Karl Zachar

Merrill's Moves Make It More Appealing Takeover Candidate

What would Goldman Sachs gain by buying Merrill? I think that is a crazy idea. Furthermore, JP Morgan just bought Bear Stearns. Will they really buy another broker?

The more interesting rumor is one posted on the NYT DealBook today stating that Goldman Sachs "might" be in the market to buy a bank if the price was right. Despite today's rally, we should continue to see weakness in the bank stocks so GS might get their chance. Now that would be risky and aggressive, but would make more sense than GS buying MER.

karlzachar.com

Bernanke Plays It Safe

Why is everyone surprised? The Fed has been telegraphing a 25bps cut forever. Now they did exactly what they implied they would do. What's wrong with that? I think the market traded off at the end of the day because the Fed signaled that they might be done cutting rates. With the FF rate at 2%, is anyone surprised that the Fed has used up rate cutting ability?

Is Starbucks Getting a Caffeine Boost?

I agree with Gilbert's positive sentiment on SBUX. Starbucks is still a terrific brand name with a loyal customer base. The question is: "Why buy NOW?" Over the past two years (SBUX peaked in May 2006), the stock has been on a downward trajectory. No one has made money with SBUX shares (except for shorts). I am not smart enough to pick the bottom. Sure, having a major management change can’t hurt. But the share price won’t turn until it becomes too cheap not to own. Right now it trades at EPS multiple of 18X ’08. EPS is growing at 14%. We might have to wait until Schultz gets those profits growing again.

Note: there may not be too many Starbucks in Montana, but in NYC, there one on literally every corner. Getting EPS growth back to 25% won’t be easy.

Karl Zachar
karlzachar.com

The Fed Defends the Indefensible

At yesterday’s testimony in front of the Senate Banking Committee, Bob Steel (Treasury Under Secretary) said that his boss (Treasury Secretary Hank Paulson) set it up for JP Morgan to buy Bear Stearns at the low ball price of $2 per share. (Just one week prior Bear’s stock was trading at $70.)

It is now clear that the $2 stock price offer (which was orchestrated by Paulson and Bernanke) would justify the government’s highly criticized $30bn bailout of Bear. (“We had to bail out Bear. It was a sinking ship. Look, it was only worth $2 per share.”)

Bear had to accept any offer that was given to it. It was desperate. They were in no position to negotiate price. The Fed and Treasury handpicked JP Morgan and told them: “if you buy Bear Stearns and save our collective political asses, we will “give” Bear to you for $2 per share.”

Remember, Bear’s stock price traded at $70 one week prior to this and $170 12 months ago. So the Fed and Treasury screwed Bear’s employees and shareholders by giving away the company for $2 per share. Why did they do this? To save their political futures – that’s why.

At the end of the day, even JP Morgan could not get away with this crime. So they eventually bought Bear for $10 per share. Still pretty damn cheap.

Bob Steel had better watch out. His old Goldman buddy Hank might be in trouble - big trouble. The Democrats have a huge incentive to go after Hank for his blatant cronyism. Hank threw Bear shareholders under the bus to temporarily save is butt. He might just throw Steel under the bus next.

Moral hazard my foot. Physical hazard is more like it. Heads are going to roll for this circus act.

Karl Zachar
karlzachar.com

JPMorgan's Actions Indicate Bear Was a Bargain

At yesterday’s testimony in front of the Senate Banking Committee, Bob Steel (Treasury Under Secretary) said that his boss (Treasury Secretary Hank Paulson) set it up for JP Morgan to buy Bear Stearns at the low ball price of $2 per share. (Just one week prior Bear’s stock was trading at $70.)

It is now clear that the $2 stock price offer (which was orchestrated by Paulson and Bernanke) would justify the government’s highly criticized $30bn bailout of Bear. (“We had to bail out Bear. It was a sinking ship. Look, it was only worth $2 per share.”)

Bear had to accept any offer that was given to it. It was desperate. They were in no position to negotiate price. The Fed and Treasury handpicked JP Morgan and told them: “if you buy Bear Stearns and save our collective political asses, we will “give” Bear to you for $2 per share.”

Remember, Bear’s stock price traded at $70 one week prior to this and $170 12 months ago. So the Fed and Treasury screwed Bear’s employees and shareholders by giving away the company for $2 per share. Why did they do this? To save their political futures – that’s why.

At the end of the day, even JP Morgan could not get away with this crime. So they eventually bought Bear for $10 per share. Still pretty damn cheap.

Bob Steel had better watch out. His old Goldman buddy Hank might be in trouble - big trouble. The Democrats have a huge incentive to go after Hank for his blatant cronyism. Hank threw Bear shareholders under the bus to temporarily save is butt. He might just throw Steel under the bus next.

Moral hazard my foot. Physical hazard is more like it. Heads are going to roll for this circus act.

Jim Cramer's Mad Money In-Depth, 11/30/07: Holy Moly

For once I agree with Cramer. Buy a basket of beaten up financial stocks: C, MER, MS, BAC, etc and hold on for 2 years. You'll be in great shape once we flush out of this sub-prime mess.

Apple's Leopard Could Propel Macs Beyond Estimates

Why would anyone considering buying a PC for home use ever buy anything but a Mac? Now, while penetrating the business market is more difficult, Mac currently have a tiny marketshare so they have lots of room for growth. Now the trick is getting corporate IT departments to support the Mac.

Merrill Lynch: What's Up With John Thain?

Don't forget that John Thain had to deal with the prickly floor traders at the NYSE. If Thain can deal with a bunch of floor traders, he can manage Merrill’s retail brokers. Thain is tough as nails and has something to prove.

Leading Hedge Funds' Best Ideas

Interesting strategy. Just make sure your readers are aware that the 13F's are published approx 45 days after the quarter ends. If you try this copy-cat approach, you risk buying a stock you think your favorite hedgie owns when indeed the hedge fund has actually sold its position in the last 45 days!

The Case Against Leveraged ETFs

I was naively just about to buy a 2X leveraged ETF and your article shed a lot of light on the subject. Great article Tristan and great discussion. Thank you.

Here's my "problem". I am looking to invest in my IRA with a 10-20 year time horizon. (This is obviously a non-taxable account and I can't use leverage (no margin borrowing in an IRA)). My theory is that the SP500 will return an average of approx 8% per year for the next 10 years. So I am looking for an instrument that that is better than buying an ETF on the SP500. I want to get some leverage on the SP500. (The risk of doing this is that the first couple of years are key. If the market is down big in year 1 and 2, my leveraged SP500 idea will look pretty stupid.)

Assuming the market in teh next couple of years will not be disasterous, what instruments can I use? How about LEAPS on the SP500? Any better ideas?