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Best trades from the Libor-rigging scandal

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I’ve got a trade I’m going to put into the Revolution Investing portfolio this week based in part on the idea that banks may finally get some justice.

You’ve no doubt read about the Libor rigging scandal. You’ve probably seen a lot of pundits and commentators try to brush it all aside like just another in a long litany of “well, the banks are messing with us, but we can’t risk the system” offenses. But, I’m thinking this deal is already hitting the banks in ways that nobody is realizing yet. And it’s likely to become even more of a catalyst for more loss recognition at every bank that’s playing in derivatives.

So let’s connect some dots here. There’s $800 trillion in derivative bets out there based on Libor. JPMorgan Chase JPM -1.77% bet hundreds of billions of the bank’s “excess funds” on corporate debt trends, which are based on Libor, using derivatives. Just as the Libor scandal comes to light, JPM suddenly has to take $2 billion, $4.4 billion, then $5.8 billion in total “recognized” losses on those bets.

Do you think that’s all a coincidence in timing? Or are these banks truly ticking time bombs of endless fraud, stamped by regulators but still clearly criminal whenever it’s brought to light?

And even the mainstream media are starting to explain how everything that JP Morgan and every other major bank is reporting are creative at best and more likely totally fictional.

And now there’s even mainstream media talk that the crimes committed in this Libor rigging scandal are so varied and vulgar and excessive that some executives might finally get charged with crimes.

A couple years ago before I quit TV, I got into a debate with my old pal, Neil Cavuto, because I wouldn’t let him get away with calling Jamie Dimon a capitalist. I explained that Jamie Dimon’s bank was insolvent and living on taxpayer largesse with trillions in hidden life support from the government and how I thought it was all a lie that JP Morgan “was forced to take the TARP bailout money.” He truly couldn’t believe what I was saying. I bet he’s starting to now.

Long-time readers know I’ve been waiting patiently for the right timing to start betting big against the banks. I think shorting the financials right here right now is probably a terrific bet. At worse, it’s an excellent hedge to whenever these endless financial crises that these banks created finally come home to roost.

Sign up for the Revolution Investing newsletter to read this week’s edition with much more on this topic and how to play it. Or sign up for (a service not affiliated with Marketwatch) to see exactly what trades I’m going to be doing from this analysis in my own portfolio.

Cody Willard writes Revolution Investing for MarketWatch and posts the trades from his personal account at At time of publication, Cody had no positions in the stocks mentioned in this article. Follow Cody on twitter at

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Cody Willard

Cody Willard

Founder, CEO & Chairman at Wall Street All-Stars, LLC
Cody Willard is the founder of Wall Street All-Stars and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and writes He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. He wrote a monthly investment column for The Financial Times as well as columns for and was a regular guest on CNBC’s Kudlow & Company from 2004 to 2006. Cody’s stock picking ideas and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.
Cody Willard
Cody Willard

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