Good morning

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The headlines:

  1. America announces QE3.

    Link: the bloomberg story.

    Wrote about it here.

  2. Someone called Krawcheck says “pay your people in bonds”.

    Link: I like it.

    I’m not really sure who she is – but I like what she’s saying.

    Currently, most companies reward their executives with stock options. And stock, well, stock does well when there’s growth. Basically, the higher you can push the price, the more you get. And given that higher prices generally come with riskier gambles on growth over value, every executive of any human inclination will be a little gung-ho with the aggressive growth story.

    But if you pay with bonds – well bonds are slightly a lot like the opposite. The higher the risk, the lower the price of the bonds – because the higher the risk, the higher the chance that the company won’t be able to pay you back.

    At least pay with both. Just, you know, to keep things in balance, and make sure that the executives have something to lose as well.

  3. JPM’s share price recovers.

    Link: we should have bought JPM shares.

    I want to pat myself on the back and say “called this a long time ago”, even though I said to sell JPM shares last week. Which I stand by.

    Here’s the share price graph for the last six months:

    May and June – I think that’s when I called it. *Self-congratulates*

    Last week I said “short the JPM” because the credit-derivative index position that Bruno Iksil sounded like a bet on short-term defaults happening rather than long-term defaults. The Fed’s QE, and the ECB’s QE, have bought time. Lots of time. Unless JPM has fully closed out, that position should continue to reverse against them.

    But this is a lot more guesswork. It’s much easier to look at a drop in share price and say “that’s just not reasonable” than it is to look at a recent increase and say “that’s just not sustainable”.

That’s all for now.

Have a good day.