Friday, March 14, 2008


So much has happened over the weekend. I haven't had time to get a post up because we have family in from out of town and I have been very busy writing up my thesis. But here's the short skinny:

Bear Stearn (BSC) was "orderly liquidated" this weekend, sold to JP Morgan for $2 a share. Yes, $2 a share. No really, $2 a share. At the end of the day on Thurs., BSC was trading for $57. One year ago, they were trading at $147. Today they closed at $4.81, presumably because many happy investors had to cover their shorts.

JP Morgan made out like a bandit. More from the Big Picture:

2) JPM looks to have gotten a great deal – the Fed is actually taking on the first $30Billion in risk; Unless BSC’s losses exceed that, it’s a winner for JPM.

3) The Fed took this risk because JPM could not possibly have done the due diligence over the weekend....

5) JPM gets a terrific scapegoat for the next 4 (or 8 or 12) quarters to blame for all of their crappy paper, leveraged risk, and counter-party obligation.

Many are saying Lehman Bros (LEH) are next. Could be. They tanked hard today, down over 40% at one point. But they crawled back to only take a 20% hit by the end of the day. And that seems to holding more or less afterhours. But I decided to look at the longer picture of LEH versus some of their competitors. All are down big in the last 6 months:

LEH was holding up pretty well until late Feb, whereas MS, UBS, MER, and BSC have been in steady decline. especially since late Oct. Even with the beating LEH took today, they're doing about the same as the others. Even better than UBS (ignoring BSC, R.I.P.).

Of course the problems facing LEH are eerily similar to those that were facing BSC. So the rumors may be true. We'll see.

Interesting times, indeed.

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