JP Morgan to Pay $1 Billion Fine for Spoofing. What Does That Mean for Markets?
JP Morgan Chase to pay $920 Million to Settle Trading Misconduct Allegation (CNN Business 2020)
If the market seems too good to be true, it’s probably because it is.
Certain asset classes (generally) have an inverse relationship with one another. If one goes up, the other typically goes down. For example, as stocks rise, gold / silver typically decline and vice versa.
Right now — all asset classes are basically inflated (stocks, real estate, gold / silver, and I think even treasury bonds).
This is largely because of the Federal Reserve pumping in liquidity into the market but also stretching their legal authority by taking on so much debt from otherwise healthy companies (as well as from companies that probably should be allowed to die).
Another possible explanation is market manipulation. We’ve seen this with stocks from bankrupt companies going up in spite of essentially being worthless (Ex: Hertz, etc).
Well now we know that at least some of these markets have been manipulated through spoofing. I thought it might be a few retail investors or perhaps a lone hedge fund guy here or there — but it turns out to be none other than JP Morgan which now has to be a $1 billion fine for spoofing in the Gold and Currency Market.
What’s surprising here is that JP Morgan is a relatively clean player compared to other folks. So that raises the question: if the acha bacha (“good kid”) got caught manipulating markets for the past 8 years — what about the less than stellar banks or other investment actors? There’s likely to be more scandals that will start coming out in the upcoming months.
What does that mean for markets?
1. In spite of being so close to an election, we still don’t have a congressional stimulus plan because all of the oxygen is being sucked into the Supreme Court nomination. We’re starting to see a larger layoff cycle as companies large and small run out of stimulus cash. Markets will start losing hope in a resolution and that may temper the growth we’ve seen recently.
2. The pandemic’s second wave has started — although it might not be as bad as the first one, it will likely result in more regulation of businesses and public spaces that may hinder economic growth.
3. If we start seeing more bad behavior from major financial players, that may spook the markets more.
To summarize, we are at the point in the roller coaster where we have slowly risen to the top and in a little bit, we’re about to go over the apex and start accelerating downward.
Buckle up folks. It’s about to get real — real fast.