Dimons and Carrots

Before briefly delving into today's key highlights, let us all take a moment to bid adieu to Wall Street "insider" Raj Rajarajaratnam. A billionaire, Rajaratman's  insider trading scheme benefited him to the tune of between 50 and 100 million dollars....mere peanuts (or carrots as the case may be) for the former head of Galleon. Today he was given the longest ever sentence for insider trading of 11 years.

Rajaratnam (Top) managed Galleon Management. Bugs Bunny (bottom) served as Rajaratnam's double during tense social times throughout the trial, and considered Rajaratnam "A friend who will be sorely missed".

A look at the chart below shows today's price action until now in the S&P 500. The market opened lower, largely due in part to earnings that were considered to be disappointing from JP Morgan. JPM reported earnings of $1.02/ share compared to street estimates of 97 cents. A slightly deeper look showed that this so called "beat" was not much to gloat about. JPM marked down the cost of its debt to market, a 1.9 billion plus for the firm. Investment banking and fixed income revenues fell well short of the previous year's. Jamie Dimon, the CEO the march on Wall Street tried to visit at home, said that increased lending to small and medium sized businesses was a positive for the economy going forward. Dimon's tone was reserved however, stating that shareholders could be comfortable knowing that JPM is being "extremely cautious while navigating through this challenging economic environment" (FT). 

Markets have been quite resilient following the morning dip lower following the JPM earnings. The Nasdaq, which has been the leading index climbed into positive territory. As I write (20 minutes pre market close) The S&P looks to be holding some support at 1200, following a failure to break through and hold yesterday's settlement (1207.25).

Gold futures trading was quite boring for the greater part of the day. Having made highs near 86 early morning, we failed to hold above 1683, a key number according to my technical friend. After a sell off from the 1670 following the stock market open, we spent the bulk of the day trading between 1660 and 1664. As the indices rallied so did gold, settling at 1668.5. Volatility continues to get smashed as we are seeing gradual contained moves as opposed to the precipitous price action that we have become accustomed to over the last few weeks. 

On a side note, the featured article on CNBC this afternoon discusses Paul Brodsky's assertion that if we were to return to the gold standard, gold prices could climb to over $10,000 per ounce. While I don't think we will get to that point, the logic behind achieving such a price actually makes sense. In a world where countries print their fiat currencies in excess to help pay off the exorbitant debt they have run off, there may come a point where faith in fiat currency is lost. At such a time, it will be necessary to turn to some other form of currency as a perceived store of value. Gold is a natural consideration for this role since it has been used as such before (The Gold Standard). While some may dismiss gold as useless, and argue that it doesn't serve any utilitarian function, bear in mind that it is viewed as a store of value in Eastern cultures.... India and China to name two of them. As such, while I agree with what Mark Fisher has said, that a commodity such as oil should appreciate the most in the case of declining confidence in fiat currency (in a baron wasteland, standing next to my old green Toyota Corolla, I'd rather have gasoline than gold), we cannot forget the cultural perceptions of gold in the countries driving growth for the foreseeable future. With a finite supply, printing gold with a promise that it will stimulate economic growth will not be possible. Certainly there will be more to discuss with regard to this and its potential global implications in the future.