This is not to suggest that JPM is in deep trouble due to these trading losses. However, it does highlight the fact that massive trading losses can occur at almost any bank, regardless of any internal controls they may think they have. Can everyone still remember Nick Leeson, the “rogue trader”, who’s bad bets brought down Barings Bank in 1995. Meanwhile, all major banks are indicated lower this morning in sympathy with JPM. This weekend, I will post about the state of the overall market for May.

The stock market understood this immediately. Before the number came out at 830 am, futures were basically flat. After the number, futures fell, and then recovered somewhat before the opening at 930. However, the roof caved in after that, with the S & P closing down more than 22 points, and all three major indices (S & P, DJIA and NASDAQ) had their worst week in 2012. Meanwhile, it looks the European recession has claimed more victims, as it appears Sarkozy is out in France as voters appear ready to elect their first socialist premier in almost twenty years. Also in Greece it appears via exit polls that voters are rebelling against the parties that voted in favor of the bailout there. This follows previous government turnovers in Spain, Italy, England and Denmark. It is interesting that there is no real trend toward the left or the right; voters simply want a change in the hope that their situation will improve. How will all this affect the US markets this week? I predict lots of volatility.

In other news, Occupy Wall Street is planning global protests against whatever it is they are against today. For about two months, they were camped in Zuccotti Park, which is a few blocks north of the NYSE. However, since they were evicted last November 15, they have been holding random protests throughout the country. May Day was originally construed as a Pagan festival day, but it was been adopted as a holiday by labor unions in recent times.

Finally, in a humorous story out of the UK, Alexander and Thomas Hunter, whom are twins, are facing a lawsuit for over a million dollars. Apparently, these two allegedly told thousands of investors that they had invented a robot called “Marl” which used sophisticated analysis to make penny stock picks. According to the suit, there was no robot, and in fact, the twins were just touting stocks that they got paid for via stock promoters. Like PT Barnum once said, “there’s a sucker born every minute”.

We are now in the midst of earning season in the US. Mighty Apple will be reporting after the close on Tuesday. Apple, which has been one of major winners this year, had been up almost 300 points in the last five months. However, since peaking at 644 inter-day on April 10, the stock has been hit by profit taking to close today around 571. It is highly likely that Apple’s results will have a major effect on stock prices this week. Good luck to all.

In other news, although Facebook has still not set a firm date to go public, they were in the news yesterday with the purchase of a company called Instagram, which has an online photo sharing application. Although this company has no revenues and only thirteen employees, Facebook has agreed to purchase them for an astounding one billion dollars in cash and stock. Seems kind of high to me, but what do I know?

Finally, one worry for investors is that the VIX has really started to rise. As I write this around midday Tuesday, it has now cracked through the 20 level for the first time in over a month. Is this a sign that the 2012 rally is over or just profit taking? We will soon find out.

Although many investors believe that there are only two exchanges to trade equities on, namely the NYSE and NASADQ, the truth is that there are many others including various ECNs (electronic communication networks). One of the most prominent is called BATS (Better Alternative Trading System) based out of Kansas. BATS accounts for roughly 10-12% of all US equity trading. On Friday, BATS had its’ long awaited IPO. The deal was priced at 16, but the stock managed to collapse to just 4 cents in less than one second of trading! This was reminiscent of the so called “flash crash” last year, and another reminder of the inherent dangers of purely algorithmic trading. When prices on a security seem to get out of whack (either by rising or falling very quickly),traders will jump in to take advantage of the discrepancy. However, computers do not have this luxury, as they do not think independently. As we used to say in the early days, computers operate via GIGO (garbage in, garbage out). No one seems to know what caused this, although BATS later named a software glitch for the problem. All trades were eventually cancelled. However, this was a rather inauspicious debut for the first stock to be listed on the BATS exchange.

The second wild trading action happened in something called TVIX. TVIX is a rather esoteric trading vehicle that will mirror two times the daily movement in the volatility index. TVIX has already had some extreme moves in the past. For example, between August and October of last year, TVIX soared from 20 to over 100. Then, after drifting down to the 50-60 range for a while, it dropped below 20 in January of this year. However, this was just a prelude to the past two weeks of trading. As volatility has been dropping steadily this year, (as indicated by the VIX dropping from the low 20s to a 14.85 close on Friday), TVIX dropped below 14 on March 13. However, when Credit Suisse First Boston announced that they were suspending issuance of new shares, the stock moved to over 15. However, more importantly, the shares moved to a huge premium over the underlying volatility index. When CS First Boston then announced that they would re-open issuance, the shares plunged Thursday to 10.20, and then dropped another 30% to close at 7.16 on Friday. This just goes to show that traders should not trade stocks (actually, it’s an ETN) that they don’t understand.

This is an excerpt from the TVIX prospectus: “As explained in “Risk Factors” in this pricing supplement, because of the way in which the underlying Indices are calculated, the amount payable at maturity or upon redemption or acceleration is likely to be less than the initial principal amount of the ETNs, and you are likely to lose part or all of your initial investment. In almost any potential scenario the Closing Indicative Value (as defined below) of your ETNs is likely to be close to zero after 20 years and we do not intend or expect any investor to hold the ETNs from inception to maturity.”

Caveat Emptor!

Meanwhile, the price of gold has plunged recently. After hitting an all-time high of 1788 on the last day of February, Gold has dropped to 1643 today. This, despite the fact that many prominent pundits such as Kyle Bass and Jim Rogers believe gold should soar. I’m not saying the same thing will happen to Apple, but this does goes to show that even so called experts can be wrong!

Although many market commentators on CNBC (even some long term bullish ones) are calling for a pullback, it just isn’t happening. Every selloff has been met with a wave of buying. And buying. And buying.  Experience tells me that this is not normal. There are almost always selloffs, at least due to profit taking. Remember the VIX, which spent all those days over 30 the second half of last year? Well, it has come all the way down to a much more pedestrian 17 or so, a good sign that investors are not nearly as nervous as last year. Where does this leave us? Most investors have stayed out of this market, which is probably a bullish sign. However, I still believe that the longer we go without a meaningful correction, the worse that correction will be when it happens, which it most assuredly will. However, when that correction will be is anybody’s guess!

At the time, I stated that “Puda Coal had a small problem. PUDA owns an operating subsidiary called Shanxi Coal, which comprises the vast majority of the company’s business. Unbeknownst to the shareholders, the chairman of the company secretly transferred control to a Chinese investment trust and himself back in 2009. Somehow, the auditors never figured this out”.

The SEC launched an investigation. Today, they released their findings which charged two executives with fraud. Specifically, U.S. securities regulators on Wednesday charged two China-based Puda Coal executives with fraud, saying they led investors to invest in an empty shell company instead of an actual coal business.

The Securities and Exchange Commission’s civil suit, filed in a Manhattan federal court, alleges the company’s Chairman Ming Zhao and former CEO Liping Zhu tried to “steal and sell” Puda Coal’s coal mining company Shanxi Puda Coal Group, the company’s only source of revenue.

The complaint claims that Zhao transferred a controlling interest to himself, and then sold a substantial portion to a fund.