Posted on 03/17/2008 6:41:36 AM PDT by Lazamataz
To everyone who called me or emailed me over the weekend saying, "How could this happen? How could Bear Stearns go from $57 to $2 in two days?" I would offer the comment of one astute trader, who said, "When you are levered 30 times and have no access to finance it doesn't take a huge move on $400 billion in assets and $260 billion of debt to wipe out the equity."
Two questions dominate the Street this morning:
1) What will Bear Stearns' shareholders--specifically Bear employees--do? The $2 per share deal is subject to shareholder approval, and Bear employees--many of whom have significant parts of their life savings in Bear stock--are certainly stunned enough to create at least a minor protest over the price. Sandler O'Neill noted that "we do not believe it is incomprehensible that this deal may have bought Bear Stearns additional time to assess its situation which may lead shareholders to reject the offer."
2) What will happen to the other major brokers and banks, and what will the reaction of the credit markets be? With a book value at nearly $80 per share for Bear, the $2 price makes it tough on other brokers. A flight to firms with the strongest balance sheets seems obvious. Analysts were out this morning with various comments on who does have the strongest balance Goldman Sachs , for example, opined that Morgan Stanley and JP Morgan had the strongest balance sheet. Street seems to be treating it that way: Lehman down 28 percent pre-open, Merrill down 16 percent, Goldman and Morgan Stanley down down 8 percent, JP Morgan up.
Meredith Whitney, who has become an ax in this space through her coverage at Oppenheimer, put out a note this morning titled, "BSC Fire Sale to Cause Valuation Adjustment for All Financials: Banks at Risk," in which she argues that financial stocks have further downside of as much as 50% based upon 1990/1991 multiples of tangible book values. She says most banks are trading well above their price to book lows of the 1990-1991 cycle.
So, what will finally end all this turmoil? The Street is screaming that the government should directly or indirectly begin buying mortgage backed securities, and, to a lesser extent that a wider bailout program needs to be devised to stem home price depreciation.
MY son (for whatever reason, lol) wants to go to law school. He is going to study Political Economy if he goes there, which I think is a great field of study. They seem to really have a good liberal arts program, and while most people would say they are very conservative, I think in some ways they are more libertarian, which suits my son’s wiews.
Inprimus is a great vehicle for them to promote the school, I read it as well.
FOFLMAO! Buy Bear Stearns........it’s now a real deal!!!
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Shareholders are getting revved up to sue. It’s in the news
Lawyers are getting shareholders revved up to sue...
I jest, but not entirely . . . just make sure he knows that there is no such thing as "pre-law." Everything is "pre-law" if one knows how to read and write.
I just heard the Swiss Franc passed the US dollar for the first time in history
Yep; I posted an article on that very matter on this thread (post # 122).
So are you saying that before the Federal Reserve charter and before the relaxatioin of banking merger laws we never had boom/bust cycles?
I haven’t been watching that currency; but I was watching the yen....which is trading now about 95 yen to one. I remember back in the late 70’s it was about @220 or 230 to one dollar. An article last night said that the strength of the yen will negatively impact Japan.
It is pretty much a poly sci, economics major. I am trying to get mydaughter to change her major from mathchemistry to geology. Geology majors are getting 100k right out of school and with gold seeming to be the only thing people value right now, I don’t see that changing any time soon.
Yen is larger than Swiss Franc and more interesting especially since Swiss dropped the 40% gold backing for the Franc in 2000. I'll bet they regret that today
Yen is very healthy for obvious reasons. Japs run a very nice trade surplus and are much more economic nationalist than Americans. High yen is hurting them-- they always get through it
each 1 yen change to the dollar costs Toyota 350 million from what I heard. Ouch
Not just them, a lot of our credit is carry-trade from cheap yen at low rates.
Japan has certainly come a very long way from the devastation and havoc back in WWII. The earlier recovery was obviously helped by the US and others, but they have themselves, their policies, to thank for their country’s stability.
I doubt it. If they (the Swiss) don't keep on par with the euro, their exports and economy are toast.
Yeah...that’s what part of the the article focused on...the trade with US and the costs for Americans to buy Japanese.
What’s the current interest rate in Japan? 0.5%?
I doubt it. If they (the Swiss) don't keep on par with the euro, their exports and economy are toast.
Are you telling me the Swiss stopped backing the Franc with gold so Franc could move in sync with Euro?
All I know is currency with 40% gold backing would be in tremendous demand today. And the Franc had that backing for ages, dropped it in 2000
I think this was also addressed in the article....it was late last night and I didn't bookmark it. The commentary had to do with the Asian markets tanking, the strength of the yen, not seen since the late 90's, trade, and how the strength of the yen will negatively affect Japan....I'm certain, now that you bring it up....that credit was mentioned, but I cannot recall with any specificity what was said.
That coupled with their natural taste for hard work and their intelligence brought them to No. 2 economics wise.
The Dow is actually up at the moment. DAMN! WE’RE NOT GONNA DIE!
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