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.
The market also rallied before the Depression.
A recession is borne out by statistics after the fact.
The reality of a recession is brought out by anecdotal evidence, during the fact.
And statistics can show whatever someone wishes it to show....especially since .gov has altered how things are measured from time before.
Also, their own economic policies which seek to ensure that Japan does what is best for Japan and the Japanese.
It is also not attempting to become a world’s largest cesspool for those who have no desire to work hard or value education.
There are international agreements for central banks to dump gold, and the Swiss were part of that. But yes, partly because they can't afford to let their currency get too overvalued WRT the euro. There's a huge amount of day-to-day trade into Germany and France and it would kill Swiss manufacturers and merchants to let the Franc get too high.
Dow 12k+
LOL!
see 228
Paulson speaking at 2:50pm....the market swings up.
The H-— with all this high finance stuff, I’m going prospecting for that there “Rhodium” stuff.
The rate cuts this time around have produced one day rallies, and his comments will do the same at best.
They’ve been lowering rates and/or pulling out the puppets, it seems, almost every Monday since Memorial Day........soon they’ll run out of bullets to rally anything.
oops....meant to say Martin Luther King Day....not Memorial Day.
I will Nic, right after I fall off this turnip truck. :)
As BB said in his paper, once rates get to zero, he will start printing FRNs and buying T-Bills. He won’t be able to announce this in public, so he’ll have to figure out some other way to notify the rally monkeys.
There are some great bargains now, and the buyers are beginning to come back but it's hard to say when all the pain will be wrung out. But when it is, better not be holding a lot of expensive gold. That bling will be blowing chunks.
That’s what my chart shows, the key word is “eventually”.
The gloom and doomers from last night are losing today, and sooner or later the doomers will have blown their wads.
I’m thinking about getting more gold. The only lasting result of Greenspan’s rate dive was to reawaken that sleeping giant.
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