Fed Makes a Gift to JPMorgan Written By: David Neubert 2008-03-17 14:13:09 I bought Bear Stearns (BSC - $4.68 - down 85%) on Friday for $33.00. I thought there would be some kind of rescue package. I was wrong. Here, Portfolio.com blogger, Felix Salmon summarizes some of my comments and those by others. Instead, what I got was The Fed exacting their revenge on Bear at my expense. I also benefited by the gift that the Fed gave to JPMorgan (JPM - $40.01 up 10%). Basically, what has happened is that the market (and I) didn't expect the government to play favorites and give such a valuable asset away at the shareholders' expense.
Did Bear Stearns deserve to go away? I don't doubt it. It would seem they didn't understand their own risks and didn't treat others nicely. As someone who competed against and interviewed a couple times at Bear Stearns over my career, I think I have a fairly common opinion of the firm. They were not very good citizens in Wall Street. For example, as a free rider they did not pitch in on the 1998 rescue of LTCM, though they did benefit. They culture at Bear Stearns was one of extreme self interest, which promoted chaos.
I know several employees at Bear who are wiped out. Stock vesting at Bear Stearns was cliff vesting over three years. This means that had to stay with the firm for three years to get your stock. Compensation at Bear (and most of Wall Street) is between 25%-65% in stock. So we are looking at a least a year's worth of earnings for many Bear Stearns employees being transferred to JP Morgan shareholders. I feel bad for these guys. They weren't expecting this. I know many others may not feel bad for this unlucky group. They are very employable and it's hard to get anyone to feel bad (except for the Bush administration) for millionaires getting pay cuts.
Photo:Photobunny, Creative Commons, Flickr
Martin Scorsese might join Leonardo DiCaprio to film the story of one of Wall Street's most notorious swindlers, Jordan Belfort (Story at DealBreaker.com).
"Sent you a message on your Facebook acct...you adding to Merrill Lynch (MER - $42.97)? Can't get a read on the big pullback..do the institutional traders know something we dont?"
I'm not adding to MER and I'm actually out of it for a while. My stop loss rule got me out just after I wrote about Thain. (Sadly, I did not apply that same stop loss rule to some other stocks recently).
The institutional traders are selling everything financial. There is nothing special happening with MER that isn't happening with Lehman (LEH - $42.03 ), Goldman (GS - $160.92), Citigroup (C - 20.16), Morgan Stanley (MS - $40.62) and the rest. And if there is I'm not sure what it is. Unless you have really done a lot of research and figured out something special about specific financial companies, I'd rather play the financials using the financials iShare (XLF -23.66) at this point. I'd rather not take the specific risk of any one company at this point. If you believe financials are cheap you might as well buy them all. The fund provides diversification and thus is much less risky. I don't know if any of these firms are going under but I'm sure they are all not. And when they bounce back up they will NEARLY all bounce together.
Global Warming and the Stock Market Suffer Same Uncertainty Written By: Jeanne Roberts 2008-08-29 14:53:50
I was doing some research yesterday when it hit me; the stock market and global temperatures (i.e., global warming) are both undergoing a period of such unpredictable instability it’s hard to know what to expect from one day to the next.
