Daily commentary: On Facebook’s IPO, JPMorgan’s losses, Spain’s bank run and Greece’s exit

As always, I have a lot of links on Monday. Three or four stories have dominated the news in each market for the past week. In the US, it is about either JPMorgan Chase’s escalating losses, Facebook’s IPO or the general aimlessness of the market. In Europe, the dual stories are Greece and Spain. In Greece, the talk is of an imminent exit from the eurozone, while in Spain the question revolves around Spanish bank insolvency. Other news outside of the G8 has been pushed to the side.

I have given my view on all of these topics in the past but the situation is evolving. In the JPMorgan Chase trading debacle, the losses are rumoured to be as high as $6 billion already. That’s a loss that could cost Jamie Dimon his job. Up until now, his position has looked unassailable. But as the losses start to mount, the press is starting to recast Dimon’s prior success as more about luck than previously thought. For me, the big story is not about Dimon but about the regulatory impact of the losses.

Facebook’s share price collapse is a bit surprising. I have had a working hypothesis for a while though that said Facebook would be able to get its deal off but that it would mark the top of the market, meaning the tech bubble would pop after indigestion from Facebook. So far, this seems to be the case. But we can see the topping pattern from multiple sides including Apple’s weakness despite a healthy beat last quarter and the recent overall market weakness. If you look at this from a macro point of view, it is beginning to look like the cyclical bull I believe it is – and that says we are in for major corrections back into bear territory as the economy rolls over. Personally, I’d like to believe the housing recovery story has enough legs to pull the rest of the economy along because the data are good, especially in the former bubble markets. There’s serious overshoot there. But my view is that this hinges on the policy response out of Washington and the looming fiscal cliff.

In Europe, I told you last week that Spain’s nationalisation plan won’t work as the banking system is insolvent. Definitely have a go at Michael Pettis’ piece which is more bearish than mine. He predicts Spain’s euro zone exit and laments Europe’s depressing prospects. I’ll have more to say on this later. For now, Greece is the country most in the spotlight. My view is that euro breakup talk is overdone and that the Europeans will give Greece another lifeline. But, of course, this is a completely political situation and I could easily be wrong. That said Pushback on the imminent Grexit meme is starting to build because more and more people recognize the economic and political hurdles for a Grexit are still pretty high – so high that Greece would most likely default and stay in the euro zone than leave.