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.
“You mean the federal government. Maybe the treasury department needs to stop getting their bureaucrats from Goldman Sachs and Dubai.”
You mean there’s a difference? /s
Well, fancy that.
Our present Sort of reminds me of the East India Trading Company policies on government.
Who, dear sir, is "they" and "these bastards"? We have to be careful here, and looking to blame "everyone" isn't terribly productive. More important, now that we're in this mess, what steps can and should be taken to control the damage and prevent a complete meltdown?
“How did it happen? Greed and Stupidity.”
Don’t forget government interference by demanding that banks find ways to give home loans to those who weren’t eligible for conventional mortgages.
Bear is essentially a single-line business. Unfortunately for the company, that business—mortgage-backed bonds—has been the center of the credit meltdown until recently."We've been telling clients since November that larger, more diversified financial-services firms that are well-capitalized are in a better position to weather this turmoil," says Tom Kersting, analyst who covers the major banks for Edward Jones & Co. in St. Louis, Mo. That statement probably rings true today even more than it did a few months ago, he adds.
Hey government, would you bail me out? It’s your fault that jobs went to women and minorities. Would you send me some money, huh?
PIMCO just purchased Thornburg paper. Thornburg was recently downgraded to ‘RD’ on Defaulted Reverse Repurchase Agreements. Just keep a eye on what Bill Gross is doing.
They're down about 17% with a 20 minute delay on ticker
Yup. They are as undiversified as Bear. That must be the red flag.
Yes. Sadly, it will MOSTLY be the little folks who trusted the “leadership” of these firms to be prudent stewards.
Many of the scoundrels who engineered these debacles will bail under their golden parachutes and reappear elsewhere to resume other fiat paper money scams.
From Rudyard Kipling, an excerpt from “The Gods of the Copybook Headings” :
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”
Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.
All those Freepers who thought having 20 million plus illegals cut their grass and wash their kids butts was great for the economy shouldn’t be upset when it was foreclosure on the illegals’ subprime mortgages that started the snowball down the hill.
Actions have consequences. Pretty soon a lot of the open-borderbots are going to be begging for those jobs the illegals were brought here to do.
That's the one thing that keeps America strong.
I have been with Jones for almost two years..rolled over my Fidelity 401(k). So far, so good..the gains have been good but they are slowing down, as are the dividends, and everyone is going to get hurt to some extent, but they have done well with me so far. I told them I wanted a risk averse mix, and this one is very diversified. I wasn't rich before, anyway...shrug..So no reason to be aggressive at this point.
Down about 21% now
Come on guys, Panic already!! Dump your shares so the Big Guys can snap 'em up at bargain rates err I mean so you can save the Republic.
Come on now, lock in those losses like good little sheeples!
(Do I really need the sarcasm tag on this one?)
Remember the ironically named Long Term Capital Management and what happened in 1998? Bunch of big daddy bond traders and ivy league egg heads joined up and wrote a formula for making billions in arbitraging markets without ANY risk. Their formula, they thought, so balanced the risk and liquidity of their portfolio that nothing could hurt them. They got so big, they influenced the investment patterns of other firms on the street. But they only took into account known risks. They hadn't planned on Russia defaulting on its debt and drastically devaluing the ruble. Took apart their whole house of cards. The entire street took a flight to quality. The fund that had been leveraged into the trillion dollar level got an offer from Buffet and a couple of big house to buy them for about $250million. They turned it down. Finally the Federal Reserve bailed them out.
They shouldn't bail them out again. Let the boys who played this dangerous game take the punishment. It's the only way people ever really learn the lesson that there is nothing that is guaranteed. Nothing.
***He said that there were a lot of older guys who had their entire 401(k) balance in company stock, who could no longer afford to retire.***
Sounds like me today. I hoped to be retired next year.
Stupidity and Arrogance are always the spawn of Greed.
Second, the ETHANOL subsidies are DESTROYING wheat because farmers get so much more for corn now that Congress wants us to use FOOD as FUEL!!!! IT"S INSANITY!!!
COntact CONGRESS!!!
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