Alasdair Macleod: All Roads In Europe Lead To Gold

This week we bring back Alasdair Macleod, publisher of Finance and economics.org, because, as he puts it "every horror that we discussed last time we spoke is coming about". Especially scary since our previous conversation with him was less than three weeks ago...

Today's interview continues building on his excellent synopsis from last month that detailed the origins of the Eurozone crisis. The fundamental shortcomings warned of at the Euro's creation in 1997, combined with the excessive sovereign debts run up since then, have finally expressed themselves at a scale too large to be contained any longer.

Today, Alasdair details in-depth the huge and serious challenges facing Greece and the major Eurozone countries, and the likely impacts of the fast-dwindling options left remaining.

He sees no happy ending to this story, no outcome in which serious pain and permanent behavior change can be avoided. And for those looking for shelter from the unfolding economic storm, he sees few options besides the precious metals (which he believes are severely under priced at the moment): 

Greece

The Greek situation is entirely predictable: when you force enormous pressures on an economy and try and raise taxes from the private sector -- a private sector which isn’t used to paying taxes because usually they find away around it -- you start cutting pensions, you start cutting this, cutting that, and the people revolt. They haven’t a clue what they are doing, but we get the revolt nonetheless. It looks like nobody there can form a government; and it looks like there will be another election probably in June. That won’t resolve anything unless by some miracle, some sense gets knocked into people’s heads.

 

The other thing, which nobody has mentioned, is that there are about 90 billion dollars in derivative contracts involved in the Greek economy. This is not just government, but also local governments and towns and cities and all the rest of it. The counterparties to this $90 billion must be getting a bit worried about that, I would think because that looks as if it will default.

 

The people who have been most active in getting these derivative contracts going over time have been people like Deutsche Bank, Goldman Sachs and I suppose JP Morgan -- so you can see the problems aren’t just limited to the government and some unfortunate Greek citizens who are caught in the middle of this.

 

We are looking at potentially up to ninety billion dollars worth of derivatives which one side of those transactions is going to default. One side: it is not a balanced figure is it? I don’t know that it is necessarily as bad as that, but it is a problem that needs to be dealt with, addressed and contained. I think what they have to do as much as possible, is to try to work for a sensible outcome in this, which probably will involve Greece leaving the Eurozone, but maybe obtaining help from the ECB to set up a currency board. The reason I say that is that I think for Greece to return to the drachma would be complete destruction. You would have a situation where people who owe money in Euros would still owe money in Euros. If the Greek government tried to change that by law, for starts, that could only apply to loans taken out in Euros in Greece; whereas a lot of these have been taken out in Euros elsewhere in the European Union. In any event, I think if they tried to do a law on this, it would be a retroactive, which would be open to legal challenge.

 

Meanwhile, if you have deposits in a Greek bank, you can be sure the Greek government would say we are going to re-designate those into New Drachmas, which would impoverish the depositors. When it comes to trade, I think everybody would just stay well clear. To go back to a New Drachma, I think is the most destructive path Greece can have. Now, they could do that on the basis that, if the European Union wanted to make an example of Greece, then this is a way in which they could just let them go hang. The importance of that would be that the situation for Greece should be so bad that no other member of the Eurozone would contemplate leaving the Eurozone. That is a possibility. But I think that is less likely than coming to terms in such a way to give Greece an exit. But if they do get an exit, again, they’ve got to have an exit in such a way that it hurts enough and anybody else who wants to take that exit would see, well it is actually probably more painful than staying where we are. It is a very difficult balance to achieve.

 

The people who will do this, I don’t believe are the politicians. It would have to be the sensible people in the ECB and perhaps some of the more backroom boys who could put together some sort of face-saving mechanism without this becoming too much of a political hot potato. It is very, very tricky, it really is, and quite honestly, the way political governance has been going in Europe, the chances of them getting some sort of orderly withdraw in the interest of continuing relationships, et cetera, I think are actually probably slim. That is what we are up against: this is not easy. There is no precedence for this at all and I know that lots and lots of people are saying it has got to return to the Drachma; I just think that a New Drachma would collapse almost immediately. I think that a currency board in the Euro is actually a more sensible result given where we are.  

France

France is a mess. They have outstanding debt of 1.3 Trillion Euros, something like that. Their debt/GDP is around about 85-90% going on a hundred quite rapidly. That is a very liquid and nasty situation. Unemployment is running close to ten percent.

 

It is almost impossible to employ anyone in France because the taxes are so high. Do you know the total tax that you pay as an employer, more than doubles the salary that you pay an individual? This is absolute craziness, but it is been like that in France forever and a day. The result is an awful lot of the market is black market.

 Spain & Italy

Spain is a worse situation. Government debt alone is just under a trillion. A trillion dollars equivalent, I should say, and that is a lot of money. That is a lot of money. Italy is over two trillion dollars. That really is a very, very big one, so this contagion must not be allowed to happen. 

Germany

Their economy is performing reasonably well, but it is not performing well because they are doing well for Europe; they are doing well because they are selling the most cars, machine tools and everything else to China, to Brazil, to Russia. Africa’s a great growth area. Europe, as far as Germany is concerned is dead. Which of course brings us on another question; that is why should Germany continue to support all these bust Europeans? There is a sort of conscience if you like about the last two world wars, but there is going to come a point where that wears pretty thin I would have thought. The trouble is that it is all very well, everyone turning around and saying, Germany has to help. Actually, what they are saying is that Germany’s citizens should give up their savings, their hard won savings to rescue a project, which is obviously dead or deceased. I think Germany really should bust out as soon as possible and I am sure that there are an increasing number of businessmen and bankers in Germany who are beginning to feel that way. 

On Gold

People who have gold or silver, I think actually had a very rough ride over the last couple of months. A lot of them are wondering what on Earth is going on because every time you get good news, gold seems to rally along with equities, but every time there’s bad news and gold actually should be giving you some protection, it goes down the swanny.

 

I think the problem there is that the whole system is run by people who went to college and were taught keynesian economics. In my day, when I first went into the stock market and I enjoyed that first bull market in gold when it went from thirty-five bucks to eight-fifty, the traders and investment managers were all practical people. They all cut their teeth, all learned their trade the hard way. Some of them had degrees in college, but generally it would have been something like classics or history or something like that. If they got a degree in economics, they probably would have left because they never would have understood it in those days. But now it has changed. Everybody who is employed has a degree and if they are anything to do with investment strategy, or the investment business, it is all economics degrees. So they have been brainwashed in the keynesian thing. This sort of neoclassical approach where gold is yesterday’s story, paper money is the future. They really do believe it and it is the opinions of these people who drive the markets in the short term.

The result is that gold and silver have become very, very seriously mispriced. I don’t think I have seen a stretch like this as I can remember; by stretch, the difference between perhaps where it should be. We must be careful not to tell the market what the price should be, but it is so underpriced at a time of enormous systemic stress, that I think when gold and silver snap back into a more sensible, logical valuation relationship with the markets, the move actually could be very, very sharp and quite large. If gold ran up through the $2,000 level very quickly, which I think is a very strong possibility, because it is been held down so much, that could bring other problems. The central banks, who might have sold gold and not told us about it will find that they are embarrassed. I think also the bullion banks in London who operate a fractional reserve system with gold, exactly the same way as to do with any paper currency, will be hurt very, very badly on the run. Any shorts in the futures market equally could be hurt very, very badly. We have a situation, where there is a potential for a huge run in gold and I personally wouldn’t be surprised to see it.  

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Russian Prime Minister Dmitry Medvedev said that if the U.S. invades the sovereignty of countries like Syria or Iran, it could lead to nuclear war.   And see this.

Russia and China have previously stated that an attack on Iran would be considered a direct threat to their national security.

And Iran and Syria have had a mutual defense pact for years. China and Russia might also defend Syria if it is attacked. So an attack on Syria could draw Iran into the war … followed by China and Russia.

The House approved a resolution Thursday preventing containment as a method of making sure that Iran does not obtain nuclear weapons, rejecting:

any policy that would rely on efforts to contain a nuclear weapons-capable Iran.

The next day, the House authorized the use of force against Iran to keep it from developing nukes.

Of course, while the Middle Eastern wars are mainly driven by oil (and perhaps protecting the dollar) – and while real conservatives are anti-war-  many in the U.S. military view the wars as a literal crusade, and see Islam itself as their mortal enemy.

For example, Wired reported last week:

The U.S. military taught its future leaders that a “total war” against the world’s 1.4 billion Muslims would be necessary to protect America from Islamic terrorists, according to documents obtained by Danger Room. Among the options considered for that conflict: using the lessons of “Hiroshima” to wipe out whole cities at once, targeting the “civilian population wherever necessary.”

If this sounds nuts, remember that millions of evangelical Christians want to start WWIII to speed the “second coming” … and atheist Neocons and Neolibs are using religion to rile them up to justify war against Iran.

And Professor Michel Chossudovsky documents that the U.S. is so enamored with nuclear weapons that it has authorized low-level field commanders to use them in the heat of battle in their sole discretion … without any approval from civilian leaders.

What could possibly go wrong?

May 19, 2012

This is an open letter in response to legislation recently passed in the US House of Representatives.  The behavior of Representative Harold Rogers, Chairman of the House Appropriations Committee, has made the front page of The New York Times, describing the $17,000 drip pan for Black Hawk helicopters that is earmarked for his district in Kentucky. 

The US House of Representatives, that includes his leadership, has passed Bill H.R. 5326.  This legislation decimates the statistical agencies that support the entire fabric of business investment, policy-making, and decision-making in the United States.

This action speaks volumes concerning the failure in Congressional accountability to review this legislation thoroughly and the abysmal behavior of Congressional leadership to permit it to pass.  This threatens the economic recovery and long-term growth trend of the United States. 

Below is a copy of a letter sent to the membership of the National Association for Business Economics (NABE).  It recounts the important elements of the legislation that must be opposed.  It also gives the appropriate number and reference in the US Senate version.  It contains sample text which citizens can use to send letters, emails or telephone calls when it comes to lobbying on their behalf. 

We are asking all who read our list serve to use this information, publicize it to others, and to stress to those in Congress that while we support some of their efforts in fiscal discipline, we do not support the emasculation of the agencies mentioned and the destruction of the statistical base that is essential to the ongoing business and investment climate in the United States.

I discussed this legislation with Bob Parker, Former Chief Statistician of the Bureau of Economic Analysis and the Government Accountability Office.  Bob is a good friend and colleague in several economist organizations where we are both active.  He is the most skilled professional I know.

Bob said that this legislation would "eliminate the economic census.  That means no more bench-marking of key indicators such as retail sales, service receipts, manufacturers shipments and orders, trade inventories, industrial production index, etc."

So dear reader, this legislation can really cost and hurt you. Please act now while damage can be mitigated.

Thank you.

Dear NABE Members and Friends:

Last week, we alerted you that the U.S. House of Representatives was considering an appropriations bill for Commerce, Justice, Science, and Related Agencies (H.R. 5326) that would drastically reduce funding for the Census Bureau and make participation in the American Community Survey voluntary. Thanks to the many NABE members and other data users who contacted their representatives to try to prevent this action. Regrettably, the legislation ultimately passed the House along party lines and was much more damaging than originally proposed. In its current form, H.R. 5326 will "devastate" the nation's economic statistics.

Specifically, the legislation will:

Terminate the American Community Survey;

Cancel the 2012 Economic Census; and

Halt development of cost-saving measures for the decennial census.

NEXT STEPS:

The Senate is expected to take up its own FY2013 Commerce, Justice, Science, and related agencies appropriations bill shortly. The Senate and House versions of the bill will then presumably be addressed by a conference committee comprised of members of both bodies.

HOW YOU CAN HELP:

Call or email your senators and representative today to tell them why you value the Economic Census and the American Community Survey. You can use this sample letter below:

Dear :

I am writing to express my concern over passage of H.R. 5326 by the U.S. House of Representatives, which would drastically cut funding for the U.S. Census Bureau and eliminate the Economic Census and the American Community Survey (ACS) - two of the most important tools we have for understanding the U.S. economy.

These programs are critically important to businesses, policymakers, and government agencies which use the data to make informed decisions and plan for the future. The increased uncertainty accompanying the loss of these data will most certainly result in more missed opportunities and waste for businesses and misallocation of resources by policymakers and government agencies. I urge you to ensure that the Census Bureau receives adequate funding to continue these vital programs.

How are Economic Census data used?

By the federal government as an input to calculate elements of key economic indicators, such as economic growth (GDP), prices, and productivity;

By retailers in evaluating whether to expand into new market geographies;

By economic development commissions in attracting new businesses to their areas; and

By companies to benchmark performance against industry averages

 How are ACS data used?

 By corporations to examine workforce characteristics of neighborhoods to determine optimal locations for new factories or sales centers;

By homebuilders looking to tailor new subdivisions to surrounding neighborhoods based on income, family size and existing home values; and

By municipal governments in planning to meet the educational, safety and housing needs of their citizens.

 The information we glean from the Economic Census and the ACS increases our understanding of current economic conditions and reduces uncertainty, allowing businesses and policymakers to make well-informed, efficient decisions. If we eliminate these programs, we are choosing to "fly blind," an alarming proposition in these challenging economic times. Again, I urge you that you vote to ensure adequate funding for both the ACS and the Economic Census.

Sincerely,

David R. Kotok, Chairman and Chief Investment Officer

From Citi:

Dear Angela, Dear Francois, Dear Mario

It seems that we are at a watershed once again. Judging by the movement we have seen in the credit market and in other risk assets over the last week, a chain of events that could lead to implosion has been unleashed, unless checked by policy action.

2012 started so well. The LTROs allayed market fears about a liquidity crisis in the European banking system and created additional demand for periphery sovereign debt during the first quarter.

However, we reckon it is now time to face the fact that the market does not believe Schäuble's firewall works. Most urgently, the market fears a Greek exit, or the reintroduction of capital controls to stem deposit outflows, might spark deposit flight from banks across a number of other countries. Playing down the importance of a Greek exit now is hardly reassuring, when Mario Draghi said the consequences for the Eurozone would be 'incalculable' only last December.

While the lack of an elected government in Greece complicates matters, the market sees a growing risk any new government will not be able to make the concessions demanded by the Troika quickly enough – or at all. Then what? If a hard line is to be taken on Greece, then we reckon the firewall must be reinforced at least with a pan-European deposit guarantee scheme of some form. The market knows that it is not easy to sell politically in Germany.

It doesn't help that the Spanish spread to Bunds has drifted to record levels again, while there is no clarity on where the funding necessary to  recapitalise the Spanish banking system will come from. It may be that LTRO-driven bank demand can sustain the auctions for now, but it seems likely to us that foreign investors will continue to pull out.

Add in the prospect of Moody's downgrading more banks across Europe and North America, the persistent negative bias in the economic data  relative to consensus, the upcoming Irish referendum, all the funding Italy still needs to do this year and the prospect of Portuguese PSI discussions in only a few months – and it is small wonder that market confidence is breaking down.

Through the LTROs and extremely low interest rates policymakers have ensured that financial markets are flush with cash. We don't recall a time where the liquidity situation and the technical position of the credit market has been much stronger than now. But that isn't enough. Quite simply, the uncertainty is killing any incentive to take risk. What goes in financial markets generally goes in the wider economy too. Companies are flush with cash, but we struggle to see them investing – especially in the countries where investment is sorely needed – while there is no visibility on the Euro project. Meanwhile, things grind to a halt.

We understand the political constraints key policymakers operate under. We know that many backbenchers and ECB board members are not fully onside. We can see in the election results and the opinion polls that a large part of the electorates are not onside either. There seems to be a dangerous perception in many places that enough has been done already.

However, don't be fooled by the apparent resilience of many corporate bonds (and equities). Aside from the sheer amount of cash funds have been left with, it is only the perception that the policy intervention will come eventually, triggering a very large short squeeze that is preventing more selling. Every day seems to bring headlines that challenge that perception. We could be close to the breaking point. Already in the last week there are clear signs in credit that the selloff is becoming more systemic. If you have come across our 'five phases of grief' framework – it appears we are moving straight from 'depression' back to 'anger'.

Until the gravity of the situation is made clear, until the self-reinforcing mechanisms that already seem to be in motion are understood, we don't see how the solutions, the answers, and the certainty that market craves can be brought to the table. Our impression is that markets will need to act as the proverbial 'attack dog', forcing the issue on the political agenda. This would not be the first time that markets have had to bark to get a credible policy response. We can't escape the sense that it is probably politically easier to let the markets run loose for the time being to make it apparent that further intervention is needed. But 1000bp on Crossover is much closer than you imagine.

Moreover, every bark comes with a loss of credibility – a loss of faith in the institutional capacity of the European Union to address the fundamental imbalances. Reining in the market eventually may end up taking a bigger effort than policymakers are bargaining for.

The market needs to know what policymakers are committed to and it needs to see actions that validate those commitments. Inaction is just a carte blanche for investors to sit on the sidelines and wait for things to deteriorate further.

Yours sincerely,

Citi Credit Strategy

First, a brief reminder of the perilous state of Chinese over expansion - i.e. "stock"

And here is how Chinese electricity consumption has been faring recently, or economic "flow"

Brazil is not doing that much hotter either...

But don't worry: the developed world isn't taking off anyewhere in a hurry soon - as the following chart showing business jet travel shows (until of course the chart goes parabolic at some point in the near future...)

What does this mean? That the world is slowing down everywhere. And since conventional theory means that much, much, more debt will soon be unleashed to restart growth, and since everyone already is full to the gills with debt, the only realistic buyers remain central banks. And they know it. Which, incidentally, is why the market is tumbling: after all, as we have been claiming all along, there must be some pretext for global coordinated QE. Well, another 10-15% drop in the global capital "markets" will get us there in no time.

Looking at the sentiment picture, we are no where near a durable bottom that will lead to a sustainable price move. There are very few bears out there. Market bottoms occur when investors are bearish, and sustainable rallies start with short covering and with a lot more investors on the sidelines ready to chase prices higher. These conditions do not exist in any aspects of the data. Let's be very clear here. The market is very oversold, and I am sure a "dead cat" bounce is in the works. If your modus is to capture the next 2-3%, then by all means have at it. Beyond that, I don't think that we are there yet!

The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator is now neutral.

Figure 1. “Dumb Money”/ weekly

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: "Market-wide sentiment turned positive last week as buyers outnumbered sellers for just the second time this year (and first time during a high volume week). The number of buyers jumped nearly 63% week-over-week while the number of sellers fell more than -28% over the same period. Small and mid-caps from the Russell 2000 continued to be the main positive sentiment driver as sentiment within the S&P 500 was more mixed. The Financial, Technology, Industrial Goods and Consumer Discretionary sectors each showed buy biases. Activity remained rather limited within the Materials and Energy sectors, and, there were more neutral readings of sentiment in the Healthcare, Utilities and Consumer Staples arenas. Qualitatively and on a company-level, we're seeing much more actionable buying than actionable selling and we've been pleasantly surprised to see buying crop at companies coming off of well-received earnings announcements. "

Figure 2. InsiderScore “Entire Market” value/ weekly

Figure 3 is a weekly chart of the SP500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall. Currently, the value of the indicator is 69.07%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops. It should be noted that the market topped out in 2011 with this indicator between 70% and 71%.

Figure 3. Rydex Total Bull v. Total Bear/ weekly

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BIA Between the Lines: Risk? Forget About It: Jamie Dimon, Chairman & CEO, JPMorgan Chase & Co.

JPM’s European exposure is likely riskier than Mr. Dimon would like investors to believe.

Mr. Dimon is asked several questions about JPM’s exposure to Europe. While he provides and quantifies the company’s amount of exposure, his responses consistently reflect efforts to downplay the level of risk associated with that exposure, suggesting that the firm’s risk profile may be more aggressive than he would like to admit.

Specifically, when Mr. Dimon is asked what JPM’s exposure is to troubled nations, he answers it is about $15 billion net of collateral and ultimately acknowledges that the company could lose $5 billion. But Mr. Dimon is also quick to state that “we stress it,” “not because we’re taking a bet,” but they are “trying to manage exposure” in order to minimize concern about the level of risk associated with that exposure. This language, however, belies a sense that the company is taking a “bet” that they are “trying” to manage, suggesting that JPM may be taking on more risk than Mr. Dimon wants to admit. Further, Mr. Dimon states that “I’m not going to feel terrible” should the worst happen. This is likely a preemptive effort to downplay the severity of the financial impact should some countries default, suggesting that Mr. Dimon has concerns that losing money in Europe is more of a possibility than he would like investors to believe.

Further, when asked if it is possible to be completely sure that hedges with counterparties are truly effective, Mr. Dimon does not answer the question. He instead minimizes concern by explaining that “a lot” of the collateral is cash and that collateral that is not cash is not Italian or Spanish sovereign debt. These qualifications, however, suggest that there may be some portion of collateral backing these hedges may not be as effective as Mr. Dimon would like investors to believe.

More significantly, however, Mr. DImon emphasizes that “we know the exposure to every single counter party.” This statement is meant to assure investors that JPM is aware of their level of risk, but falls short of assuring that the level of risk is appropriate. Further, Mr. Dimon casually acknowledges that “yeah something could go wrong” but not “terribly wrong” in an effort to downplay the severity of both the level of risk, and the potential impact of default associated with JPM’s European exposure. This suggests that the potential for losses is more significant and tangible than he attempts to portray.

JPM may be increasing their European exposure more aggressively than implied.

When asked about the potential for buying assets and businesses from troubled European banks, Mr. Dimon begins his response by emphasizing, for the second time during the interview, that “First of all we really want Europe to recover.” While this statement is meant to be supportive of European banks, it also represents a potential “truth-in-the-lie” -- literally suggesting that JPM has a strong, specific interest in seeing the crisis resolved. This takes on more significance when Mr. Dimon’s acknowledges that JPM has purchased assets, but attempts to downplay the extent to which the company has done so by qualifying that there are “certain” assets and divisions, “some” that they have bought, “some” they have made bids on and did not get and “some” they are still evaluating. This effort to minimize JPM’s activity in seeking out and acquiring these assets raises questions about how much additional European exposure JPM has taken on in recent months and about the level of risk associated with that exposure.

Volcker rule may require JPM to significantly change their proprietary trading strategies and risk profile.

Mr. Dimon is asked if regulations will compel JPM to enter new businesses or cause them to exit others, Mr. Dimon tries to give the impression that JPM’s business lines and corporate structure will not change as a result of new regulations. However, his qualification that he doesn’t see “a lot” of change indicates he anticipates some change, and his emphasis that the “fundamental” jobs of a bank will remain the same suggest he likely anticipates more change than he implies. With this as a backdrop, Mr. Dimon’s response to a question about the Volcker rule is notable, particularly since the JPM’s proprietary trading function is in flux.

When asked more specifically about what the company will have to do when the Volcker rule is implemented and what the impact on the business will be, Mr. Dimon doesn’t fully address either question. Instead, he uses the opportunity to minimize the significance of, but also signal his concerns about, the impact of the rule on the business, a mixed message that indicates the consequences of this legislation are greater in magnitude than Mr. Dimon attempts to portray.

First, Mr. Dimon characterizes lower spreads as good for investors, as a natural byproduct of an efficient market and as nothing unusual. This is likely an attempt to minimize concern about the potential negative impact of lower spreads on the compensation in the trading business, but could also be an attempt to give the appearance of a balanced and fair position on the rule. Regardless, these statements signal that Mr. Dimon anticipates that implementing the rule will negatively impact traders’ incomes.

More significantly, Mr. Dimon then turns to complain about the government’s desire to regulate the level of risk associated with proprietary trading. His statement, “if you want to be a trader, you’re gonna have to have a lawyer and psychiatrist sitting next to you to determine your intent every time you did something,” is an attempt to cast such regulation as unduly burdensome, but is also reflective of an effort to discredit the rule by portraying it as ridiculous. This type of “attack” signals that the topic is a threat, suggesting that Mr. Dimon has significant concerns about the effects of the Volcker rule on JPM’s trading strategies. He also states that liquidity is good for investors, and tries to convince listeners that “unions, pensions, widows, retirees [and the] military” don’t want liquidity reduced in the market. By aligning himself with the  average American, Mr. Dimon is attempting to dismiss the need for regulation and create a “halo” around current trading practices, a psychological mindset that likely suggests he believes the level of risk taken to date may be higher than most observers would like to see. This effort to convince listeners that there is no need for regulatory oversight of proprietary trading suggests that Mr. Dimon has significant concerns that the Volcker rule could have a significant impact on the company’s trading strategies, operations and ultimately the risk profile of the business.