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Nice Market To Come Home To
Posted on 03/17/2008 12:26:16 | Link | Post Comment
It has already been a wild day, and the market has only been open for an hour!
Last night, when I got home from Wyoming, I learned that Bear Stearns (BSC) had been "bought" out by JPMorgan (JPM) for $2. I thought it was a typo. $249 million? Given the hard assets of the firm, this basically placed a negative value on the investment bank.
What a stunning turn of events. BSC was the 5th largest brokerage firm in the U.S., and its stock has now lost 95% of its value since Jan. 1. This was a true "run on the bank". As confidence eroded last week, big investors at the firm pulled their money, and the bank could no longer meet its obligations.
This is the type of crisis of confidence that the Fed needs to guard against. And any argument that the Fed should not step in and help is silly. If Bear can collapse in a matter of days, it highlights the risks in the financial system. I hope the Fed cuts 100 basis points tomorrow.
Of course, the Fed also enacted a new loan program aimed at investment banks, so I doubt this will happen to any of the remaining players. Those stocks are all well off of their early lows.
As for the market, it was down big early, but not as much as you might have guessed given the turn of events. But withing an hour or so of trading, the Dow had worked its way all the way back to positive territory. Go figure.
There is still a lot of trading left today, so we will have to see how the market closes. But looking at history, this is the type of high profile event that usually punctuates these financial crises and occurs right at market bottoms. I'm just saying--
Oil is trading lower, as is the dollar. Bond yields are also lower on the flight to safety, pushing the 10-year yield down to 3.36%. Asian markets were down significantly overnight.
Last night, when I got home from Wyoming, I learned that Bear Stearns (BSC) had been "bought" out by JPMorgan (JPM) for $2. I thought it was a typo. $249 million? Given the hard assets of the firm, this basically placed a negative value on the investment bank.
What a stunning turn of events. BSC was the 5th largest brokerage firm in the U.S., and its stock has now lost 95% of its value since Jan. 1. This was a true "run on the bank". As confidence eroded last week, big investors at the firm pulled their money, and the bank could no longer meet its obligations.
This is the type of crisis of confidence that the Fed needs to guard against. And any argument that the Fed should not step in and help is silly. If Bear can collapse in a matter of days, it highlights the risks in the financial system. I hope the Fed cuts 100 basis points tomorrow.
Of course, the Fed also enacted a new loan program aimed at investment banks, so I doubt this will happen to any of the remaining players. Those stocks are all well off of their early lows.
As for the market, it was down big early, but not as much as you might have guessed given the turn of events. But withing an hour or so of trading, the Dow had worked its way all the way back to positive territory. Go figure.
There is still a lot of trading left today, so we will have to see how the market closes. But looking at history, this is the type of high profile event that usually punctuates these financial crises and occurs right at market bottoms. I'm just saying--
Oil is trading lower, as is the dollar. Bond yields are also lower on the flight to safety, pushing the 10-year yield down to 3.36%. Asian markets were down significantly overnight.
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