Much the same way that prominent politicians can shift a national debate or bring an issue to the forefront of the public's mind, major players in the financial markets can use their bully pulpit to influence market movement.
Jamie Dimon, the well-known CEO of the massive bank JPMorgan Chase & Company, has never been shy about putting this tactic to use.
Dimon is hardly alone: Warren Buffett can scarcely avoid having this kind of effect on markets every time he opens his mouth, given that his firm Berkshire Hathaway is the majority stakeholder in many of the country's largest corporations. Moreover, activist investors like Carl Icahn and Bill Ackman are often at the center of overt campaigns to influence investor sentiment or alter corporate calculus, both of which can ultimately move share prices.
There is, of course, a method to this madness. You'll find that the end result in Mr. Dimon's case is usually a windfall for JPMorgan's bottom line—regardless of whether or not Dimon's public statements are necessarily honest or accurate.
Weighing In On Bitcoin
Dimon grabbed headlines last week with outspoken comments about the hottest new rising star in the world of finance, the cryptocurrency known as Bitcoin. He essentially labeled the cryptocoin a "fraud" and predicted it was in a bubble that would be worse than the infamous and historic Dutch tulip bulb craze during the 17th century.
This is a rather bold statement, and although it is not without its merits, the warnings from Dimon ring hollow given his clear conflict of interest in the matter. Dimon went on to say more:
"Do we have traders who trade it? If we had a trader who traded Bitcoin I’d fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous.
"The only good argument I’ve ever heard for it—and there is one good one—there may be a market for it, particularly if Bitcoin can keep itself to 21 million coins, if you were in Venezuela, or Ecuador, or North Korea. . . or if you were a drug dealer or a murderer, you are better off dealing in Bitcoin than U.S. dollars."
Aside from the likely exaggeration about firing any of the bank's traders who buy or sell Bitcoin, Dimon is right that criminals can use Bitcoin as a back-channel for transactions on the black market. Then again, in this way, Bitcoin is not especially different from cash.
Nonetheless, the markets give a lot of weight to Dimon's words. Bitcoin plunged 11% the trading session that followed. Then, more bad news: the People's Republic of China announced it was outlawing so-called ICOs—Initial Coin Offerings, or the cryptocoin equivalent of an Initial Public Offering (IPO) of company stock. This dealt a major blow to the cryptocurrency market in general. The Chinese government subsequently took the action a step farther, halting all trading of Bitcoin on its exchanges in an apparent attempt to shut down the enterprise altogether.
Not surprisingly, Bitcoin prices crashed following these two developments, losing $1,500 in a matter of six trading days. In fact, only days after reaching new highs above $5,000, the Bitcoin price had crashed below $3,000 per BTC.
It's also worth noting that JPMorgan was a major backer of a rival blockchain and cryptocurrency known as Ethereum. Surely that has nothing to do with the timbre of these "fraud" and "bubble" comments, right?
The Game Never Changes
swiss-image.ch/Photo Remy Steinegger
There are a number of reasons for Dimon to make these sort of public declarations, and most of them reveal duplicity rather than honesty. He routinely talks down an asset or sector in order to manipulate that market; by lowering asset prices, JPMorgan can then buy up Bitcoin (whatever it is) at a cheaper price. JPMorgan and Goldman Sachs, perhaps the two most prominent Wall St banks, are notorious for providing public advice or analysis (such as through "analysts' notes") and then playing the opposite side of the market as that advice. They were fined for such behavior regarding advice given to individual clients following the financial crisis, but there's really nothing in the law to prevent investment banks from engaging in such dubious ethical behavior.
It's even widely known (in retrospect) that J.P. Morgan himself, the bank's founder, was engaged in these types of questionable pronouncements in order to sell securities at inflated values. (See the political cartoon above.) Maybe the prime example of this duplicitous dynamic from Dimon and his employer is in the silver market.
Since at least 2010 or thereabouts, it's been somewhat common knowledge (at least in the precious metals industry) that JPMorgan maintains a massive stake in the COMEX silver market. It then uses this leverage (i.e. controlling so many silver futures contacts) to manipulate prices. If done in sufficient size, a large sell order can drive prices significantly lower, and vice-versa.
The bank by no means actually holds all of this silver in physical form. Its cornering of the market relies upon the fact that physical delivery of the metal is virtually unheard of in futures trading. Instead, contracts are settled in cash or simply rolled over.
At any rate, this is yet another reminder to take any public statements by a bank or banker with a rather large grain of salt. Jamie Dimon and JPMorgan didn't get to where they are without knowing how the game outlined above works.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.