Blood In The Streets

Not only is the Fed bailing out Bear Stearns, it’s been announced over the weekend that JP Morgan (JPM) is actually going to buy Bear Stearns (BSC) for $2.    To put this into perspective, BSC was at $159 in April of 2007.  It was at $90 at the end of January of this year.  It was in the $50s just two days ago.  It sold for $2 per share.  Amazing.  JP Morgan (JPM) looks to have stolen another company.  And, the Fed is helping with the funding.  They still have assets.  The smart guys on the street want in somehow.

In another move, the Fed made some moves over the weekend.  They cut the discount rate to 3.25% and they announced they will lend to the 20 firms that buy Treasury securities directly from it.

The market is scheduled to open much lower on all of this news.  What the Fed is doing is the correct action.  However, investors are obviously worried about not only more companies potentially going under, but the financial system seizing up.  The Fed is injecting liquidity as they should and it’s clear they won’t let anybody go under as long as they believe it could hurt the financial system by letting that particular company to go under.  If BSC was to go under, it would have snowballed and trickled down to other areas.

This is a completely different situation but it reminds me of 1998.  I remember waking up in the middle of the night watching the Asian markets tumbling and our banks falling every day.  That turned out to be a great time to buy those banks.  It may be too early, but there are great bargains out there.  Just as there are companies that are trading way too high right now, there are companies being dragged down because they are a “financial”.  Our job is to figure out which ones are on sale.  Also, keep an eye on sectors that have nothing to do with the financials, like tech.

Gold’s racing up, the dollars falling more, and investors are heading for the exits.  I mentioned the other day the market was oversold.  This shows that even when markets are oversold, they can go lower due to something out of our control like companies potentially going out of business days after saying they were ok.  The lack of panic I was complaining about last week may be upon us now.  If it escalates, we could get that washout that would make me more bullish.

For now, I’m happy having cash, shorts, and some longs. 

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1 Response to “Blood In The Streets”


  1. 1 stacy March 17, 2008 at 7:56 am

    We seem to have a lot of bubbles all at one time; high oil prices, low dollar, high commodity prices, a major financial institution failing & others on the brink, consumers getting really ticked about high energy prices & feeling the pinch. Topping all this off, Democrats talking about raising taxes, yikes!

    Everything that is going on seems to be a real messy crisis right now. Could this mess kick the US economy into a long term down fall that could last for years? And, is this why the FED is taking action not seen since the great depression.
    Could this be a time for picking up some good buys with a low risk entry? Or not?


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