This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stock Under $10 that he thinks could potentially double or triple in the next 6 to 12-months. See what he's trading today with a 14-day FREE pass.

Smartest Man in the Room Looks Dumb

NEW YORK (Real Money) --

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

-- Warren Buffett

I took a small long position in JPMorgan Chase (JPM) at $38.20 after the close of trading yesterday and after JPMorgan made its surprising announcement.

I weighed the impact of the hit to earnings and to perception and concluded that it is fairly unusual to be able to buy JPMorgan Chase's shares at only $4 over book value ($34 a share), especially in the face of an active $15 billion buyback.

I am not foolish enough to believe that I will be immediately rewarded in this trade, however, and I am putting the shares away as an investment.

Also, my position has been sized modestly for, as described below, the opportunities probably lie elsewhere in the financial sector. (And I did more aggressively buy Berkshire Hathaway (BRK.A)/ (BRK.B) and American International Group (AIG) last night.)

While I have not yet read bank analysts' reactions to the news, here are my brief observations on JPMorgan Chase's blunder.

  • Jamie Dimon screwed up. His eye was clearly off the ball. JPMorgan Chase has been a champion against reform, seeing it as a detriment to banking profitability and credit availability. Dimon looks very stupid now. He is mortal, like us all.
  • I still don't have a clear vision of how the money was lost. I understand that selling credit default swaps on corporate debt was essentially going long debt. Was this a naked proprietary trade, or was there a short on the other side to be hedged (which doesn't make too much sense to me)? Or is JPMorgan Chase's management simply being deceptive or even lying? I don't know, and others might not (which speaks volumes!).
  • I view this as a one-off to JPMorgan Chase, so some opportunities might develop in peripheral financial stocks today (Berkshire AIG, Wells Fargo (WFC), etc.).
  • The optics of JPMorgan Chase's hedging loss underscores that the forces of financial reform initiatives will be unrelenting (maybe even from both sides of the political pew).
  • Limited broad-market impact, perversely, could mark a bottom as money goes elsewhere and away from banks.
  • Bank stocks already are at low P/E multiples, in part stemming from generally opaque financials (and the risk of revelations like last night). I see limited impact to the bank stock sector.
  • This cost to JPMorgan Chase will likely be less than $0.50 a share, not really impeding capital or reducing earnings power but hurting reputation. JPMorgan Chase's premium relative multiple will likely narrow.

At the time of publication, Kass and/or his funds were long JPM, BRK.B and AIG, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
DOW 16,424.85 +162.29 1.00%
S&P 500 1,862.31 +19.33 1.05%
NASDAQ 4,086.2250 +52.0640 1.29%

Our Tweets

Brokerage Partners

Top Rated Stocks Top Rated Funds Top Rated ETFs