Weekend Reading 5/19/2012

Here are some worthwhile reads for the weekend.

Inside J.P. Morgan’s Blunder
JP Morgan May Lose $5 Billion
In short, although it’s already top news material, J.P. Morgan had a multi-billion-dollar trading loss. The position still exists, so the exact losses are not yet known.

While the failure in that department was enormous, in terms of the bank as a whole, available information indicates that it is able to be absorbed and doesn’t put the bank at risk. It’s a loss of potentially several billion in comparison to around $19 billion in yearly income.

The bank handled the 2008 financial crisis better than most, and currently has a dividend yield of 3.58%. Is a potential $5 billion loss worth shaving nearly $50 billion from the market capitalization of the company? The market seems to think so. Perhaps value investors would not.

This market cap reduction in response to this loss seems primarily fueled by speculations on what this may mean, rather than based purely on the numbers. Is the bank not as well managed as was thought? Could this have political regulatory consequences? Could the total loss grow even larger? Will it affect the positions of more executives (some, such as the Chief Investment Officer, are already gone). Was the error disclosed quickly and honestly enough, legally speaking? The market appears to consider these questions, and the loss, to be worth almost $50 billion in market cap reduction, and counting.

Hormel Foods Analysis
D4L analyzed Hormel and concluded it was quantitatively a 5-star stock.

Clorox Analysis
Dividend Growth Investor analyzed Clorox, and concluded it was at an attractive price.

Dividend Income May 2012
The Passive Income Earner is on target to earn more than $6k in dividend income this year.

Dividend Income UPdate
My Own Advisor is in a similar situation, with almost $6k in dividend income for the year.

Enjoy your weekend.

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