Whales and Market Cornering Attempts

Courtesy of Russ Winter of Winter Watch at Wall Street Examiner

“You have to dance while the music is playing”- Chuck Prince, Citigroup mucky muck, shortly before 2008 crisis

Of late Zero Hedge has been mentioning the presence of one large JP Morgan trader nicknamed the whale (Bruno Iksil). Tuesday ZH broached a question I myself have been wondering, is there a large whale trader (or traders) price fixing the markets, or at least key inter-related markets. There certainly is precedent (LTCM for example) for large traders or speculators to get greatly overexposed, but now I am taking about LTCM multiplied 100-fold. That would have the effect of temporarily price fixing in a thin market.

It is not so far fetched or loony fringe as you might think, when you look a the extremely low volume and narrow market participation. And money managers, at least the big ones, are frequently stooges of the sistema and TBTFs, or feel they can’t stray far from the conventional wisdom, no matter how absurd. Nor is it so far fetched when one sees that five too-big-to-fail banks: JPM, WFC, BAC, C, and GS now have assets (mostly fictitious) equal to 56% of GDP, up from 44% during the financial crisis. Add the City of London banksters and Deutsche Bank and you have your usual suspects.

Harkening back to the last crisis where one set of banksters fed on Lehman and Bear Stearns, don’t think for a minute they are in it all together either. Given the lopsided presence that these entities have in financial markets, what would be illogical about assuming that they may also be horribly offside on some enormous crazy ass trades. One could call it manipulation, or just a extremely risky behavior. Or as plausible is that they are trapped into these bloated positions, and are trying to keep a sinking ship afloat via manipulation. I think they are swimming against the tide.

Market history is full of similar examples on a smaller scale, and is also full of examples of poor risk management controls. Or certain assets (such as US Treasuries or German Bunds), may be classified low risk, when the reality is very different. The story about derivatives has been around for awhile, and most have fallen asleep of late on that risk as well, but the truth is that the TBTFs are further gorged, well described here.

For additional analysis on many topics, including trading ideas, subscribe to Russ Winter’s Actionable – risk free for 30 days. Click here for more information.