There is something odd, yet comforting when I watch a classic Bruce Lee or Godzilla movie. The people’s lips are moving and while I hear words, the two don’t quite match up. In spite of that, somehow it works anyway and is a reminder that what is happening on the screen is far fetched and should not be confused with reality. Perhaps a good lesson applied to last Tuesday’s $200 billion announcement to Sunday’s $2 news.
As I read the horrifying news of JP Morgan (JPM) and Bear (BSC), I suddenly thought about the (former) masters of the lip-sync world, Milli Vanilli. Remember them? Rob and Fab were the gorgeous singing duo who had a hypnotic effect on a global scale. When they sang, fans were awed. When they danced…well, actually let’s not go there.
Where are they now? As soon as they were outed in 1989 during a live MTV performance of their hit song, Girl You Know It’s True, they fell quickly and painfully. It was a sad end to one life and the two careers of men who will forever be remembered as talentless puppets.
Our trusted government and its agencies have now taken over as the Milli Vanilli of Finance. Who in the hell is calling the plays? Who is making these abhorrent decisions to hide information from the public and allowing for a multi-billion dollar company to to fail over a weekend? How are we going to have trust in the system if they pull a fast one like this? It is now more obvious than ever that we are in bad shape and the lack of either:
1) The people in the know, knowing or
2) Trust for the system
is going to hit hard. Bear Stearns (BSC) is another casualty that could have been avoided. But, instead of going through steps that could have been taken as that is meaningless at this point, maybe we should be thinking about what else is coming and work on a plan to protect ourselves. Thinks about it…it is now every person for themselves as lips are moving by Ben-n-Bush, though they are not saying anything.
So, as a protective measure, use a hedge against a market nosedive - assuming it is not too late. As was suggested on 3/12/08 (Bernanke’s Junk Exchange), look at (SDS) (SKF) and (QID) as some short-ideas that will give you the best bang for the short buck. Don’t stop there though as there is surely going to be further fallout.
Lehman (LEH) is in the same trouble as Bear since they have somewhat similar business models. JP Morgan is absorbing a massive amount of debt that will continue to be difficult to value. Look no further than the Bank of America (BAC) and Countrywide (CFC) fiasco as a foreshadowing of what is in store for JPM. While the far future may be lined with profits, JPM shareholders will need strong constitutions during the short-term. Be careful to hedge these positions if for some reason you do not want to sell outright.
During the next few days, amazing trading opportunities will probably arise as rumors and speculations will run rampant. Tuesday’s FED meeting will be watched very closely and once again, no matter what rate is cut and by how much, we (investors) are going to realize that unless something is done dramatically different, we are going to have the same results, time after time.
On the watchlist this week will appear all of the financial sector stocks and we will be reviewing the most vulnerable credit card companies, as VISA (V) will assuredly end up postponing their IPO. Unless the lead underwriters - JP Morgan and Goldman Sachs (GS) - are completely deranged and masochistic, Tuesday is not going to be the best day to attempt to bring history’s largest IPO to market.
In addition, I also believe that it is possible that JPM will have their hands full with a small integration matter. The timing is simply wrong for the VISA IPO.
Just like Milli Vanilli of the music world, this Milli Vanilli Government will fall quickly and painfully. It will eventually serve-up a sad end to the careers of two men who will forever be remembered as talentless puppets. Hold on tight, this week is going to be rough.
Disclosure: Horowitz & Company clients hold positions LONG and SHORT in securities mentioned as of the publish date.