Search
Saturday Sep 6 2008
All times are London time
All times are London time
The 6am cut - Alphaville by email
Most Popular Posts
- Further reading
- What killed the Ospraie?
- Draaisma: "We're in the dull phase"
- Further reading
- Further reading
- Cheap or spicy? - the polarisation in asset management
- Bank run
- Market "capitulation"
- Fear not, City of London
- The Chinese don't like Frannie...
- Show more...
- Show less...
Blogs we're reading
- 1440 Wall Street
- Abnormal Returns
- Alea
- All About Alpha
- Arbitrage View
- Bespoke Investment Group
- Big Picture
- Brad Setser: Follow the money
- Bronte Capital
- Calculated Risk
- Capital Chronicle
- Capitalist Resistance
- Credit Writedowns
- Crossing Wall Street
- Deal Journal
- Dealbook
- Dealbreaker
- Deus Ex Macchiato
- Felix Salmon
- Financial Armageddon
- Financial Crookery
- Fintag
- Free Exchange
- Infectious Greed
- Information Arbritrage
- Intelligent Mergers
- Interactive Investor
- Jeff Matthews
- Marketbeat
- Naked Capitalism
- Naked Shorts
- Nouriel Roubini
- Paul Wilmott
- Practical Risk Management
- Random Roger
- Reuters DealZone
- Robert Peston
- Short Stories
- Sudden Debt
- The Aleph blog
- The Epicurean Dealmaker
- The Oil Drum
- The price of everything
- Ultimi Barbarorum
- Wallstrip
Classified Jobs
- Senior Manager - Finance Transformation
- Recruiter: Accountancy/Consultancy Firm
Site Navigation
Principal content
Abert edwards AllianceBernstein allianz altria atticus babcock & brown bank of england barclays bill gross bill thompson blackstone british energy CALSTRS carlyle china development bank china merchants bank China Netcom commerzbank corus covered bonds cpdo Dollar Dresdner Bank ecb edf informa invesco Lehman Brothers M&G mohamed el-erian Moodys natixis Ospraie pimco providence RAB rbs rouble russia Spinco Tata Group tata steel telefonica UST Washington Mutual Wing Lung Bank
Blogging Bear: Things you can buy for $2
The early action from overseas markets and trading in US stock futures suggests investors are worried about more victims of the credit crunch that finally claimed Bear Stearns over the weekend, notes David Gaffen on WSJ’s MarketBeat. Dow futures are indicated down 190 points in overnight trading, and Asian markets were hit hard, along with the dollar, in early trading overseas.
“It could restore some level of confidence in the credit markets,” writes Peter Cohan on Bloggingstocks.com. “Alternatively, it might just be a temporary bright spot in a very gloomy stretch of financial weather.”
Writing on Conglomerate, Gordon Smith notes reports that the Fed wanted Bear Stearns to avoid a “bankruptcy filing that could have sent shock waves through the markets”.
“Perhaps this purchase by JPMorgan will provide some assurance to the markets, but based on the trading in Asia at this hour, the shock waves are reverberating”.
Asian stocks were at near eight-month lows on Monday, reports Reuters, and European stocks seemed set to follow them down after JPMorgan Chase said it would buy Bear Stearns for a mere $2 a share, “a veritable liquidation of the firm”, in Gaffen’s words, in part with capital provided by the Federal Reserve. In addition, the Fed lowered its discount lending rate 25bp to 3.25 per cent.The Fed has to keep Bear Stearns assets from bankruptcy and thus marked to market, “because any price set for any of these assets will suggest how another $2-4 trillion nominally valued securities is likely priced,” writes John Wiley Spiers, on his How Business Happens blog. “So the Fed forks over another $30 billion so JPMorgan can pretend to buy Bear Stearns.”
You aren’t mis-reading, says Dennis Berman on Deal Journal: Bear is worth $2 PER SHARE. This is what they call on the Street “going donuts”, he notes. “But there is nothing sweet about the thousands of employees who have lost much of their life savings and most likely their jobs, too”.
Fintag, in fighting-fit verbal form on Monday, notes that the “rooster is roosting”.Events are happening quickly. Having raised our concerns about Bear Stearns since last August, we were treated once more to “its all fine” and as predicted “we are screwed” within the space of 4 days. It took Citi 10 weeks to admit it had lied.
Fintag, in fighting-fit verbal form on Monday, notes that the “rooster is roosting”.Events are happening quickly. Having raised our concerns about Bear Stearns since last August, we were treated once more to “its all fine” and as predicted “we are screwed” within the space of 4 days. It took Citi 10 weeks to admit it had lied.
This is the problem. Nobody knows how bad it really is. I am scared and so should you be. Although Bear have been the butt of many an unfunny joke, I never thought this would happen…Let us hope that Lehman, Citi and maybe AIG can avoid this very serious market event
Still, it adds, unlike the UK’s Northern Rock debacle, “swift action was taken. Bernanke did something right for once”.
Much of the media seems to think of this as an isolated Financial problem. This is what they thought in 1929 and poverty and unhappiness for millions kicked in during the 1930s
Meanwhile, the Disciplined Investor says that the “horrifying news” of the JPMorgan-Bear deal evokes thoughts about the (former) masters of the lip-sync world, Milli Vanilli.
Remember them? Rob and Fab were the gorgeous singing duo who had a hypnotic effect on a global scale. When they sang, fans were awed. When they danced…well, actually let’s not go there. Where are they now?
Our trusted government and its agencies have now taken over as the Milli Vanilli of Finance. Who in the hell is calling the plays? Who is making these abhorrent decisions to hide information from the public and allowing for a multi-billion dollar company to to fail over a weekend? How are we going to have trust in the system if they pull a fast one like this? It is now more obvious than ever that we are in bad shape and the lack of either: 1) people in the know, knowing or 2) trust for the system, is going to hit hard.
Still, it concludes, over the next few days, “amazing trading opportunities will probably arise as rumors and speculations will run rampant”.
Back to Bloggingstocks, Donald McIntyre notes that the New York Fed’s separate move to create a lending facility for primary dealers - and allow credit to be collateralised by a broad range of investment-grade debt securities - may mean that the “Fed will be exchanging capital for paper worth much less than a dollar being currently held on bank balance sheet”.
“The moves by the [Fed] board are now a full bail-out and the only open question is how much money the agency will provide”.
Finally for a bit of humour, in an otherwise unfunny situation, we turn to longorshortcapital.com, which has come up with a cheeky list of “things you can buy for $2″ [we presume at current US peso prices]:
* 2 limes
* 1 organic avacado
* 15% of a drink at a bar
* A pound (sterling)
* A day’s worth of labor from a farmer in the Indian countryside
* Nothing at a strip club
* A payoff of that persistent newspaper boy who wants his $2
* 2.3 cheeseburgers from McDonald’s
* Medicine for an African child for a whole month
* Oh yeah and these guys… BEAR STEARNS
- Advertise with the FT
- Press enquiries
- Student offers
- FT Conferences
- FT Research Centre
- Corporate subscriptions
- FT Group
- Partner sites: Chinese FT.com
- Les Echos
- FT Deutschland
- Expansion
- © Copyright The Financial Times Ltd 2007. "FT" and "Financial Times" are trademarks of The Financial Times Ltd. Privacy policy
- Terms
VP, taken in principle, but notice that the loss of confidence was as I read, form the hedge funds . They can go and do business with the counter parties with strong balance sheets or in this case carry on with JP Morgan.
Agreed GC, if this is all that happens, then fine. But the clear implications are:
1. Who’s next? BS “went” in the end because of a loss of confidence in it, withdrawal of deposits, no one willing to lend to them. The market will be very keen to spot who’s next, to the point of causing it, and how many collapses can the market “bear”?
2. The interest rate cuts, the discount rate cuts, and pumping in half their available cash hasn’t saved the markets - so what can the Fed do next? If the answer is “nothing”, then where next for the financial system?
An investment bank, so called , has gone in a puff. It acted as a financial intermediary to speculators and was a hedge fund in effect in its own right and has collapsed because its balance sheet was stuffed with leveraged securities based on US mortgages ; themselves focused on the weakest areas in the US housing market.
So what . To be expected. Why are people surprised?
And there is good news. It was saved from liquidation and that should avoid adding to the fire sales.
T