Silver as an investment

FSN: How JPM’s “Hedge” Blew Up In One Easy Chart

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

from Zero Hedge

It seems every critical-to-stay-relevant talking head and blogger is trying to make sense of, and gain as much airtime discussing, how JPMorgan’s CIO unit could have been so ‘stupid’. The answer is – they weren’t. As we described first here and here – and has now been accepted by the mainstream media as fact (of course we are flattered by the mimicry) – the reason that the hedge got out of control was the massive amount of delta-hedging that Iksil had to do to manage the position as the Fed and ECB crushed the systemic risk out of the system and blew up the correlation assumptions in his models. This is complex to explain but, by way of example, we show a chart of the implied delta of a proxy for the JPM hedge. The lower the delta, the more and more index protection that needs to be sold to maintain a stable hedge – and as is clear, not only did the delta collapse (almost halving in 4 months) but it reached pre-crisis levels which would have been generally unthinkable in the risk scenarios – given the backdrop of reality. Whether Iksil arrogantly enjoyed ignored the cornering of the IG9 index market and the momentum and P&L he was relishing in is a different matter but to comprehend the forced selling protection pressure he was under, this chart is all you need to understand…

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