is showing signs of wear from all this liquidity issue.

Ellman highlighted JPMorgan's consumer credit exposure as a serious threat to profitability. "Consumer finance is a major, major problem potentially for JPMorgan," he said.

JPMorgan is among the biggest U.S. credit card issuers, and it also has growing auto loans and mortgage businesses. For the first quarter of the year, JPMorgan recorded $1.8 billion in income from credit cards. Its auto loan originations totaled $7.2 billion and its mortgage loan originations reached $47.1 billion, up 38 percent and 30 percent, respectively, on the same quarter the previous year.

Funny, the CEO James Dimon (right) leads teams that wrote in a January 2008 report (few months after subprime really hit the fan), that 2008 "will be nothing but net."

Full 312-page report here.

As expected, the market drops today on more negative financial news and a confidence shaking materialization of reality.

Kitco as of noon today Pacific Time - Gold is back at $910.30 while The Dow Industrial drops below 12,000 index.

I think it's fair to say, gold is definitely here to stay. Have a good weekend, see you back here on Monday.