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.
fascinating post!
I don’t why, but I shrugged when I read your post.;)
Posts like that make me "shrug"...
I had a big lawn when I lived in the country. I’m not really sure how much you save mowing your own lawn, depending of course on how much money you make. If you spend $200 to $300 on a mower, trimming tools, etc., and take three hours to mow, trim etc., it can get expensive. If your yard is big enough to need a riding mower, it can run over $1,000 for a mower easily, and you have to have a place to store everything.
Thank you! I think it will be a while before Happy Days come back, truly.
The reason I have been happy with Jones is they have local ofices with Financial Freaks who are really into it, and who will come to the house, as opposed to big centralized places where I was expected to "Make an appointment" and sit there cringing like a helpless little toad with my hat in my hand. Because the planner is local I "Know where his kids go to school", though we gentlemen would never discuss such a thing.
But if he makes bad calls and ruins me, he WILL face me at the Welfare Office or the Surplus Food Outlet! :-)
On a serious note, though, there does seem to be little accountability for mismanagement. One company backed fund I was in years ago hired somebody's relative for a manager. At the time, we Little People could only change our mix a week after the end of Quarter, so our money was trapped and all we could do is see it go down in flames. I was one of the lucky ones; I only lost $36,000.
If I ever have a job as Boiler Room Foreman in Hell, I shall be playing with this individual.... :-)
True, equity prices were insane and a lot of myths were floating around about e-business like you say. But Greenspan defeated any attempts at market corrections both with rate cuts and inane comments about productivity and new economies. It is not really different from mortgaging a house to buy a tulip bulb, although the credit was expensive then, the tulip bubble was correspondingly higher.
TY
The agent(?) made some suggestions while she was alive. But she was 92 years old and generally liked keeping things the way they were.
(She did sell her Sears stock at his suggestion a few years ago-- a hard thing to do, since my family had many close connections with Sears in the past).
OK, maybe it’s $2 or $3 to mow the lawn, “amortizing the investment”. Still a far sight cheaper than $50, week after week.
And I was intentionally ignoring the opportunity cost.
Anyone who worries about the opportunity cost shouldn’t worry about the $50 to hire someone else.
Nothing short lived about the run up at all.
No more likely than that the inventory ballooned when they vacated their homes to go back to their families. People, our neighbors, are the gift of God and the wealth of nations. In people are found economies of scale and the light work of many hands. We should be as for (i.e. greatly increased) legal immigration as we are against illegal immigration. But we are not and we are fools for it.
Proverbs 14:28
In the multitude of people is the king's honour: but in the want of people is the destruction of the prince.
Run for your life...!!!
In 1999 it was trading at about 2,000 and within 16 months it was over 5,000. By the end if 2000 it was under 3,000 and falling fast.
Depends on how you are going to groom "said" lawn?
Depends on the size of your gas eating mower?
I give up.............
Very true, one is losing money to the unholy alliance of the government and the gambling cartels...
and the other is losing money to Casinos, but you get free drinks...
“Immigrants hit hard by US slowdown, subprime crisis”
http://www.money-wise.org/articles/immigrants_hit_hard_by_us_slowdown_subprime_crisis
Excerpt:
“And almost half of the mortgage loans in the hands of Hispanics are subprime, making them especially vulnerable to the housing downturn. “Economic conditions are deteriorating and many immigrants now can’t work those extra hours or find that second job to keep up with their mortgage payments,” said Aracely Panameno at the Center for Responsive Lending (CRL) research policy group.”
Worst case, for 99% of the residential lawns in the country, a lot less than $50 cited originally in the neighborhood of Post 42.
There is nothing like $750 trillion at risk. Do you understand what a derivative is?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.