Sunday, March 16, 2008

Bear Stearns Executed

No Blindfold no cigarette, Bear Stearns got taken out and shot.


Double click for larger image

From the picture, notice that Bear closed at $57 on Thursday and closed at $30 on Friday. To add insult to injury, they were sold to J P Morgan for $2 a share over the weekend.

On Thursday the stock had a market cap of 6.7 billion dollars. At the close on Friday that figure was 3.54 billion. At $2 per share the market cap is 236 million dollars.

I'll bet you can't find an investment institution anywhere that even owned one share of this stock (tongue in cheek). 6.7 billion billion dollars went poof and it only took one business day (weekends don't count)! Bear Stearns is a real dynamite stock, just look at the damage.

Copyright 2008 All rights reserved

15 comments:

Dan Mac said...

Love your blog. keep up the great work. Dan

Dan Mac said...

ps - First time posting but have checked the blog daily for months. Would be interested in finding out more about your background.

Jim in San Marcos said...

Hi Dan Mac

Up at the top of my blog under Name click on "View my Profile" That should give you what you want.

Thank you for the "ataboy"

Take care

Malcolm said...

We'll have to see if someone at CNBC misses the memo, and keeps pumping BSC as being a "value" at $50.

I was reviewing the Friday coverage on this mess, and I heard things such as "this is no big deal", "it's a strong company", "it's a bargain"

Someone really needs to ask the question: When you have millions of $ of advertisers on one side, and nameless faceless viewers on the other, who do you think is going to win?

Anonymous said...

CNBC has absoultely zero credibilty. James

Anonymous said...

So how many Bear Stearns employees just saw their 401K go up in smoke?

Note to self: sell 401K matched stock ASAP.

Anonymous said...

Well I've never posted before either. I guess we are headed into pretty rough waters. Unfortunately few average joes care about all this. When I mention in casual conversation with friends and family what is going on I am accused of being "doom and gloom". I am only worried about what is going to happen next.

Anonymous said...

Jim

How many "Bear Stearns" can the government monetize before this whole economy blows up? Bear Stearns can't be the only one in trouble, can they?

Once again, thanks for this wonderful website, much appreciated.

Anonymous said...

I hate to see all this money being tossed around to "put out fires". The finger in the dike is not a strategy. What we need is a plan.

I suggest the following:

1) Bring back the 30 year bond. Make interest tax free and set the rate low.
2) Encourage Americans to "buy bonds".
3) Offer a Federal Mortgage at a ridiculously low rate - say 3.5% to anyone who has been current on their mortgage for 12 months. No appraisal is necessary. No cash out. Just a refinance to a lower fixed rate.
4) Offer a Federal Purchase Money Mortgage to individuals who have decent credit and can put at least 10% down.
5) Allow the current loan servicing banks/institutions to service the loans. Fed owns them though.

Somehow we have to stop the bleeding. Stabilize the marketplace. Restore cash flow at the consumer level.

It's a plan..perhaps not much of one..but it's a plan.

AR

Anonymous said...

Jim
I read that the foreign investors are backing away from 10 year treasuries, does this mean that our government will have to raise it's rate of return on treasuries to entice these people back?
I'm in treasuries myself because of the uncertainty in the stock market, should I be concerned about this? (not that I would know what else to put my money in with all the chaos going on now)

Anonymous said...

Bear Sterns being bought by JP Morgan is a victory for all the other banks out there holding mortgage related assets, isn't it? Now Bear Sterns doesn't have to put their assets up to be properly priced and no one else needs to re-evaluate their books. I keep waiting for the rest of the banks to have to come forward and admit that none of their mortgage related assets are worth anything. Can the Fed postpone this forever?

Jim in San Marcos said...

Hi Anon 9:31

Long term bond can kill you.

Say you buy a 30 year 10,000 bond paying 5% interest and rates went to 20 percent. That bond will pay 5% for 30 years and you get your original investment back. If you needed to raise cash under the new interest rate, that bond would be discounted to $2,500 to $3,500 which sucks.

In reality, that is the time to buy the 5% 30 year bond when the rates are high say 20%. If the interest rate dropped to 10% the current value of the bonds would double. You would still be getting 20% on your original investment and you would have a capital gain of $2,500 if you sold. If held to maturity you would get 20% on your original investment for 30 years and a capital gain of $7,500.

Short term bonds less than five years really can't hurt you much.

If you know how to play the interest rate game with bonds, this can be very easy money (under the right conditions).

Strategic Investor said...

Where does this go next? Obviously, other investment banks and hedge funds might be in danger, but I would look to any other heavily leveraged companies - particularly any leverged companies in consumer durables.

Anyone seeing it differently?

Strategic Investor said...

Anon 10:55 -

You bet - lots of employees have discovered that their retirement is in jeopardy. Huge losses in employer stock and likely a job along with it.

This time, though, the big boys are taking it along with the little guy. The knuckleheads who mismanaged this catastrophe were among the largest shareholders. Cayne had about 5% of the stock, so his $600 million in July is now worth about $10m. Ok, he's not exactly about to go hungry, but ouch.

Jim in San Marcos said...

Hi Strategic Investor

On the way home yesterday on the radio I heard a news blurb that I haven't been able to confirm. "JP Morgan confirmed that a California retirement plan would get 1.5 billion returned to them from the Bear Sterns mess."

It looks as if the money managers from all of the mutual funds and retirement plans want out of the real estate instruments. So I wouldn't be surprised if Bear Sterns is just the first of many to drop. The bank run has just started.

Freezing the middleman's assets doesn't solve the problem, it will probably kick the mutual funds into overdrive.

To stop it, the government would have to guarantee all retirement funds. Talk about inflation :-(