Irony 101 Or How The Fed Blew Up JPMorgan's 'Hedge' In 22 Tweets
Many pixels have been 'spilled' trying to comprehend what exactly JPMorgan were up to, where they are now, and what the response will likely end up becoming. Our note from last week appears, given the mainstream media's 'similar' notes after it, to have struck a nerve with many as both sensible and fitting with the facts (and is well worth a read) but we have been asked again and again for a simplification. So here is our attempt, in 22 simple tweets (or sentences less than 140 characters in length) to describe what the smartest people in the room did and in possibly the most incredible irony ever, how the Fed (and the Central Banks of the world) were likely responsible for it all going pear-shaped for Bruno and Ina.
Of course we do not know exactly what positions were undertaken and what the mandate was for the CIO Office but our assumption is that they are 'smart people', had no positional constraint (i.e. any asset class, any instrument), and more than likely were human emotionally.
1) Post QE2, JPM's CIO group needed to hedge tail-risk of bank debt portfolio.
Credit risk was rising rapidly and had reached levels not seen since the crisis...as the real chance of tail events was creeping up fast...