Batten Down the Hatches

Turns out, if you’re watching the futures, that the Fed’s bailout of Bear Stearns via Bear’s shotgun marriage to J.P. Morgan at $2 a share isn’t being viewed particularly well.

“At least it’s not $1.99,” jokes one friend.

But his joking underscores the message the deal sends to investors: With a price that low, things must be worse than anybody really knows and, if nothing else, makes you wonder what’s on the liability side of Bear’s balance sheet.

That’s underscored by the Fed’s unusual Sunday night discount rate cut, which was done to “bolster market liquidity” and “promote orderly market functioning.”

“Bolster market liquidity” and “promote orderly market functioning” are two terms that, no matter how you couch it, broadcasts just how tenuous the situation really is. So does futures trading in gold, the dollar and oil, all of which are bracing for the worst..

“It feels like we’re in the seventh inning,” says one savvy and veteran trader, who has been more right than wrong in predicting the market’s swings over the 20 years I’ve known him. “The trouble is we just don’t know how bad the eighth and ninth innings will be.”

Monday’s trading will certainly hold a clue.

Comments

[sammyg123]

This doesn't feel like the seventh inning at all. We aren't even through the worst of the ARM adjustments yet, which will end around the end of May. June might be the 4th inning or so. Right now, we might be in the first. Then, there will be all of the inevitable ramifications being played out in the market after the implosion that we are dealing with right now.

[Chungst]

Jimmy Cayne lost big time. Dave Faber of CNBC made a comment last Friday that JC lost something like $1 billion given BSC used to trade at $170 a share.

I checked JC's filings with the SEC, and it said: "The Reporting Person is the beneficial owner of 7,008,839 shares of Common Stock or 4.79% of the outstanding Common Stock" based on the latest filing. Ouch!

Every penny (1.99 vs $2.00) is about $70K for JC. Easy come, easy go.

[John Egan]

Interesting that for $2 they didn't even take the whole company - The Feds ponied up $30B for the portions that wasn't wanted.... Hmmmm ... I wonder if there was any inside trading round about last week????

Thx jegan ;-)

[.crazylegs..]

plus, JPM still gets Bear's office building in Manhattan if the deal doesn't go through. this is like BSC paying JPM a few bucks to take the firm off their hands. crazy stuff out there no matter what inning we are in.