Jaime
Dimon is in trouble again! The embattled chairman and CEO of JP Morgan Chase
has been in the crossfire of budding allegations of questionable business
practices and on Tuesday, his firm announced that 8,000 jobs would be cut due
primarily to slowing mortgage lending. On top of that, the company is also
lowering its profitability target which sent shares south, closing down -1.72%
(NYSE : JPM). Year-to-date, shares are trailing -2.0% and things are not
looking good for the new year after posting a stellar performance for 2013.
What's with JP Morgan? If it's not the constant accusation that they're manipulating the silver market by running a massive naked short position scheme, they've been outright blasted for its tidy work in the aluminum sector, amongst other improprieties real and suspected. This time around, it appears to be poor business planning by upper management that will have a severe effect on JP Morgan's workforce, with 6,000 full-time and contractor positions within their home loans division being ousted, while another 2,000 jobs from its branch and credit card network will get the axe. At the same time, we should note that the bank expects to add 3,000 new jobs in its control function, including areas like compliance, this according to a Reuters report.
The report goes on to state, " The newly announced job cuts in mortgage banking raise the total number of mortgage cuts the company originally called for by year-end 2014 to 17,000. Many big banks, including Wells Fargo & Co (WFC) and Bank of America Corp (BAC), have been laying off mortgage workers as higher interest rates in the second half of 2013 made refinancing less attractive to homeowners." (JPMorgan to cut 8,000 jobs, lowers 2014 profit target ; David Henry and Peter Rudegeair ; Reuters.) Exacerbating the bearish sentiment are forecasts predicting further weakness in the housing market. Mortgage banking Chief Executive Kevin Watters said at the announcement that the pretax income of JPMorgan's mortgage production business would be negative in 2014.
No kidding?
Unfortunately, JP Morgan and its ilk failed to account for trends in a bifurcated market that should have been very obvious to anyone with any knowledge of basic analytics : the revenue stream was simply non-existent.
What's with JP Morgan? If it's not the constant accusation that they're manipulating the silver market by running a massive naked short position scheme, they've been outright blasted for its tidy work in the aluminum sector, amongst other improprieties real and suspected. This time around, it appears to be poor business planning by upper management that will have a severe effect on JP Morgan's workforce, with 6,000 full-time and contractor positions within their home loans division being ousted, while another 2,000 jobs from its branch and credit card network will get the axe. At the same time, we should note that the bank expects to add 3,000 new jobs in its control function, including areas like compliance, this according to a Reuters report.
The report goes on to state, " The newly announced job cuts in mortgage banking raise the total number of mortgage cuts the company originally called for by year-end 2014 to 17,000. Many big banks, including Wells Fargo & Co (WFC) and Bank of America Corp (BAC), have been laying off mortgage workers as higher interest rates in the second half of 2013 made refinancing less attractive to homeowners." (JPMorgan to cut 8,000 jobs, lowers 2014 profit target ; David Henry and Peter Rudegeair ; Reuters.) Exacerbating the bearish sentiment are forecasts predicting further weakness in the housing market. Mortgage banking Chief Executive Kevin Watters said at the announcement that the pretax income of JPMorgan's mortgage production business would be negative in 2014.
No kidding?
Unfortunately, JP Morgan and its ilk failed to account for trends in a bifurcated market that should have been very obvious to anyone with any knowledge of basic analytics : the revenue stream was simply non-existent.
Nothing arouses
more frustration than white collar executives who are paid to emote but are
clearly not being paid to think. According to the U.S. Department of Housing
and Urban Development, sales of single-family homes, townhomes, condominiums
and co-ops went up 13% in the third quarter of 2013 against the same time frame
in 2012. However, two categories went negative : purchases of new single-family
homes and first-time buyers.
Of the two, the most significant is the first-time buyer category and not just for its decidedly bearish -12.50% sub-performance. Unlike sales metrics of other industries, real estate is far more complicated than a mere "anything for the numbers" approach and is thus subject to immense political distortion. You've heard of lies, damned lies, and statistics? Welcome to lies, damned lies, and real estate!
The nature of the transaction, or the financial motives behind the buyer and seller of a property, weighs much more heavily than the mere fact that the transaction occurred. It's not unlike the open interest indicator of a commodities or options contract, where the indicator is a total measurement of contracts that are not closed or delivered for a particular day.
In commodities futures trading, each contract always involves a buyer and a seller. When a buyer buys a contract, he is said to be long the position, while the seller initiates a short position. Open interest goes up by one unit when this transaction occurs, but goes down by one unit when the buyer and seller liquidates the contract in question. However, open interest remains the same if a third party merely assumes the position of either buyer or seller for the original contract. Even though volume will increase because there is a transaction occurring on one side of the table, since the transaction is not off-setting, open interest will remain the same. Just like when someone finds another person to replace the lease on a car loan that has become unaffordable, a one-sided transaction does not affect the quantity of the contract itself. In other words, just because a transfer occurred between one lessee to another does not mean that a new car magically appeared : the name of the lessee changes, but not the car itself.
Similarly, with real estate, though the number of purchases (volume) may be going up, the number of purchasers (open interest) is going down. The significant decline in first-time buyers tells us that younger people are effectively priced out of the real estate market, thus denying the entrance of fresh blood, while the sales that are occurring are transacted between older, more established individuals. In essence, we are seeing deflation in a key growth demographic while wealth is being further shifted towards the affluent.
The steady atrophy of the American middle-class was evident from the very beginning and only required some basic research skills to comprehend. These skills could have saved JP Morgan billions of dollars, yet their management team erroneously depended upon stale strategies to advance a business plan that was doomed for failure.
This is why I created JYE Financial : to promote fresh ideas and solutions for a new economic paradigm. We can look at any company in any industry and pinpoint exactly where inefficiencies are located, implementing innovative solutions rather than merely patching things over with commoditized or reactionary answers. Best of all, our services cannot be beat on price nor quality. Contact us today for all of your consulting needs!
Of the two, the most significant is the first-time buyer category and not just for its decidedly bearish -12.50% sub-performance. Unlike sales metrics of other industries, real estate is far more complicated than a mere "anything for the numbers" approach and is thus subject to immense political distortion. You've heard of lies, damned lies, and statistics? Welcome to lies, damned lies, and real estate!
The nature of the transaction, or the financial motives behind the buyer and seller of a property, weighs much more heavily than the mere fact that the transaction occurred. It's not unlike the open interest indicator of a commodities or options contract, where the indicator is a total measurement of contracts that are not closed or delivered for a particular day.
In commodities futures trading, each contract always involves a buyer and a seller. When a buyer buys a contract, he is said to be long the position, while the seller initiates a short position. Open interest goes up by one unit when this transaction occurs, but goes down by one unit when the buyer and seller liquidates the contract in question. However, open interest remains the same if a third party merely assumes the position of either buyer or seller for the original contract. Even though volume will increase because there is a transaction occurring on one side of the table, since the transaction is not off-setting, open interest will remain the same. Just like when someone finds another person to replace the lease on a car loan that has become unaffordable, a one-sided transaction does not affect the quantity of the contract itself. In other words, just because a transfer occurred between one lessee to another does not mean that a new car magically appeared : the name of the lessee changes, but not the car itself.
Similarly, with real estate, though the number of purchases (volume) may be going up, the number of purchasers (open interest) is going down. The significant decline in first-time buyers tells us that younger people are effectively priced out of the real estate market, thus denying the entrance of fresh blood, while the sales that are occurring are transacted between older, more established individuals. In essence, we are seeing deflation in a key growth demographic while wealth is being further shifted towards the affluent.
The steady atrophy of the American middle-class was evident from the very beginning and only required some basic research skills to comprehend. These skills could have saved JP Morgan billions of dollars, yet their management team erroneously depended upon stale strategies to advance a business plan that was doomed for failure.
This is why I created JYE Financial : to promote fresh ideas and solutions for a new economic paradigm. We can look at any company in any industry and pinpoint exactly where inefficiencies are located, implementing innovative solutions rather than merely patching things over with commoditized or reactionary answers. Best of all, our services cannot be beat on price nor quality. Contact us today for all of your consulting needs!
