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.
It’s hard to know which items will spike in price, will probably be the perishables, the things that can’t stored up.
I was reading about wheat shortage and prices going up, partly because of the shortages, but also in part because of futures market/speculation....money to be made, you know.....so, now it costs more money to eat.
I’m ahocked! Shocked I tell you!
lol
Somehow, I don’t think you are! : )
My thoughts exactly ... of course, I realize it’s not simple, and everything is interconnected, so maybe we should bail out Wall Street in order to keep the whole game afloat ... but still...I just don’t want to bail out these speculators... no, profiteers ... no, crooks. Yeah, that’s it.
Now that I've taught you the difference between value at risk and notional value, don't you feel silly for asking this question?
In what post did you "teach" anything, toad? Cite one, just one where you can make a claim that your post TAUGHT anything?
I believe it is you who is putting words into my mouth. I simply asked if you were predicting a depression. I know that is really sticking your neck out. If you don’t want to answer I’ll assume you don’t have a clue.
Um, no. You made up, out of whole cloth, a statement concerning a particular idea, even adding the words “today” to it, and then attributed that IDEA to me.
Quite dishonest, actually.
These guys are going to be devastated. Their crash has been put off another day. The Asian markets are roaring.
You are the one who attributed any kind of crash for “today” to others. NO ONE on this thread, or any other thread in FR, said the market would crash TODAY, tomorrow, or by ANY OTHER DATE....except you. “Today” is from YOU.
I have a pretty good idea of the concept. But since virtually every derivative is unique...I think it would be arrogant, at least, to argue that I know them all.
My recollection of that era is closer to 300-to-1.
So many of you goldbug, protectionist, anti capitalist conspiracy buffs are like racing fans who go to the track just to see a spectacular wreck.
That’s a very good comparison.
Well, according to this, the late 70’s/early 80’s was a low of 210 (1977) and a high of 249 (1982). These were the years that I recall because I worked in the foreign exchange department of a major international bank during those particular years.
What does your instant comment now, "So many of you goldbug, protectionist, anti capitalist conspiracy buffs are like racing fans who go to the track just to see a spectacular wreck," have to do with YOUR dishonesty, misrepresentations of my statement? In what possible way can your latest ridiculous comment EXCUSE attribution of YOUR OWN ideas falsely onto me?
Looks like it was 296 as late as 1976.
Got any idea what caused the big drop in 1978? I can’t hardly imagine it being “strong dollar” in that era.
I’m trying to recall. I worked with Foreign Exchange traders then. One woman was responsible for buying and selling yen on futures, etc. (she also did this with a couple other currencies; other traders were assigned other major currencies). I remember more two particular panics in the trading room one day....one was with the yen, the other with the deutche mark (not related). I just cannot recall what the commotion was....it was best to stay away from the traders when crap was hitting the fan.....
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