JPMorgan Offers $10 Per Share for Bear
Submitted by
CalculatedRisk on Mon, 03/24/2008 - 7:05am (216 comments)
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Looks like JPM and the Federal reserve are desperate.
Per sources - BS is laying off people right now
The FED reminds me if a scared 18 year old soldier in the dark surrounded by enemies. Any sound they hear causes a machine gun blast in the direction of the sound.
This fiasco is an indicator to me that the financial bailout is going to end up costing taxpayers way more than it needs to.
Hooray, the FED gets to pay for Bear Stearn's losses! Justice is served!
Cramer says this is great and Americans are stupid (on CNBC)
There is no agreement as to the problrm yet, therefore the solutions will prove ineffective, except by random luck.
Another few months of bandages being applied.
So where are all the retractions of "It's not a bailout if it's only $2 a share?"
I think Bear should hold out for 10 Euros per share.
"The new agreement also calls for the Federal Reserve which helped broker the emergency deal to save Bear Stearns from failure to provide slightly less financing. JPMorgan will bear the first $1 billion of any losses linked to Bear Stearns assets being financed, while the central bank will put up the remaining $29 billion."
A little less exposure for you and me. Whoop-dee-friggin'-doo. Congress should bust this deal pronto. Does the Fed even have the legal authority to put taxpayer dollars at risk like this?
If a corporate board can simply issue new shares and give them to an entity like JPM why couldn't Microsoft's board vote to give themselves enough stock to have a 51% ownership. Then they could vote to take Microsoft private and own the whole thing.
Maybe its one of those fiduciary thingies.
The only real difference above would be the Fed's compliance on the deal. If that is all that there is, shouldn't there be some checks and balances, like a judge's ruling on this?
winjr,
I'm pretty sure the FED has been putting real dollars at risk for quite some time...so yes.
29 billion dollars. How is that not a scandal?
"So where are all the retractions of "It's not a bailout if it's only $2 a share?""
Why would anyone retract? It was not a bailout at $2.00 per share. It was an almost complete loss for shareholders at that price, and was not a bailout for shareholders at $2.00 per share.
That said, it is a small bailout for the shareholders at $10.00 per share. The question is, How greedy are the shareholders and will they try and hold out for more? JPM and the Federal Reserve are obviously desperate and if I was a shareholder, I would probably blackmail them for more. So far, it seems JPM, the Federal Reserve and the other IBs may have to pay anything in order to keep Bear Stearns' "assets" from being valued.
h
Menzie Chinn at EconBrowser:
Kicking the Can Down the Road
So one day the stock is worth $30, 3 days later its $2, 3 days later its $5, 7 days later its $10.
Fundamental analysis anybody ? This is just nuts.. And at $10, is Paulson going to go on TV and claim its not a bailout ?
Now, I'm in line for mine - the US$ and national debt(3trillion to 9 trillion depending on your accounting and rising) can go hang.
-K
"How is that not a scandal?"
Only in America!
Does the Fed even have the legal authority to put taxpayer dollars at risk like this?
"Give me control of a nation's money and I care not who makes it's laws."-- Mayer Amschel Bauer Rothschild
It isn't a bailout. It is blackmail.
No bailout??? The bondholers are feeling pretty go right now.
there are no taxpayers dollars at risk. the federal reserve has nothing to do with the federal goverment. the federal reserve is privately owned by a few major money center banks.
as another commentator said:
O yeah, did I mention Jas Jain was right ? Crooks are running the country; with incompetent fools as their figleaf.
-K
I find this utterly outrageous. Essentially the taxpayer is propping up the company long enough to allow the shareholders to escape with more cash.
"No bailout??? The bondholers are feeling pretty go right now."
True.
Just posted this on the last thread but thought I'd repost here:
On a totally different note just tried to short BSC and got this message:
Currently, there are no shares of BSC available for shorting. Please call your local branch.
Ha....
The risk for JPM has been nationalized, in which case JPM as competitive advantage with its rivals. The biggest rivals need to margin to death their smaller competitors, and demand the same nationalized debt-insurance...I'm not sure how this in any way encourages JPM to reduce leverage and risk.o.k. it doesn't, and it doesn't encourage them to deleverage...How will the fed guarentee that losses incured by JPM are actually Bear's losses? What's the standard? Aren't these losses fungible?
sk-
Some would say that the national debt is actually in excess of $50 trillion if you factor in unfunded liabilities. I am one of that some.
Update just got this now:
"You have requested to short 500 shares of BSC. Currently, there are only 20 shares available."
My message to elected officials (I use Congress.org)
"Why is the taxpayer bailing out Bear Stearns shareholders? Socializing the losses?
Do you work for the voters or your masters on Wall Street?"
bsc is trading at $12.30 - TIme to raise the price.
The final price will be over $50 per share or the company will survive and BSC will remain independent. As I said last week, this is only to buy time to unwind BSC bad trades and bring order back to the market.
"there are no taxpayers dollars at risk. the federal reserve has nothing to do with the federal goverment. the federal reserve is privately owned by a few major money center banks."
The Federal Reserve is privately owned, but it is completely false that the Federal reserve has nothing to do with the federal government or that taxpayer dollars are not at risk. Congress chartered the federal reserve and has the ability to change that charter. Every dollar the federal reserve credits into existence devalues every other taxpayer dollar presently in existence. While it is important to understand that the federal reserve is a private institution, it is also important to understand it's true connections to the federal government.
(OT) Here are the stocks I bought today, ABAX,ARD,BMRN,BRKR,EGLE,INCY.
Selected by a slightly-modified CANSLIM method, bought equal dollar-amounts of each stock.
Sebastia
Why didnt you buy before prices ran up?
Cramer says this is great and Americans are stupid (on CNBC).
If one is true, so is the other.
I hate it when I agree w/ Jas.
sk writes:
So one day the stock is worth $30, 3 days later its $2, 3 days later its $5, 7 days later its $10.
Techinical and Fundamental Analysis are out the window.
This market is now in complete control of a handful of people. The WSJ should be reporting on what they had for breakfast and how things are going with their wives and kids to get any real indication of where the market will be in the morning.
crispy&cole asked: "Why didn't you buy before prices ran up?"
I did, an SP500 Index fund in January. I'm adding to my long position.
S.
OT
But pay day loans with 800% APR on the rise as folks swing to them to help wih mortgage payments:
Housing Crisis Quicksand: 'Payday Loans' on Rise
- CNBC
Janet Hudson, 40, ran into pay day loans when she and her fiance broke up, leaving her with a young son and a $1,000 monthly mortgage payment. Short on cash, she took out three small pay day loans online totaling $900 but fell behind with her payments. Soon her monthly interest and fees totaled $800.
"It almost equaled my mortgage and I wasn't even touching the principal of the loans," said Hudson, who works as an administrative assistant.
After falling behind on her mortgage, Hudson asked Rochester, New York-based nonprofit Empire Justice Center for help. A lawyer at Empire, Rebecca Case-Grammatico, advised her to stop paying off the pay day loans because the loans were unsecured debt.
ades is right. for any of u going long banks, take note that there are NO shares left to short for DSL, FED, FHN, BKUNA and probably many more that i haven't bothered to check on.
Sebastian - I rarely agree with anything you say, but I do want to recognize your cojones for posting your buys today (in keeping with your promise last week to do so).
Why doesn't the Fed get an equity stake in JPM if it has to pay out $29BILLION?
Why doesn't the Fed get an equity stake for $29 billion?
cd
Interesting Times is right in that tech analysis is out the window. i agree wholeheartedly that stocks are in control of a small group of pigmen, probably IB's, that are taking FED money in the form of Treasuries to pump their own stock to prevent hits to Tier 1 capital and thus lessen reserve requirements on their mark to model crap.
not to mention squeezing as many shorts as possible. no chance they'll put it where it needs to be and that is in the credit mkts to undo the logjam there. not enough quick and easy profit.
i don't know but sticking to the fundamentals and looking to whats happening on Main St. has served me well on the short side since late 2006 and i haven't changed my view. the fact that the FED is continuing with same old strategies makes me think we are still in a bear mkt with further downside. we'll see.
Crispy&Cole writes:
Cramer says this is great and Americans are stupid (on CNBC)
Maybe Cramer is a schizophrenic who posts here as both Sebastian and Jas Jain?
How many chances do countrywide guys get to screw the country?
Business Week Online > File Not Found
ajw
i'd be careful listening to Seb. i think he's a paid shill on this site to pump stocks.
What's more, now their free Federal put only kicks in after the 1st $1 Billion loss. I have a lot more confidence in the Federal regulators now that I know they're perfidious indian-givers.
ajw said: "Sebastian - I rarely agree with anything you say, but I do want to recognize your cojones for posting your buys today (in keeping with your promise last week to do so)."
It's not machismo, believe me.
I'm just following the rules of a method that I've found to be worthwhile, i.e., after a good correction followed by an indication of broad-based accumulation, buy high-growth small-caps because that's where some of the best returns are going to be.
S.
I want to repeat my claim that the powers-that-be will never permit a sustained crash in equities prices, as per idoc's point about capital requirements.
On the other hand, given the economic circumstances, I doubt that there is going to be a lot of upside--probably just a lot of volatility with zero mean. IMHO, anybody with a short position on U.S. equities ought to just take the money made over the last year and get the hell out for now.
"Fooled by Randomness" by Taleb
Good book.
Crispy&Cole,
That was layoffs at BSC and not terminations?
idoc writes: i'd be careful listening to Seb. i think he's a paid shill on this site to pump stocks.
Actually, I'll bet he doesn't own any investments of any kind, but it's fun playing the game with y'all!
Hussman has an excellent commentary on the Bear Stearns deal today:
Hussman Funds - Weekly Market Comment: Why is Bear Stearns Trading at $6 Instead of $2
"The Fed did not act to save a bank, but to enrich one. Congress has the power to appropriate resources for such a deal by the representative will of the people the Fed does not, even under Depression era banking laws. The loan falls outside of Section 13-3 of the Federal Reserve Act, because it is not in fact a loan to either Bear Stearns or J.P. Morgan. Bear Stearns is no longer a business entity under this agreement. And if the fiction that this is a loan to J.P. Morgan was true, J.P. Morgan would be obligated to pay it back, period. The only point at which the value of the collateral would become an issue would be in the event that J.P. Morgan itself was to fail. No, this is not a loan. It is a put option granted by the Fed to J.P. Morgan on a basket of toxic securities. And it is not legal.
The deal was made under duress, to the benefit of a private company, on the basis of financial assurances that the bureaucrats involved had no business making. The Federal Reserve is going to put up public assets and accept default risk so that Bear Stearns' own bondholders are effectively immunized?! That's not sound monetary policy it's a picnic for insiders, bought and paid for through the abuse of public funds by government officials too unprincipled even to recognize the abuse. The only good thing about this deal is that it buys time while principled ways of busting and restructuring it can be settled.
idoc - not a worry! I have my own investment approach that doesn't overlap with Seb's, I just wanted to recognize his follow-through.
Sadly, I'm beginning to agree with safe_as_apartments - my short positions are really not doing well at all, and it's getting a bit difficult to keep the faith given the volatility in these positions. As for a lot of people, I would imagine, the advent of the short ETFs has been a strong lure for me, but the mindset/volatility tolerance has to be completely different especially in a market that isn't doing what it "should" (and I use that word advisedly). It's getting to be very difficult to figure out whether holding these is a position of faith or reason.
On a somewhat related note, I've been reading a lot of research lately about how the average US investment fund (whether institutional or retail) that may appear diversified on the surface actually derives the vast majority of its volatility from the equity markets. That would be a strong argument for the government to focus on equities at the expense of the bond market if they had to choose (which they appear to have done).
Just some thoughts.
OT
Jumbo rates now 7.16% per Yahoo finance. Seems investors are running from FMN and Freddie pools.
It's difficult not to look at this in class and political terms. The Fed has clearly decided certain investors have superior rights (stockholders versus homeowners) and is selectively socializing risk.
They have also been made fools of by Morgan, haven't they? Welcome to the big leagues, Ben.
If there were no other bidders, how did they settle on $10/share?
Why not $20? Or $80?
I admit I am surprised, and lost some money shorting BSC at $5. (I figured with the deal blessed by the Fed and no other bidders, the possible outcomes were $2 or $0. Obviously, I was wrong.)
Something mighty peculiar is going on here. I do not think we have the whole story.
Does $10/share include the massive pledge of taxpayer dollars?
I'm sure glad I bought those K-Y jelly futures.
Nemo - Something mighty peculiar is going on here. I do not think we have the whole story.
The market is being manupulated. This is exactly what I'd expect to see.
while the central bank will put up the remaining $29 billion.
Oh, I see... $10/share includes $29 billion pre-packaged bailout.
The bailout bubble is really picking up steam.
Not too far from now, you will look back at these days and shake your head at how stupid people sounded and acted.
The idea that little men could make much difference in an enormous global economy swamped with leverage unwinding and so many bad debts and bad decisions exploding in rapid sequence will seem comical.
The Fed has clearly decided certain investors have superior rights (stockholders versus homeowners) and is selectively socializing risk.
Part of the motiviation for forming corporations is that they basically have superior rights to individuals in the tax code.
Remember, the Fed is not using taxpayer money yet. If it decides to reduce its capital from $800 billion to $771 by throwing money down Bear Stearns' ravenous pie hole so be it. It doesn't mean that they will necessarily go back to the taxpayer to make up the difference. Who knows? When times are better, they could pull it out of the financial system somehow.
Of course, I do agree that more of these actions in a short period of time will require the government and the taxpayers to "recapitalize" the Fed, but let's have that debate when and if that actually happens.
Even then, and at the risk of sounding ridiculous, remember that financial firms and real estate agents, etc., have paid a huge amount of taxes during the boom. It's not necessarily your dollars going to bail the financial system out. Yet.
rich - I agree. But you can't ignore their blantant attempt to control to eventual collapse and hurt some classes of investors while bailing out others.
RGE - There is now little doubt: the US relies on central banks and sovereign funds to finance its deficit …
"There is now little doubt: the US relies on central banks and sovereign funds to finance its deficit "
to me this says that ALL CB's are evil and working to save their profit machines. look carefully at the TIC data and see just how little faith the private investor has in US equities.
the question then becomes, how long will foreign CB's prop us up?
... I do want to recognize your cojones for posting your buys...
Isn't there some sort of immutable internet law that covers retroactive predictions? "I bought xxx at $yyy back at zzz before the big dip/rise" are so totally untraceable after the fact as to be nothing but a waste of electrons and time.
for those who can think and reason, it has just been proven the "deal" was nothing more than a headline to settle people down. JPM buys Bear Sterns - nothing more than a headline.
wall street never had a moral compass so it couldnt lose it. Paulson was and still is wall street so he never had it. Bernanke from Princeton, couldnt find a compass on the whole campus and Greenspan denies everything. Bush doesnt know what moral compass means and Cheney, will go down in history as a %$%#%%# .Its the american peoples fault. Thats it, we the people did this to ourselves.
Now that everybody's in on the "rally", watch the big boys pull the rug out.
safe_as_apartments
Hello...
where do u think the original $800B of the Fed came from? taxpayers!
Marcus Aurelius
really? nah, I cant beleive what you are saying. Pull the rug out? The american people have had the floor pulled out from under them, not just the rug. This is only inning 3. we will be living under your rug un years to come. Today the cat no longer bounces , it is being thrown in the air by our mafia gvt. welcome to the new america.
Here's my take guys. I know a little about BS management and I can tell you exactly what Jimmy and Ace did. They just went to JP Morgan and told them "no way you're taking the company we've built over 60 years over for 2 bucks ! We'd better go under and take you down with us ! ! !"... JP Morgan cannot afford to let BS go Chapter 11. It is an accounting game, like the SIV accounting game ! they's better have them on their book so that they can manipulate the numbers than let the entire world know the truth / real value of assets and liabilities...
Yes, idoc, but that's already sunk. What do you think? That the Fed is going to give the $800 billion back to taxpayers (as ponies, perhaps)?
I'd be concerned about the government giving the Fed more money.
Some elected official having some idea where the money is going??
What a concept.
Does not exist in this government, once the political appointees egt involve the money goes where they will.
Congress appropriates and the admionsitration dispenses.
Check and balances.
What a concept?????
Sebastian is shilling stocks again?
This won't end well. Folks, beware!
idoc
The proverbail chit is not even close to hitting the fan. we will all know it when it does. How much debt are we up to so far, 50 trillion?
where do u think the original $800B of the Fed came from? taxpayers!
Is that really true? I thought the Fed prints its own money, i.e., it's independently wealthy!
What's "going on" is extortion.
BSC's shareholders are extorting the taxpayers in front of the whole world.
And no one will say shit about it. God Bless Amerika.
This will put nicotine stains in your underwear
Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. The BIS is like the cashier's window at a racetrack or casino, where you'd place a bet or cash in chips, except on a massive scale: BIS is where the U.S. settles trade imbalances with Saudi Arabia for all that oil we guzzle and gives China IOUs for the tainted drugs and lead-based toys we buy.
To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data:
U.S. annual gross domestic product is about $15 trillion
U.S. money supply is also about $15 trillion
Current proposed U.S. federal budget is $3 trillion
U.S. government's maximum legal debt is $9 trillion
U.S. mutual fund companies manage about $12 trillion
World's GDPs for all nations is approximately $50 trillion
Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
Total value of the world's real estate is estimated at about $75 trillion
Total value of world's stock and bond markets is more than $100 trillion
BIS valuation of world's derivatives back in 2002 was about $100 trillion
BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion
Moreover, the folks at BIS tell me their estimate of $516 trillion only includes "transactions in which a major private dealer (bank) is involved on at least one side of the transaction," but doesn't include private deals between two "non-reporting entities." They did, however, add that their reporting central banks estimate that the coverage of the survey is around 95% on average.
Two thoughts:
There's speculation the BSC bounce is due to a drafting error: NYTimes. Also, maybe it's a ploy to keep the employees, the most valuable asset of an IB, from walking en masse. Much better to offer $2 then sweeten to $10 for the $50 shares than to offer $10 in the first place. It's a pretty expensive premium, since 3/4 of it leaks to non-employee stockholders, but there ya go.
Crap, everyone's reporting "Sales of Existing Homes Rise 2.9% in February" instead of "As usual, more homes sold in February than January." Those NAR boys sure know how to write headlines.
Kp - Those MBS and CDOs seem to have some value now then.
If you have enough of them you can use the threat of marking to market to get anything you want.
A new WMD is born.
This is what happens when the Fed engages in moral hazard by bailing these assholes out. Everyone gets wise to it, smells the fear in Bernanke's pants...and then proceeds to squeeze the system for what they can.
The whole thing needs to crash and burn. It will be much cheaper. Ben needs to say fuck it and go on vacation...and then come back to pick up the pieces and move on.
Is that really true? I thought the Fed prints its own money, i.e., it's independently wealthy!
This is my impression as well, hence the "Federal Reserve Note" title on money. However, the moneys do represent a liability against the goods and services for sale in dollars, so it is in effect a tax on us.
I believe the ultimate problem will be when the Fed starts (with Congress's blessing) "printing" more money to exceed the $800 billion it has. Actually, $771 as of right now.
Anyhoo, I'm not an expert on the Fed, but I just don't think that we should assume any new taxpayer dollars are being spent right now.
It's not their money, why should they care? Why not pay them $100/share? Have a party!
Please excuse my french....but this is beyond absurd.
Gareth G said: "Hussman has an excellent commentary on the Bear Stearns deal today..."
Speaking of Hussman, this quote from his latest:
"The possibility of a bear market rally aside, if the S&P 500 has already set its low, it will have been the first time that the market has responded to a similar economic downturn with less than a 20% loss on a closing basis. If we define the recent downturn as a bear market anyway, the recent low will represent the highest level of valuation that has ever prevailed at the bottom of a bear market..."
Hussman Funds - Weekly Market Comment: Why is Bear Stearns Trading at $6 Instead of $2
Yet, if one uses the very valuation method he champions (using peak earnings so as to have a fixed benchmark)...
Hussman Funds - Price to Peak Earnings
...the SP500 PE at the recent low was almost precisely the same as the October, 2002 low.
Which is why if you don't get the raw data for yourself and see if your favorite guru is really following his own rules, Cramer is right: You don't know jack.
Sebastia
Cramer is an entertainer. Following investment advice from him is like getting stock tips from Jerry Seinfeld.
What if BS and everyone else knew that the stock was only worth $2 at most. That would wipe out alot of wallstreeters, unless they agreed to a $2 price that every "insider" knew would jump to $10 in a week or two. You can make up for alot of losses if you have an inside knowlege of a 5x trade move within a few weeks. So you are gonna lose 300 grand in your retirement...just buy 100 grand of your own stock at $2 and sell at $10. Insiders are better off than before.
If you think it's not possible....sure and the Fed won't bail out the speculator.
Even if it isn't true...the fact that the average joe thinks it is, is really bad for the integrity of the market.
Average Joe - One flaw is that all insider trades are tracked via SEC. If there was any hint of colusion, it will be obvious. Oh wait...
ok, Seb, I'm buying SRS at $93. We'll see who makes 20% faster.
"...the SP500 PE at the recent low was almost precisely the same as the October, 2002 low."
The Value Line universe PE is 15.5 while the same was 14.1 during the October low.a
Sebastian you ignornat slut, my post was only in reference to Hussman's take on the Bear Stearn's deal, nothing else. I have never stated that Hussman is my guru. Don't put words in my mouth. While we're at it, please have the decency to pump your stocks somewhere else.
from BIS numbers posted by jd :
Total value of the world's real estate is estimated at about $75 trillion
. . . That works out to $12,500 per person.
World's GDPs for all nations is approximately $50 trillion
. . .So, real estate is selling for 1.5 times annual income.
BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion
. . . That's only $86,000 per capita, worldwide.
Maybe they can't have the market go down during easter week? too many eggs in one basket theory?
"Average Joe - One flaw is that all insider trades are tracked via SEC. If there was any hint of colusion, it will be obvious."
And if you fill out a false application for a loan to buy a house then you can be charged with a crime, so I doubt anyone would do that....oh wait.
Gareth G said: "I have never stated that Hussman is my guru."
Then I humbly, sincerely, and unreservedly apologize to you.
Sebastia
Bloomberg's reporting JPM has BSC locked up after purchasing 40% of the shares. Assuming most every other has been borrowed and shorted, that's a lotta short interest.
I'd be real careful chasing this rally. Even bear markets can have powerful up moves. After the last bubble the Naz cratered even as FFR was reduced to 1%. The credit unwind has some ways to go and with ECRI officially calling the recession the earnings comparisons are not going to look that hot at some point.
Is that really true? I thought the Fed prints its own money, i.e., it's independently wealthy!
Money is just paper and digits in a computer.
The Fed has no wealth except indirectly through it's control over money. And that control represents control over wealth only so long as people believe in the money.
Even bear markets can have powerful up moves.
And as bear markets go, these moves up haven't really been that powerful.
So the taxpayers are only on the hook for 29 large, not 30. DOW to 15K!
Hussman does a great job of highlighting how illegal this entire sham is!
Hussman Funds - Weekly Market Comment: Why is Bear Stearns Trading at $6 Instead of $2
zIRPY THE pINHEAD
Break a law here, break a law there... pretty soon you're talking about real corruption.
"Hussman does a great job of highlighting how illegal this entire sham is!"
lawyerliz
why don't u get off your duff and go make a name for yourself, not to mention a few billion, by enforcing the law!
Too bad for longterm averge joe investors these days.
Since they dollar cost average in their bi-weekly paycheck, then they got maybe 4-5 paychecks worth of cheap (cheaper) stocks via mutual funds only. A longterm drop in stock prices is good for stock investors. This current type of market is good for big money, highly liquid, stock traders as opposed to longterm investors.
Stocks are about where they were at the beggining of 2007. So all they earned on their stocks was dividends, while they spent most of 2007 buying overpriced stocks.
When someone says that today is a good day for investors, think again.
Like I said, imagine a trip from Nasdaq 5000 to Nasdaq 2333 without first going through Nasdaq 1700.
The worst thing the Fed can do for all those who rely on stocks for retirement is to favor those who rely on stocks and trading stocks for an income.
Once again the little guy gets screwed.
Perhaps Sebastian has a point here, if the markets can be rigged this easily why not pick-up indexes/stocks with a beta as close to 1+ as possible?
Got Gold?
i remember reading a paper on Japan last yr and how the BofJ bought mortgages at the height of their RE pop. i just couldn't believe it and thought there's no freaking way our Fed could ever get away with that or would even need to try. wow, what a difference a yr makes. that is the next step. when will we be punished for this hubris?
When the capital flight begins in earnest.
zirpy,
yeah, i added some GLD, UNG, and DBA last week and i suspect these will bounce strong.
Average Joe said: "Once again the little guy gets screwed."
Hey, I'm trying to help.
S.
ee
read my link above to Setser. private capital flight began long ago.
Is McCain to Bush as Medvedev is to Putin? or will Bush just make some kind of power play to stay decider in chief?
Doesn't seem like the constitution or laws really matter any more.
I'm in XGD - Gold and mining ETF in Canadian funds.
The exact wording of JPM's Guarantee
Bears Big Guarantee
Anonymous | 03.24.08 - 1:04 pm | #
was me
sbarrkum
My name says it all.
awgee said: "Sebastian...I do want to recognize your cojones for posting your buys today (in keeping with your promise last week to do so)"
I agree.
it's healthy to have a bull perspective.
good luck.
Over the past few years, you could look rationally at our economy and debt and see this crisis from miles away. However, what is unclear now is whether anf for how long the government can block market realities from being apparent through these sickening bailouts. If so, perhaps we can just muddle along for the next 1, 2 or more years? I am trying to make major life/financial/housing decisions. I've held off for 2 years due to my confidence that the game is up, but now realize the game is rigged and I have no idea how long the charade can last. My fear is that I will give in and move forward with my financial/housing decisions and then the government will lose control of their socialized economy. This government interference has profoundly reduced my confidence in markets and our economy. If the rich & stupid cannot fail, then the poor and smart cannot get ahead.
Pilgrim - Bingo.
BSC's shareholders are extorting the taxpayers in front of the whole world.
What is this tripe? Please explain to me how this "extortion" happened? Do any of you actually read and process, or do you just knee-jerk to your nihilist philosophies all day? If I see one more "illegal" statement...please point out to me the illegality, because NOTHING here is illegal. They dusted off an old statue and ran with it and I say bully for them.
The FACT is that JPM put aside 6 Billion (with a B) for litigation and other losses, INCLUDING shareholder adjustments. So now they're just fronting money instead of having the lawyers walk away with it. What's the problem? You didn't get any of it? You can't stand to see others get some of it? Because that could be the only excuse for the whining going on here. And the Fed is actually in a bit of a better place because of it too.
I say instead of spedning $3 a share in litigation charges to end up at $10 anyhow, spend $8 and get it all over with. Also the due dilli was done in 48 hours, so do any of you know what a more contructive approach produced now? Perhaps it isn't as bad as JPM originally thought on the loss side.
and what has changed since last week?
is America suddenly making products? Is the trade deficit less? Are Americans getting paid more and spending more?
No!
and what has changed since last week?
What in the name of God is your point?
Apologies for the off-topic post, but it looks like MBIA has taken the emasculating knife to Fitch just has Fitch predicted:
ARMONK, N.Y., Mar 24, 2008 (BUSINESS WIRE) -- MBIA (MBI) today released the following statement in response to the announcement by Fitch Ratings:
"We have previously stated our position on our relationship with Fitch and we completely respect their right to maintain MBIA's ratings for a period of time," said C. Edward Chaplin, Chief Financial Officer. "While we acknowledge there are rating agencies that rely exclusively on public information to maintain ratings on MBIA, we agree with Fitch that the unique nature of the financial guaranty sector makes maintaining the MBIA IFS and debt ratings more challenging without access to non-public information. Due to market developments, we believe that the non-public information currently in Fitch's possession soon will become out of date, and public information alone will be insufficient to maintain the ratings."
This is the most bizarre public exchange of messages between two corporations I have ever seen....
Good quote from Hussman's article:
In effect, the Federal Reserve decided last week to overstep its legal boundaries going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity. Specifically, the Fed agreed to provide a $30 billion non-recourse loan to J.P. Morgan, secured only by the worst tranche of Bear Stearns' mortgage debt. But the bank J.P. Morgan was in no financial trouble. Instead, it was effectively offered a subsidy by the Fed at public expense. Rick Santelli of CNBC is exactly right. If this is how the U.S. government is going to operate in a democratic, free-market society, we might as well put a hammer and sickle on the flag.
Forgot the link:
Expired
So is this what we get when the Fed opens the Discount window to ibanks at depository bank prices? Would anyone expect any less?
Dog help me maybe Jas was right about the 'crooks'. :/
and public information alone will be insufficient to maintain the ratings.
I can't get the tears to dry up fast enough... this is too funny.
Does MBIA have it's own private conjure bag that conflicts with mp's ?
Safe_as_apartments, the fact that the Fed may not blow any more money on this fiasco doesn't change the fact that renegotiating the BSC purchase price may transform the Fed's original intervention, ex post facto, into a bailout.
Sunk costs may not count from a microeconomic standpoint, but they certainly do count with respect to a creating a moral hazard. Until now, the conventional wisdom has been that the Fed's backstopping of Bear didn't create a moral hazard because BSC investors were only getting $2/share. Now they may wind up with $10.
At some price, the "punishment" to shareholders is so reduced that Bear's risk-taking will have yielded a positive return. The only question is at what price will we have reached that point.
Thus, VenData's original comment: So where are all the retractions of "It's not a bailout if it's only $2 a share?" -- was very appropriate.
If I were a Fed policymaker, I would be worried that BSC will be negotiated up to a "I'm The Street's B*tch" Price Per Share ('ITSBiPPS'). That's the bailout event horizon. Once BSC reaches the ITSBiPPS, the Fed will have lost its credibility as a neutral regulator.
You guys.
"Doctor Breaks Law to Save Life, Survivor Prosecutes."
What a blog.
S.
my poor savings account,
Actually, the U.S. has been and will continue to make "stuff". We have just, in the recent past, consumed more than we were making by importing additional stuff in exchange for green pieces of paper. Given that the number of green pieces of paper the foreigners were willing to take has fallen, we are now in the process of importing less additional stuff (including oil; see Demand Destruction).
I'd suggest listening to ipodius. Bears can be smart, nihilists are morons.
A must read.
interesting posts by Felix Salmon on seekingalpha explain a lot about the bear stearns deal.
Bear Stearns Share Price - It's Not Speculators -- Seeking Alpha
The JP Morgan-Bear Stearns Option Agreement -- Seeking Alpha
Sebastian - I have been ignoring you... but it wasn't just a broken law to save lives.
If you want an analogy look to the Iraq war.
"Bush will do anything to maintain the status quo."
Fed never went to med school...
our law prohibits this type of good samaritan act..
they are attempting CPR and expensive life saving surgery while i as the next of kin have a do not recitate with outside funds clause
Doctor breaks leg to save life, gangrene set in. Patient dies slow, excruciating death as nurses congratulate selves on god-like intelligence.
Fatal Exception,
You write: "Until now, the conventional wisdom has been that the Fed's backstopping of Bear didn't create a moral hazard because BSC investors were only getting $2/share. Now they may wind up with $10.
At some price, the "punishment" to shareholders is so reduced that Bear's risk-taking will have yielded a positive return. "
Might I suggest that even at $10, the haircut being applied to any long-term holder of BSC (read "prior to 3/14") falls somewhere around the level of the Adam's Apple. I don't think you have to worry about folks trying to emulate Bear any time soon.
Bears can be smart, nihilists are morons.
Exactly and if you were a smart bear you would have freaking KNOWN that there was NO WAY this deal was going down at $2 a share, and no way BSC was going to be allowed to go BK. Smart bears just played this right as all of you sat screeching here about what a bailout this was because smart bears KNEW this was going to end up there as the futures showed. Keep coming up with specious legal arguments as to why it's a bad idea the Fed is doing what it is doing. In the meantime, me and some other bears are going to make some dough instead of complaining about it. Welcome to capitalism. If you don't like it, go ask the Russians how well that whole socialist thing worked out for them.
Ahh, I have finally decided to run for the hills. Its time to get out of the USD and everything related to the US. Why you might ask am I doing this? Well its simple. Would you invest in a country with policies based on debasing its own currency? What the Federal Reserve did in the last 2 weeks has done everything and more to damage the future of the US market than anything I have seen in the last 15yrs. We have the country being held ransom by a bunch of security brokers who think that the world would collapse if they collapse and unfortunately, we have a Fed Chairman who thinks exactly that. Now, with the Fed taking over the liability of US$30b of toxic mortgages, what do the shareholders of BSC do? They decide that they would rather go bankrupt or get a higher price? And the Fed nodded, and said ok you get $10. What the hell is that? What ever happened to losing money if you invest in the wrong firm? Why is the tax payer bailing out BSC shareholders? Should the Fed remove this loan? Of course not! They are not there to make sure the system works! They are there to make sure stock investors get their return WHATEVER THE COST! I have never seen a central bank ignore all the tenets of central banking. Yes, they are the lender of last resort but at prohibitive costs. They are to ensure the functioning of the financial system, not bail out bank investors. They are to protect the value of currency, not print money to save foolish risk taking. The Federal Reserve in the last 2 weeks have broken every one of these rules. What credibility is left?
Mr Bernanke, I hope you read this blog. Perhaps you will learn a few things about Central Banking and how not to let yourself be ruled by Wall Street. You have put the world at risk and you have put the future of the US at risk. You have just told Wall Street that they can do whatever they want. It doesn't matter anymore because the American tax payer, and the world would bail them out. Do you feel stupid now? You have been manipulated by Wall Street bankers to take the toxic waste of them. You have managed to put the balance sheet of the Federal Reserve at risk. And you have BSC shareholders playing chicken with you and Jamie Dimon. I really don't know whether to laugh or to cry. Where is a credible central banker when you need one?? How will you dig yourself out of this one?
Americans, I hope you know what your government is doing to you. I don't know if you actually understand what the future holds for you with the reckless actions of your central bank. HIgher taxes, weaker USD, lower standard of living, higher inflation, higher unemployment, and a global flight from the USD. Instead of a run on a bank, you will have a run on the country. Ben, read about what happened to the USD and the GBP during the Great Depression. You may have just started the rolling stone that will result in a rockslide that will end the USD as the world currency and the US as an economic power.
Written by Wolf in the Wilds
ipodius - Welcome to capitalism.
Sorry bud, we have very different definitions of capitalism.
There is no way the options on BSC could have predicted this $10 increase. Nor could they have predicted the $30 to $2 price drop over a weekend. The deal was done on a SUNDAY NIGHT. How could anyone have benefited from backroom deals ?
Ahh, I have finally decided to run for the hills. Its time to get out of the USD and everything related to the US.
I suggest you do that. I'd suggest you buy gold, commodities, or maybe put it all in Euro because, you know, the dollar is so low against the Euro now and we're going to lose our reserve status any day now. So go and take everything you have and make that bet. Let me know how it works out 3 months from now.
In the meantime I'm figuring out what the next story is going to be so I can be on the right side of that one too. But you can bet your butt that I'm NOT buying commodities, or gold, or adding any more to my Euro positions at this point. Perhaps you can go with the Brazillian Real, or maybe the Swiss Franc.
Welcome to capitalism. If you don't like it, go ask the Russians how well that whole socialist thing worked out for them.
A statement like this in response to a $30 billion government bailout of a bankrupt company could suggest excessive dietary aluminum.
There is no way the options on BSC could have predicted this $10 increase.
It was an $8 increase not $10. And the futures were north of 4 and then 5 since this deal was announced with 48 hours of due dilli. Where did you think it was going to end up?
Interesting Times said: "Sebastian - I have been ignoring you... but it wasn't just a broken law to save lives.
If you want an analogy look to the Iraq war."
The Iraq War is precisely the opposite of the analogy I offered, as in, "Doctor Breaks Law, Kills Patient, Surviving Family Prosecutes."
Honest to God.
S.
A statement like this in response to a $30 billion government bailout of a bankrupt company could suggest excessive dietary aluminum.
Until you can point to the bailout, and the ACTUAL taxpayer money being lost, you're the one with the lead in the water not me. Oh and while you're at it, point out how the Fed ACTALLY broke laws. Real laws, not the ones on a blog.
Honest to God.
They're all out today. They're mad because the markets aren't crashing, central banks aren't being disbanded, and general financial anarchy isn't happening.
w
amen.
w - Thanks. I'm too angry to have the patience to put it like you just did without throwing in a few extra $@#!
W:
This was an utterly horrible, short-sighted move by BB. The message went out across the world, "NAME YOUR PRICE".
The credit markets will have the last say. Today it looks like there's a whiff of euphoria that a new round of debt expansion is coming, but the only result is that the grave is getting deeper and deeper.
Someone needs to step in and force the financial system to take its course of chemotherapy and lay off the medical marijuana that BB keeps doling out.
Interesting Times
I am past angry. what are you allowing to be done to a once revered country is mindboggling. They must have hypnotic rays coming out of the pixels in your new 5 ft flat paneled screens complete with lounge chairs. It is mystifying to me. good luck
IT,
"There is no way the options on BSC could have predicted this $10 increase. Nor could they have predicted the $30 to $2 price drop over a weekend. The deal was done on a SUNDAY NIGHT. How could anyone have benefited from backroom deals ?"
The $8 increase was predictable, at least in the sense of assigning it a probability significantly greater than 0%. The deal was such that it gave people who still had power (i.e. share votes) no incentive to go along with it. If I'm a BSC employee or Lewis, I might well vote "No" and gamble with those last $2 I had. The likely gain would be huge, even if it were an increase of $1, nevermind $8.
The drop from $30 was less predictable, but at the end of the day anybody who purchased relatively recently was speculating on a quick turn in asset pricing and/or liquidity. It wasn't an irrational bet, either. Move the date of the new Fed facility forward by 3 weeks and the entire situation would have changed. However, even rational bets go bad.
I have no problem with capitalism IF it is allowed to function correctly.
What we have is not functioning at all. We have a solvency problem that is being presented as a cash problem. Only those who truly are delusional see this as a credit problem.
None of us asked the banks to leverage up to almost 30X....but we are sure being forced to pay the bill for it.
How on earth could you go long and the only way to get any return is to COUNT on Fed intervention...what a f!@#$%^ system we have.
Ciao
MS
So let me ask you a question w. Who are the stupid ones, the people who BOUGHT BSC at $4.35 or the people that just spouted off about how this was a bailout...moral hazard...illegal...blah blah blah? While you were philosophizing, some of us were betting that this deal wasn't going down at $2. Philosophy isn't paying the bills, but these BSC trades will surely go a long way this year.
TM
Is Bernanke a humanoid. oh, I forgot, he was the CEO of the Princeon economics department. Enough said.
How on earth could you go long and the only way to get any return is to COUNT on Fed intervention...what a f!@#$%^ system we have
Breathe MS, you're smarter than that I've read your comments here and elsewhere. Ask BSC shareholders if $10 is a bailout. If you were sitting there with your bonus in BSC stock north of $40, how would you feel? Would you have liked it better if the counterparty defaults made your holdings now take that kind of loss? Had caused the whole system to sieze up? What would unemployment look like then?
You know very well that sometimes these interventions become necessary. History will tell whether it was a good thing or not. And this isn't nearly over so the history can't be written yet. So instead, be smart and make money on the way down as well as on the way up.
ipodius
In this game everyone is stupid. The money you will make is losing its value as I am writing this. The whole world went mad except for a stupid countires who wouldnt touch the toxic waste. I read today that even Iceland is up to thier ears in trouble. Best of luck to you.
BSC - Philosophy isn't paying the bills, but these BSC trades will surely go a long way this year
Good for you. I'm happy you made some good trades based on a whim.
I don't have the skill or the stomach.
In this game everyone is stupid. The money you will make is losing its value as I am writing this.
OK, if you make nothing and I make 100% less even 20% inflation I still make more playing the game and I'll still be ahead. I'll take those odds and you can keep shaking your fist at "the man".
ipodius,
You are playing semantics here. 29 billion non-recourse loan may not be lost yet (or even at all) but it's still a gift. Are options free? This is a free option to JPM, hence a gift.
It's like we have a risky driver who was caught DUI a few times and nobody is willing to write insurance to him. And we have a good uncle Ben who writes 29 billion insurance. Rational? Hardly. Free market? You bet.
Fed is not taxpayer but they have the power to debase the currency = a stealth tax.
ipodius
why the hostility. I day trade for a living. I never hold shares over night so I can sleep well, but my earlier post remains what it is. Volatility is a traders friend and I was surely taking advantage of it. I am getting out of everything US. Maybe I am just taking the cue from
commodity superstar investor Jim Rogers who just moved to Singapore from the US. I often wonder what he saw to make such a drastic relocation at this age in his life?
Cheers to you.
W: Jim saw the USD Index.
this is not water under the bridge, and the deal struck last week should not be allowed to stand if we care at all about the integrity of the capital markets. The Long-Term Capital crisis was resolved by a consortium of financial institutions providing capital in return for ownership. The panic of 1907 was resolved the same way. This deal should be busted, and fast. If there's not a single buyer that will take on both the assets and liabilities without the government assuming private default risk, Bear's assets should be put out for bid, Bear's bonds should go into default, and by the unfortunate reality of how equities work, Bear's shareholders shouldn't get $2 they should get nothing.
Ipodius.
cool your jets. Things are moving fast
NEW YORK (Reuters) - Wall Street strategists and industry analysts now expect first-quarter earnings at Standard & Poor's 500 .SPX companies to decline 5.5 percent from a year earlier, twice the 2.7 percent decline they had forecast just one week ago, according to Reuters Estimates
Poszi -
Just in time for Baby Boomers to go on fixed income. I'm in my thirties, so Social Security is just some sick fantasy designed to garner significant wages here and now. The treasury markets are portending significant punishment on the poor and elderly in the years to come. But it's at "no cost to the taxpayer!" BWAHAHAHAHAHA!
No abject hostility here w but lord, I'm not yet seeing anything to get all worked up about. And I see huge downside to the Fed not doing anything at all. Frankly, I'm out of this market except for anything that would be a choice morsel or readily apparent...like the BSC deal. It's completely irrational now. And when I read the posts on here I see why.
You know, part of being an adult is realizing that sometimes you have to save a few idiots to make sure that the majority of innocents gets saved as well. That's the way it goes. And if the Fed has to blow a few billion in order to keep the vast majority of the population from losing their jobs, losing their savings, and losing their houses then I'm all for it. And if we saved some knuckleheads in the process, then that's part of the game too.
ipodius --
Who are the stupid ones, the people who BOUGHT BSC at $4.35 or the people that just spouted off about how this was a bailout
Do you have a link to where you said you were buying BSC at $4.35? You know, before today. Just curious.
Until you can point to the bailout
Whenever the Fed (or government) provides anything for less than the market would charge, that is a bail-out. It may not look like one -- yet -- but it most certainly is.
If the Fed goes to a casino and bets $30 billion on "black", that is a bail-out for the casino, even before the wheel spins.
I am not saying it is illegal, but I am saying it is not capitalism. Kind of the opposite, in fact.
Also, if Bear Stearns has no cash and no bidders, then the stock's proper value is $0. That is how it would work for any other company... If government or Fed intervention is needed for the shareholders to see a penny more, that is a bail-out, plain and simple.
ipodius : You know, part of being an adult is realizing that sometimes you have to save a few idiots to make sure that the majority of innocents gets saved as well.
Which Disney movie was that from?
I need to show it to my 4 month old.
Nemo, what was BSC trading at last week? You can surely look that up. It shot up to past $11 today on the deal. Last week it was trading north of $4 for most of the week and everyone here questioned why. Well the why was this deal wasn't going to close at $2. The bet was how much it would close at.
Your definition of bailout is different from mine. And I gave good reasons for even a bailout in my last post. You're arguing semantics and I'm arguing for reality. I prefer reality to capitalistic theory on any given day. A lack of it is why the whole mess happened in the first place.
ipodius writes:
No abject hostility
Just hostility. crack a cold one and sit back and watch Romre burn. You will definitely need cases of cold ones but I smell the embers already. when the roarong flames come none of us know, but many major US corporations have shifted their headquarters overseas. There are many reasons, but maybe they got a call on the red phone a few years back. The gvt isnt stupid (I hope)If they didnt see this coming then lord save us all.
crack a cold one and sit back and watch Romre burn.
I think it was just exasperation. You see, I prefer not to let Rome burn but applaud the actions to save it. Some here just want to see it burn so they can be right. That's the exasperation. My position is that you'll crack the cold one until it gets hot because you're trapped in the flames and there aren't enough cold ones to put them out. Then it will be too late for you, and for everyone else. And burning to death isn't very pleasant, either for those in the flames or for those that have to watch.
ipodius writes:
and what has changed since last week?
What in the name of God is your point?
ipodius | 03.24.08 - 1:10 pm | #
one example is G.E., is the stock worth 20% more in one week based on fundy's or was this simply to many dicks caught in the $ 37.50 strike cookie jar?
ipodius
I agree and must say, you have PASSION!!!!
As a Canadian, how bad do you expect Canada (economy and currency) to be dragged down?
The CAD $ is now pretty much at par with US $... but it hasn't gone much further. The Euro has completely decoupled from the Canadian and US $.
You may want to wait until EURO bounces off the 1.51/1.52 level for its move to 1.60; will the secular bear market in the dollar turn next year on higher taxes, greater savings rate, greater regulation of capital markets, etc...?
Dont hold your breath!
one example is G.E., is the stock worth 20% more in one week based on fundy's or was this simply to many dicks caught in the $ 37.50 strike cookie jar?
LOL...the latter! As I said, this market is irrational. What you're seeing now is some money flowing back into equities from commodities, etc. So there will be stupidity for a while. Best to stay out of it, or at least keep some parts of you out of the same jar
ipodius --
Nemo, what was BSC trading at last week?
You have strongly implied -- repeatedly -- that you are making great money by being so smart and reading the "futures" on BSC. I was just curious if you could prove it with any evidence from before the fact. You have answered my question; thanks.
I prefer reality to capitalistic theory on any given day.
The Soviet Union preferred "reality" to "capitalistic theory" for a very long time. The Soviets were not stupid; they had some of the best minds in the world running their economy.
The Fed is similarly full of very smart people who are "innovating" during this crisis. They are choosing the risk of doing something over the risk of doing nothing. But history suggests that even when the best minds with the best intentions interfere with the market, the results wind up worse in the end. (And the greater the intervention, the worse the outcome.)
They have guaranteed $29 billion for assets whose values they do not know, but whose market value is presently $0 because there is no bid. If the market was so right last week about the future of BSC, and indeed anybody who thought otherwise was a moron, why do you assume the market is wrong about those assets on Bear's balance sheet?
For Sebastian, et al
Earnings and PE
Sebastian quoted some PE information and the 2002 PE. Here are some more stats -
Average Quarterly PE ratio for S&P 500 = 15.72 (since 1936).
Number of Quarters above = 138
Number of Quarters below = 147
Here is the laugh, 2002 = average of 30 PE.
The takeaway is that S&P return on average is 7% from historical perspective. Starting in 1951, a 7% return per year would equate to the S&P being at 963. Two bubbles, dot com and housing/financial derivatives have altered the expected return in the last 10 years.
But using Sebastians theory, in 2002 the S&P started at 1147, and in 2008 is around 1350 (so far). A gain of 17% or 2.8% per year.
Nice trade Sebastian - that is why the smart money is pumping the market now to sell to you while those of us that wait for PE's to return to below 10 to truly buy at a discount. Yes, I may miss this short term bounce - so what, I WILL NOT settle for 2.8% over the next 6 years...
Please research the financials as they have launched from 20-50 dollar stocks to 150+ predicated on earnings from derivatives. As those are erased, so will their stock value. Since they are 40% of the S&P earnings, they are the key to the oncoming meltdown.
Yes, I know we are rallying, but this is unsustainable in the long run. Earnings are the mother's milk (kudlow quote) and once they begin trending down, they will continue for several quarters. Remember that the "mild" recession of 90-91 had 10 quarters of negative earnings meanwhile the S&P dropped 18%. However, that being an anomaly, surely you remember earnings dropping in the 2000-2002 timeframe and the S&P dropping in half.
I hope those that are long (Sebastian et al) make some money in the short run and do not lose it in the long run. I hope those that are short make money as well. That is what this is all about, us small timers not losing everything to the Wallstreet Crooks.
For me, I am short (selling call credit spreads 30 days to expiration) with speculative $$ and most holdings (401K) in Gov't bonds. I may have posted before that until we reach a normal recession drop of 27%, I will not touch equities (indexes). That gives me a targe of 1150'ish on the S&P.
I might add that while I took my 401k out of equities at 1305 nearly 2 years ago, I missed the huge run up to 1565. However, over that same time, I am up a guaranteed 10% (from 2 years of Govt bonds at 5%/year) which gets me averaged in at 1435 on the S&P. The S&P is now up 4% to 1360'ish since that point. Dunno - maybe I could do better following Sebastian... nahhhhh
Nemo I didn't tell you what I bought BSC at and that is private info. I can tell you it was far south of the latest offer, but north of $2. I picked $4.35 as that was a sort of indicator to me. You can surmise the details from there. And then I was out. So now I could care less what happens I've moved on. There is a lesson in that.
from Mish
Staying Flexible
I have been anticipating a bounce in the US dollar index even while expecting the US dollar to trade lower vs. the Yen.
Many have asked why. The answer centers around a dislike of the Euro and British Pound. So before proceeding with thoughts about flexibility, let's stop for a moment and take a look at a few of my reasons to dislike the Euro and the Pound vs. the US dollar.
German banks are arguably as bad off if not worse than US banks.
Property bubbles in parts of the Eurozone are worse than in the US, Spain being the primary example.
The property bubble in the UK is as bad if not worse than the US.
Anti-dollar sentiment is extreme.
The Euro has benefited from a huge diversification out of dollars especially from oil producing states. At some point diversification will end.
There is still a prevailing attitude that the US will enter recession and somehow the Eurozone and UK will avoid that recession. I do not support that view.
There is a prevailing attitude that Bernanke will keep slashing rates to zero while the ECB will hold the line. I suspect the ECB will start cutting rates and at some point the Fed will pause to consider.
However, opinions are opinions and facts are facts. The fact is the Euro rocketed higher, and the fact is I have been surprised by the resolve of Trichet in holding the line at the ECB. Indeed, the willingness of the ECB to hold the line may account for that last blast higher on the Euro. Can the ECB hold out forever? I do not think so, but that is an opinion not fact.
As for Bernanke, here is the key question: Will he pause for more data or will he continue nonstop on a path to ZIRP? Perhaps we have a clue in two dissenting votes at the last FOMC.
Viewpoints vs. Trading Positions
It's one thing to have a viewpoint and it's a second thing to actually trade that viewpoint. Can one have a viewpoint and not trade it? Of course.
I have had no personal stake in currencies for a long time. I seldom trade currencies even though I frequently have a viewpoint about them.
Sitka Pacific Capital Management, the firm I represent, does trade currencies (in a small portion of one particular strategy). Recently we were long the Yen vs. the US dollar and did very well with the trade. But that position was closed and as of March 19 we went long the US dollar index via UUP. Here is a chart of the US$ index to consider.
Ipodius
Are we Rome yet?
"COLUMBUS Amid a sluggish economy, a record 1.1 million Ohioans are getting food stamps, the states welfare agency said. Thats about 10 percent of the states population."
Not yet sam, we're just entering recession (contra Seb). Rome burning would be a total seize up in the credit markets and massive counter-party defaults.
Maj Tom...nice insights. Thank you.
Why not $20? Or $80?
I admit I am surprised, and lost some money shorting BSC at $5. (I figured with the deal blessed by the Fed and no other bidders, the possible outcomes were $2 or $0. Obviously, I was wrong.)
Something mighty peculiar is going on here. I do not think we have the whole story.
Nemo | Homepage | 03.24.08 - 12:14 pm | #
I suspect nobody has any good idea what Bear is worth. Just guessing. And lurching about trying to avoid a bigger mess than they are already in.
OMG m...I have to put in writing that I agree with Mish. Maybe Rome is burning
Maj Tom said: "Nice trade Sebastian -that is why the smart money is pumping the market now to sell to you while those of us that wait for PE's to return to below 10 to truly buy at a discount. Yes, I may miss this short term bounce - so what, I WILL NOT settle for 2.8% over the next 6 years..."
Over the past 40-some years (not counting our current one) there have been 19 corrections in the SP500 greater than 10% from a 52-week high.
The median correction was -17%, just about what we've experienced recently.
The median return after buying such a correction: +30%, in a median recovery period of 152 trading days.
But I keep forgetting it's different this time.
Sebastia
I suspect nobody has any good idea what Bear is worth. Just guessing. And lurching about trying to avoid a bigger mess than they are already in.
Jim
My sense is the whole market is doing that. What the hell are relative value models to make of this when a stock goes 30,2,6, ? What the hell of bond v equity models to make of 10 yrs gyrating down to 3.22 up to 3.50 in days ! I have a ancient Support Vector Machine ( SVM ) model I developed ages ago that I run for fun - damned if it will converge - if I peek at the iterations, mannn its lurching from anywhere between S&P 1250 to S&P1410.
Quite amusing to be honest.
My favorite phrase for these circumstances - NUTS.
-K
IPODIUS....
from Mish
Setser: Foreign Buys of US Assets Increasing Dislocation
Brad Setser, a source for thorough, thoughtful coverage on currencies and related topics, provides his monthly parsing of the Treasury International Capital report (this one from January, plus its survey of foreign holdings of US securities as of the end of June 2007) and does not like what he sees.
Since the August TIC report, Setser has identified a worrying trend, that private foreign capital inflows (required to fund our massive current account deficit) have pretty much dried up. Nearly all our international ifunds come from governmental sources, namely central banks and sovereign wealth funds.
Even more troubling, Sester sees signs that the overseas buyers are participating heavily in the flight to safety (Treasuries), exacerbating market instability.
As he observes:
Both data releases tell the same fundamental story. The US now relies very heavily on foreign central banks for financing.
The January data also hints at another important but less obvious story, namely that central banks seem to be less willing to take credit risk than in the past.
So long as they are piling into safe US assets, central banks are contributing the "liquidity" to a market that doesn't need any liquidity. They are helping to push Treasury rates down. And their activities, while rational from the point of view of conservative institutions seeking to avoid losses (beyond those associated with holding the dollar), also may be aggravating some of the difficulties in the credit markets. Private funds fleeing the risky US assets for the emerging world generally end up in central bank hands and currently seem to be recycled predominantly into safe US assets.....
I would bet that current official purchases are overwhelmingly weighted toward super-safe assets. There are hints of that in the January data. China stopped buying Agencies, preferring Treasuries and short-term debt. Korea seems to have stopped shifting into Agencies. In total, nearly $60b of the $75.5b in total official inflows went toward Treasuries and short-term deposits and securities.
If I am right, then the official sector -- foreign central banks and sovereign funds alike -- isnt coming to the rescue of the credit market. Indeed, by buying only safe assets at a time when private demand for risky assets has disappeared, the official sector is adding to the current market dislocations rather than reducing them.
Look at this picture. Due to a combination of private capital flight and foreign central banks making a higher proportion of their securities purchases in Treasuries, the very large foreign inflows have moved heavily into Treasuries, depressing yields. This increases the so-called TED spread, the difference between short term risk free rates and interbank rates.
The widening of that spread was one reason the Fed implemented and later increased the size of its Term Auction Facility. If the Fed has to increase the size of the TAF yet again or engage in other heroic measures, it only has $300 to $400 billion before it runs into balance sheet constraints. Of course, it could issue liabilities to continue its market intervention, but an operation of that scale is characteristic of third world countries fighting a financial crisis. That move alone could increase worries about the dollar. More currency instability will only make a difficult situation even more complicated.
Setser's post provides considerably more detail.
We have also warned of a bigger risk: that our friendly foreign feeders of our overconsumption habit may finally tire of our profligate ways and quit sending money. Various observers have asserted that would never happen, that would lead the dollar to fall and lower the value of their holdings.
Well, our very own Fed has taken to trashing the value of the dollar portfolios of foreign central banks. Since we have no inhibitions about debasing our currency, why should they double up on a losing bet? Of course, that logical response will only accelerate the dollar's slide.
From Bloomberg (hat tip reader S):
Central banks from 16 Asian nations may invest more of their $1 trillion of foreign reserves in the region's debt as Federal Reserve interest-rate cuts reduce returns on U.S. assets.
This is something that most of us, that are not yet investing in, will be looking at,'' Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a March 23 interview in Jakarta. There can besome kind of shift'' to Asian sovereign bonds, Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said in a separate interview on March 22, after a weekend meeting of policy makers from the region.
Asian countries pummeled by a financial crisis in 1997-98 have spent the past decade hoarding reserves to help protect their economies from external disturbances. A looming U.S. recession means the world's biggest economy may no longer be the best place for the region to invest those funds.
Indonesia's 10-year dollar-denominated bonds, for example, have a yield of 6.06 percent compared with 3.33 percent for similar maturity U.S. Treasuries. Local-currency Philippine debt maturing in 2018 yielded 7.16 percent as of March 19.
Given the volatility in the U.S. dollar, some diversification won't hurt,'' said David Cohen, an economist at Action Economics in Singapore.Even if the U.S. does slide into a recession, continued growth in places like China'' may help maintain economic expansion in the region....
Governors from the South East Asian Central Banks grouping, or SEACEN, include Indonesia, Malaysia, Singapore, Thailand, Brunei Darussalam, Vietnam, the Philippines, Cambodia, Myanmar, South Korea, Mongolia, Fiji, Nepal, Papua New Guinea, Sri Lanka, and Taiwan. They manage about $1 trillion in reserves, according to Bloomberg data.
Sri Lanka's Cabraal said he is looking at ``possible avenues to invest in other Asian countries.''
It wouldn't have been on the agenda some years ago, but it is now very much on the agenda,'' Cabraal said.You can see quite a clear shift in the mindset.''
Tetangco from the Philippines said central banks in the region will have to make decisions about investing more in Asian debt ``at some point in the future.''
``We are looking at the opportunities for diversification into high-quality assets such as sovereign or quasi-sovereign securities,'' he said.
By Joseph Checkler
OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Things could've been much worse for Janus Capital Group Inc. (JNS) in its investment in Bear Stearns Cos. (BSC). Janus sold out of its entire Bear stake earlier this year, Janus told Dow Jones Newswires. Mostly through its Janus 20 fund, Janus owned more than 2.7 million shares of Bear at the end of 2007. But the company sold all those shares ahead of Bear's implosion earlier this month. Janus still took a hit - it did most of its buying of Bear shares during 2006 and 2007 when the stock traded well above $100 - but its results were not as disastrous as those of other large shareholders, like billionaire Joseph I. Lewis or mutual fund Van Kampen Asset Management. Lewis bought more than 8% of the company's shares last year at an average price of more than $107 each, and Van Kampen bought more than 3.5 million shares during the fourth quarter of 2007. The Janus 20 fund's Bear stake, worth more than $240 million at the end of 2007, would have been worth less than $40 million today. Bear Stearns shares recently traded up $6.77, at $12.73, well above the $10-per-share revised buyout offer from JPMorgan Chase & Co. (JPM). The Janus 20 fund, which is managed by Ron Sachs, typically invests in 20 to 30 stocks that, according to Janus, "have superior business models" and generate excessive cash flow. Sachs declined to comment specifically about the decision to sell out of Bear Stearns' stock, other than to say through a spokeswoman that the "decision to sell speaks for itself
Sebastian,
Whatever you use - I hope you make money. I know now that in Jan you bought some index positions (probably at the low for the month = 1310.50 if on the S&P) and will sell when up 30% from there (1703 on S&P 500 within 152 trading days)... Good news is that using the 7% per year formula, you should be there around 2017...
But don't forget that the S&P from Nov 1968 to 1982 didn't make a dime. But that was only 14 years... Oh yeah, the S&P still hasn't made a dime this decade... But that is for buy and holders not for experienced traders as yourself.
Good luck on your account - May your winners exceed your losers.
You guys.
"Doctor Breaks Law to Save Life, Survivor Prosecutes."
What a blog.
Yes-- that whole "rule of law" thing should be discarded whenever non-elected officials find it expedient...
THE BEAR MARKET IS OVER. CRAMER SAID SO. AND WHATEVER CRAMER SAYS IS GOSPEL.
http://www.thestreet.com/video/index.html?bcpid=1348279749&bclid=1137812485&bctid=1472339823#1472339823
W.
Absolutely right.
So much for capitalism. Isn't it nice to know our government and Federal institutions are deciding who wins and who loses nowadays? None of this "creative destruction" anymore, no need to do a good job, make wise decisions, pay your bills or invest investing prudently. Just be well enough connected that you are first in line at the trough, and all your problems are solved.
Got to watch this one! I agree with it 100%. JPM made a mistake going after BSC!
Bloomberg News
Major Tom said: "But don't forget that the S&P from Nov 1968 to 1982 didn't make a dime. But that was only 14 years..."
With inflation persistently higher (and at far higher levels) than now, clearly not the same conditions.
But, even though I know you're not sincere and believe I'll lose my ass, you were civil enough to wish me luck.
So I credit you for that, anyway.
S.
JPMorgan Raises Bear Stearns Bid to Woo Shareholders (Update3)
By Yalman Onaran
March 24 (Bloomberg) -- JPMorgan Chase & Co. quadrupled its offer for Bear Stearns Cos. to $10 a share and struck a deal to buy 39.5 percent of the company without a shareholder vote, making it unlikely opponents can block the takeover.
It is a done deal,'' said Bruce Foerster, who was a managing director at Lehman Brothers Holdings Inc. before starting advisory firm South Beach Capital Markets in Miami.If JPMorgan lets go, Bear Stearns will go bankrupt. The agitation by shareholders got a better price but this ends the uncertainty.''
The companies agreed to an all-stock transaction that values Bear Stearns, once the biggest underwriter of mortgage bonds in the U.S., at about $2.4 billion, the New York-based banks said today in a statement. The firms had agreed March 16 to a takeover that valued the firm at $2.52 a share, or $366 million based on JPMorgan's March 20 stock price and the lower number of shares outstanding. Bear Stearns peaked at $171.50 last year.
JPMorgan, led by Chief Executive Officer Jamie Dimon, may have outflanked shareholders who wanted to hold out for better terms by buying almost half the company immediately. Bear Stearns agreed to issue new stock as part of the transaction, and the firm's entire board of directors will vote their own holdings in favor of the sale, the companies said today.
The price is still catastrophically low, but it will change the attitude of people who stay at Bear,'' said George Ball, the chairman of brokerage firm Sanders Morris Harris Inc.Those are the people Jamie needs to win over.''
Bear Stearns rose $6.11, or 103 percent, to $12.07 at 1:30 p.m. in New York Stock Exchange composite trading.
Shareholders' Take
While the new offer values Bear Stearns at $2.4 billion, current shareholders will get only about 60 percent of that. The JPMorgan stock given to Bear Stearns in exchange for the new shares the smaller firm is issuing will end up back in JPMorgan's hands when the deal is completed. Bear Stearns's current owners will receive $1.5 billion of JPMorgan shares, four times the amount they were promised under the deal negotiated two weeks ago.
Bear Stearns will issue 95 million new shares without seeking a shareholder vote by taking advantage of an exemption from NYSE rules governing share sales, the companies said. The exchange requires companies to give notice when they act under the exemption. The notice period ends on or about April 8, the firms said.
Employee Holdings
Once JPMorgan has the 39.5 percent stake, Dimon will need only an additional 10.5 percent of shareholders to approve the takeover. Employees' total holdings will drop to about one fifth from one third once the company issues the new stock. Bear Stearns board members, who own a total of 7.2 million shares, will control about 3 percent, according to Bloomberg data.
They made this deal bulletproof,'' said Frederick Lane, co-founder of investment bank Lane Berry & Co.No further hold- up is possible.''
The original bid, more than 90 percent lower than the securities firm's market value at the start of the month, drew opposition from shareholders led by U.K. billionaire Joseph Lewis. Dimon met with Bear Stearns employees to seek their support last week.
The Federal Reserve helped engineer the takeover two weeks ago after customer withdrawals crippled the New York-based firm. The central bank agreed at the time to provide $30 billion of ``special financing,'' to guarantee some of Bear Stearns's assets.
JPMorgan's Responsibility
The Fed adjusted its financial support today, the two firms said. JPMorgan will now be responsible for the first $1 billion of potential losses from the sale of Bear Stearns assets, while the Fed will fund the remaining $29 billion.
``The Fed must have given the nod; this wouldn't have been announced otherwise,'' said Sanders Morris's Ball.
Standard & Poor's Ratings Services raised its credit rating and counterparty rating on Bear Stearns to AA-/A1+ and removed the firm from CreditWatch, it said in a statement today.
The price increase and the anticipated increase in the amount of shares controlled by JPMorgan raise the probability that the deal will be completed,'' S&P said.On its own, Bear Stearns' viability is uncertain. If the deal is amended in any way, we would review the circumstances at that time.''
Bear Stearns climbed 12 percent to $5.96 on March 20 in New York on speculation JPMorgan, the third-largest U.S. bank, might raise its bid or risk prompting rival offers.
Bankruptcy Prospect
The stock closed at $30 two days before Chief Executive Officer Alan Schwartz, 58, was forced to accept JPMorgan's terms or face bankruptcy after customers and lenders abandoned the broker.
Lewis and James ``Jimmy'' Cayne, Bear Stearns's 74-year-old former chief executive officer, were trying to recruit investors to counter JPMorgan's offer, the New York Post reported last week, citing people familiar with the situation. Cayne, who remains non-executive chairman of the company, is among the directors who have agreed to vote their own shares in favor of the amended sale agreement, according to the companies' statement.
Finding a counterbidder is attractive but a lot more difficult,'' the Sunday Telegraph cited Lewis as saying in a report yesterday.There are two ways to block the deal: first by a shareholder no vote and second by litigation. We should be able to block the deal by one of these ways.''
Lewis spokesman Doug McMahon didn't return a call today seeking comment.
Bear Stearns employees, directors and lawyers are prohibited from seeking an alternative transaction, according to the agreement, which was filed with regulators last week.
Bear's financial troubles began in July, when two hedge funds that invested in securities tied to U.S. subprime mortgages collapsed. The firm had to bail out the funds and take possession of many of their instruments
Look first at the dotcom crash... market down 49% over 25 months, nasdaq, the epicenter of that popping bubble, down 78%, still down 50% from dotcom peak. OVer the past two recessions, including this one, the bear market typically falls for six weeks or so and then, following a steep decline over approximately eight trading days, rallies sharply over the next eight trading days, at which point the bear may rouse itself, beginning another six week down cycle. The final eight days on the way down are often steep, which makes the fed nervous, which then acts, and the market rallies in relief, hoping we hit bottom, but IMO the bear is just getting started. SO, we just had eight days up from an inter bear market bottom, IMO this is a bad time to be long.
There will be many rallies on the way down... Think of each quarter as an inning, we are coming to the end of the second. Even Goldman thinks housing will go down 25%, latest is down 8% (feb/feb), and current financial problems are on account of 07/06 housing down just 2%... Goldman may be too conservative, markets usually overshoot in both directions, prices must get back in line with rents/incomes, meanwhile rents are declining and incomes will follow down.
IMO the time to consider going long is after the market is down 50% (or more, dow/s&p is where most of the financials lurk), unless you are bold enough to time the bear's brief (two week) naps.
Why might this perspective be wrong? Because the housing/credit crash, which strongly affects large, real companies employing hundreds of thousands of workers, will be minor compared with dotcom, which mostly affected imaginary companies with no products or employees.
Mar 24, 2008 6:32 am US/Central
Restaurant Servers Feeling Economic Pinch
ST. CLOUD, Minn. (AP) ― Plenty of people are worried about what the tightening economy will bring, but for some restaurant servers, the pain is already here.
St. Cloud waitress Jackie Moll says her tips have dwindled from about half of her annual income to about 20 to 30 percent.
The 31-year-old Moll says her tips have gotten more inconsistent in the past year, too. One day she'll make $50, the next day $20.
Tips usually make up a majority of the salary for Minnesota's more than 49,000 servers.
The story's the same for Steph Wellen, a waitress at a Famous Dave's in Waite Park. She says her usual tip has dropped from 15 percent to 10 percent in the past year. That means she's had to cut out $50 to $100 per week from her budget.
I say taxpayers should pay a quarterly dividend to all banks in failed subprime loans. This is not a tax but an opportunity to strengthen The American banking institutions and help restore investor confidence in both banking, bonds, derivatives, SIFMA and NAR.
This dividend could be paid to IRS to pay down the recent stimulus debacle as well!
" I prefer not to let Rome burn but applaud the actions to save it"
Why did Rome burn? Was it because the savings of the many was stolen to support the overconsumption of the few? The greatest thing wrong with the bubble was the stealing of savings that should have went into productive capital formation. Not a lottery of SIV,CDO'S MBS, & OTHERT MIXTUERES OF TOXIC ALPHABET SOUP.
Our overconsumption was spread through society but most of us will be left holding the bag. I do not want Rome to burn and I will be far better off if it does not. I hope I am wrong.
We know The Fed is retarded, along with every agency, but if there was any doubt that every senator and Congressman has any integrity or honesty, this seals the deal! This goes beyond retarded fraud, this is a criminal conspiracy backed by mafia-like collusion!
Anonymous
Amen brother
It is so reassuring to know that the credit crisis is over and people are back to pruchasing debt.
Goldman, Citi Get Fees for Failed Auction-Rate Bonds (Update1) - Bloomberg.com
off topic. Maybe this new technology can be used for regrowing wall street brains
Medicine's Cutting Edge: Re-Growing Organs - CBS Sunday Morning - CBS News
Sebastian,
First off, I really do hope you make money, I just completely disagree on your methodology. IMO (which doesn't count for much) I believe if you "invest" that way, you will lose your ass. If you trade, you stand to make money.
I am not a permabear that wishes ill on everyone, I am of the opinion that "we" are being taken to the cleaners repeatedly and have a hard time staying above water. I happen to think that you are presently being taken to the cleaners. You do not think that way, which is why there are always buyers and sellers.
I couldn't be more sincere in that I wish absolutely no-one lose money in this fixed game, including you. I enjoy the bantor back and forth and when you make statements, I like to counter them with "the other side."
That being said, reported inflation is a joke.
Definition = increase in money supply.
Average increase in money supply from 1996 to 2006 = 10% per year of actual $$ created. Those numbers are indisputable. The results are 2 bubbles, dot com and housing/derivatives (and increased commodities) - also indisputable.
Reported inflation is a ruse to lower the SS paychecks and decrease the federal deficit. Hedonics and Substitution further the ruse and "fool" many. So, yeah, reported inflation is low, but the effects of inflation are everywhere (commodities, bubbles).
Cheers
Wall street, Wahsington, Cramer, Stocks, all say crisis is over. Go long with everything you've got, hell, go margin up now that you can borrow again!
Wall Street Firms Cut 34,000 Jobs, Most Since 2001 Dot-Com Bust
Wall Street Firms Cut 34,000 Jobs, Most Since 2001 Dot-Com Bust - Bloomberg.com
is there no justice? Pure disgust
Goldman, Citi Get Fees for Failed Auction-Rate Bonds (Update1) - Bloomberg.com
for all of you bitching that this is a bailout, you clearly do not understand the systemic risk of letting Bear Stearns go bankrupt.
All of the derivative counterparties to Bear would immediately become senior secured creditors in the eyes of the court. There is simply not enough money to go around. Counterparties globally would stop trusting the contracts that until this point have functioned fairly well in the face of credit events.
the lesson learned is that over the counter derivatives need to be regulated in ways they have until now avoided. but to say that the Fed should have let Bear fall is foolish.
ipodius:
How about you put up your portfolio on here for all of us to take a look at? Surely you're man enough to do that. After all, you're only anonymous here. We'll check back in one and two months to see how well you did.
Sebastian, feel free to put your portfolio as well.
"for all of you bitching that this is a bailout, you clearly do not understand the systemic risk of letting Bear Stearns go bankrupt."
Anonymous, a stupid newB question for you and anyone else: How far would this "systemic risk" spread outside of financials? In other words, why should J6P care that a bunch of investors are out of jobs?
Thanks for answering.
just out from the NY Fed:
Press Release
Summary of Terms and Conditions Regarding the JPMorgan Chase Facility
March 24, 2008
The Federal Reserve Bank of New York has agreed to lend $29 billion in connection with the acquisition of Bear Stearns by JPMorgan Chase & Co.
The loan will be against a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as marked to market by Bear Stearns on March 14, 2008.
JPMC has agreed to provide $1 billion in funding in the form of a note that will be subordinated to the Federal Reserve note. The JPMC note will be the first to absorb losses, if any, on the liquidation of the portfolio of assets.
The FRBNY loan and the JPMC subordinated note will be made to a Delaware limited liability company (LLC) established for the purpose of holding the Bear Stearns assets. Using a single entity (the LLC) will ease administration of the portfolio and will remove constraints on the money manager that might arise from retaining the assets on the books of Bear Stearns.
The loan from the FRBNY and the subordinated note from JPMC will each be for a term of 10 years, renewable by the FRBNY.
The rate due on the loan from the FRBNY is the primary credit rate, which currently is 3.25 percent and fluctuates with the discount rate. The rate on the subordinated note from JPMC is the primary credit rate plus 475 basis points (currently, a total of 8 percent).
Blackrock Financial Management Inc has been retained by the FRBNY to manage and liquidate the assets.
The Federal Reserve loan is being provided under the authority granted by section 13(3) of the Federal Reserve Act. The Board authorized the FRBNY to enter into this loan and made the findings required by section 13(3) at a meeting on Sunday, March 16, 2008.
Repayment of the loans will begin on the second anniversary of the loan, unless the Reserve Bank determines to begin payments earlier. Payments from the liquidation of the assets in the LLC will be made in the following order (each category must be fully paid before proceeding to the next lower category):
to pay the necessary operating expenses of the LLC incurred in managing and liquidating the assets as of the repayment date;
to repay the entire $29 billion principal due to the FRBNY;
to pay all interest due to the FRBNY on its loan;
to repay the entire $1 billion subordinated note due to JPMC;
to pay all interest due to JPMC on its subordinated note;
to pay any other non-operating expenses of the LLC, if any.
Any remaining funds resulting from the liquidation of the assets will be paid to the FRBNY.
Statement on Financing Arrangement of JPMorgan Chase's Acquisition of Bear Stearns
Was this a lawyers Billion $ blunder?
How about this from Business spectator
That the current CEO of Morgan, Jamie Dimon, has suddenly raised the offer for Bear Stearns from $2 a share to $10 a share against a vast absence of alternatives is a sign that moral hazard is alive and well and that these days the lawyers are in charge.
The fact that JP Morgans lawyers made a mistake, according the New York Times, didnt help either.
The Times says Wachtell, Lipton, Rosen & Katz inadvertently included a sentence in the original contract that would have given Bear Stearns shareholders the ability to block the sale and seek a higher offer while still forcing JP Morgan to guarantee Bears trades. Dimon was said to be apoplectic and looking for ways out of it, but by Friday was back seeing Alan Schwartz, the Bear CEO, to renegotiate the deal.
Why isn't anyone raising the question of conflict between Jamie Dimon being a director of the New York Fed and the CEO of the company that will ultimatley bennifit huge from this corporate rape???????
In more news:
Fed taps BlackRock to manage Bear 30 million portfolio just as BlackRock announces:
BOSTON (Reuters) - Money management firm BlackRock Inc (BLK.N: Quote, Profile, Research) and hedge fund Highfields Capital Management are backing a new firm that will buy up distressed mortgages, betting that investors are ready to snap up bargains in the beaten down sector.
The new company, Private National Mortgage Acceptance Company, which will be known as PennyMac, plans to raise capital from private investors and will help borrowers restructure loans to avoid foreclosure.
BlackRock, Highfields back firm to buy mortgages
| Reuters
No doubt lots of bargains in that Bear portfolio.
Maj Tom said: "...the smart money is pumping the market now to sell to you while those of us that wait for PE's to return to below 10 to truly buy at a discount."
then: "I am not a permabear..."
Okay, in the spirit of friendly give-and-take, could you square these two positions? You may not be a literal permanent-and-forever bear, but that's the kind of thing (returning to extremely low historical valuations) they talk about on permabear websites.
In the meantime, I'll share something with you that I'm looking at.
In the 1973-74 bear market, the SP500 valuation dropped to a PE of about 7, at the absolute index low in October, 1974.
The index (and valuations) rose from there.
That valuation low was retested in 1980, right before a massive rally.
The market went through another correction and the valuation low was tested again in August, 1982...which turned out to be the beginning of a major new secular bull market.
In this millenia we had a major bear market, with the valuation low hitting around 14.6 at the SP500 Index low of October, 2002.
On our recent correction, that valuation low was retested with a PE low just under 15.
If one thinks in terms of patterns instead of in terms of absolute numbers, this one looks similar. When you consider that valuations dropped that low in the '70s because inflation and interest rates were so high, yet we aren't in the same conditions...
I think a PE in the mid-teens is appropriate to be considered "low" in this environment.
Sebastia
Sebastion, With credit contraction well heeled we will return to more traditional PE's and earnings models. 14 PE for a standard growth model is no longer valid. Hello 70's!! P.S. You need to stay away from the shrooms over the near future or you are going to start to sound more like Kudlow.
Shouldn't the well be about dry by now?
I just wonder what variable I'm not considering that explains the reality of a pretty much perpetually rising market. Everyone's hedged, no one loses big money and everyone seems to gain 5-15% annually.
?????????????????????????????
Who pays the other side of the trade?
We do! The taxpayers (us little people too stupid to earn ALL our income off of dividends), that's who.
I Want Ber Nan Na Kee (to the tune of Money for Nothing)
(Ethereal background voice, strangely reminiscent of Sting.)
Send in Bern an na kee
Send in Bern an na kee
(Bitchin Guitar intro .)
Look at those good suits, workin on a weekend
Gettin money from Ber nan na kee
Not a bailout, thats not what theyre wantin
They want Bear for two bucks and the building free
Not a bailout, thats not what theyre wantin
not asking for a bailout, no
Just want a little for the bond guys
Just a little for the board
Theyve really screwed the shareholders
Guys who paid one seven three
They aint asking for a bailout,no
Theyd rather do the work for free
It sounds like there are a few share holders
That have a little beef with them
Six bucks a share on Friday evening
On Monday morning it's gone up to ten!
They aint asking for a bailout,
Theyd rather do the work for free
(Another bitching guitar solo)
Theyve really screwed the stockholders
The guys who paid one seven three
They aint asking for a bailout,
Theyd rather do the work for free
I never took the class at B-school
that taught me how to play this game
LEH is dropping 20 and a quarter
I never should have shorted then
What up there. Oh no- LEH is spiking
My 401k looks like 2001
Not a bailout, thats not what theyre wantin
They want Bear for two bucks and the building free
Theyve really screwed the stockholders
The guys who paid one seven three
They aint asking for a bailout,
Theyd rather do the work for free
(more guitar, dog howling)
Not a bailout, thats not what theyre wantin
They want Bear for two bucks and the building free
(Repeat, fade)
.....disregard previous post.
Sebastian,
This just cracks me up - I'll bite.
Your data - In this millenia we had a major bear market, with the valuation low hitting around 14.6 at the SP500 Index low of October, 2002.
My data - PE of 27.12 on Sept 30th, 2002, (that is from the S&P website). Here is a picture if you like those - Shiller produced and repeated on wiki. Kinda makes the point that valuations were extremely out of normal.
http://en.wikipedia.org/wiki/Image:IE_Real_SandP_Price-Earnings_Ratio%2C_Interest_1871-2006.png
Your data - On our recent correction, that valuation low was retested with a PE low just under 15.
My data (again from S&P) 18.68 on 12/31/07.
I think I figured out what you are looking at - which is a novice mistake - using forecasted P/E. Keep in mind what happens when the "forecast" becomes negative...yep, you get some crazy numbers like a trailing PE of 46 on the Dow Jones and 18.68 on S&P 500 (soon to be higher).
Thanks for the entertainment, although as a trader - I am glad you picked the bottom in October 2002 and made some money then. Of course, I know that you got out at 1030 (a 30% profit from the low)...
Keep trying Sebastian - you just might convince me to sell more calls this week!
Cheers.