Fusion IQ CEO Barry Ritholtz told Yahoo! Finance’s Matt Nesto that he believed the unstable nature of JP Morgan’s $2 billion-plus made the stock an uncertain investment in the future.
Ritholtz said his firm loaded up on JP Morgan early in the year because it was the “best house in a not great neighbourhood.” Although he was happy with the stock’s rally earlier in the year, Ritholtz said he pared back on his JPM position when the stock fell after the bank disclosed its trading loss and now owns about 1% of the company.
“The question is, ‘Is this $2 bill loss going to be $3 billion, $4 billion, or $5 billion?’ I don’t know. The lesson we learn about cockroaches is that there’s never just one,” he said.
He added that the type of bets and risk the bank took on with exotic products such as derivatives made the industry hard to understand and invest in.
“The reason to own banks is that they used to be a safe, money making machine,” he said. “The old joke was ‘borrow at 3%, lend at 6%, be on the golf course at 4 o’clock.’ That’s how bankers lived. It was a boring, highly profitable business. And now, these banks seem to think they’re hedge funds.”
After the banks received the bailouts, there were “privatized gains and socialized losses,” Ritholtz said. “When you have capitalism without failure, that’s not capitalism… that doesn’t work. we have capitalism without failure in the banking system… we have to fix that.”
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