Today (15/5/12) in the United States of America (USA) the huge investment bank JP Morgan Chase & Co are holding their Annual General Meeting (AGM) where the board of directors have to answer to shareholders. This comes just days after the bank lost in excess of USD2billion on a failed hedging strategy. A hedging strategy is one of those complex financial instruments that math genius' are paid millions to dream up. Basically though it's betting against yourself. For example if you were to invest USD1million on the price of gold going up you may also invest USD250,000 on the price of gold going down. That way if you're wrong and the price of gold goes down you'll limit your loses to USD750,000 and if you're right your profits will exceed USD250,000.
The reason why JP Morgan's hedging strategy failed is because the US government failed to engage China in a multi-lateral solution to the Eurozone crisis. As a result the two superpowers are likely to intervene on an ad-hoc, unilateral basis if at all. So the US is desperately trying to predict what China will do if Greece leaves the Eurozone or what China will do if the Europact gets torn up and the Eurozone banking system implodes. Personally I've got no idea what China will do but I am aware that if Eurozone system implodes the Gulf Sovereign Wealth Funds are well placed to swoop in and buy up the wreckage on the cheap. So I hope this isn't all the US have got because it's giving me nasty flashbacks to Britain circa 2007/8.
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