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What are the Ramifications of the Fed's Bailout of Bear Stearns?

ECONOMIC REPORT
March consumer confidence down, outlook grim

By Ruth Mantell, MarketWatch
Last update: 11:35 a.m. EDT March 25, 2008Print E-mail RSS Disable Live Quotes
WASHINGTON (MarketWatch) -- U.S. consumer confidence fell in March, while expectations hit a 35-year low on pessimistic views of the business climate, job market and personal income, the Conference Board reported Tuesday.
The March consumer confidence index fell to 64.5 from a revised reading of 76.4 in February. Economists surveyed by MarketWatch had expected a March reading of 73.3. Consumer confidence is at its lowest since the Iraq War in 2003.
The Conference Board's expectations index, meanwhile, hit its second-lowest level ever, falling to 47.9 in March from 58.0 in February. In December 1973, expectations were at 45.2.
Those expecting business conditions to worsen over the next six months rose to 25.4% in March from 21.6% in February. Those expecting fewer jobs rose to 29.0% from 28.0%. And those expecting greater incomes fell to 14.9% from 18.0%.
"Looking ahead, consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon," said Lynn Franco, director of consumer research at the private Conference Board.
Expectations for the inflation rate in 12 months rose to 6.1% from 5.4%.
Consumers' views of present-day conditions declined to 89.2 in March from 104.0 in February. Those claiming business conditions are bad rose to 25.4% from 21.3%. Those saying jobs are "hard to get" rose to 25.1% from 23.4%, and those saying jobs are "plentiful" fell to 18.8% from 21.5%.
Elsewhere Tuesday, the Case-Shiller home price index showed U.S. housing prices in 20 major cities declined by a record 2.4% in January, falling for the 18th month in a row and bringing down prices by a record 10.7% over the past year. See full story.
Buying plans impacted
Data show consumers' buying plans have also been impacted, according to the Conference Board.
Consumers with plans to buy an automobile within six months fell to 5.1% in March from 5.4% in February. Those with plans to buy major appliances in coming months fell to 28.2% from 32.1%.
Ian Shepherdson, chief U.S. economist for High Frequency Economics, sees consumer spending dropping to an on-year rate of negative 2% in the near future, if current consumer confidence levels are sustained.
"If spending does weaken to that degree, an outright recession will be unavoidable and a severe recession will be very likely," Shepherdson wrote. "In short, this is one of the most alarming economic reports we have seen in this cycle so far."
Chain-store sales for the week ended March 22 rose 1% from the year-ago period, but were down 0.4% on a week-over-week basis, according to a survey released Tuesday by the International Council of Shopping Centers and UBS Securities. See full story.
The year-over-year result is "disturbingly weak," given that Easter was the earliest in 30 years, according to Ried Thunberg ICAP.
"Perhaps flooding in the Midwest dampened sales in that region of the country, but even so, sales are poor even considering the state of the economy with falling home and stock prices, high energy prices, turmoil in the financial market, low level of confidence, or -- in a word -- that the country is in recession," Thunberg said.
In contrast, those with plans to buy a home within six months gained to 3.3% in March from 2.9% in February. On Monday, the National Association of Realtors reported that the U.S. housing market showed signs of stability in February, as sales of existing homes rose modestly, boosted by a record decline in prices. See full story.
Ruth Mantell is a MarketWatch reporter based in Washington.
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OH the news is bad so lets focus on rate cuts------

OH my gosh---only 2.25% left------tick, tick, tick, BOOM!!!!!!!!!!!!!!!!

- ken2

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JP Morgan Rolls the Fed of New York (and BSC)

Analyst: Deal could have J.P Morgan pay $65/share for Bear

By Riley McDermid
Last update: 9:34 a.m. EDT March 25, 2008Print RSS Disable Live Quotes

NEW YORK (MarketWatch) - J.P. Morgan Chase's (JPM:JPMorgan Chase & Co
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Last: 45.36-1.19-2.56%

11:43am 03/25/2008

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JPM 45.36, -1.19, -2.6%) increased bid of $10 a share for troubled brokerage Bear Stearns Co. works out to the bank paying about $65 a share after all costs and debt is absorbed, Punk Ziegel analyst Dick Bove wrote in a research note Tuesday. Bove said the total transaction cost of $3.44 billion added to the original Bear shares offered and the 12-month loss of $6 billion J.P Morgan will pay to combine the two companies, plus the purchase price, will have the bank paying around $65 per original Bear share. "This is approximately the same as Bear Stearns opening price on March 12," Bove said, making it no bargain for J.P. Morgan investors. "Investors believe that J.P. Morgan is underbidding for Bear Stearns and getting it at a bargain price. I do not," Bove said. "Bear Stearns is a deeply troubled company which would have no value if the Federal Reserve had not stepped in to bail it out."

Which Investment Bank to Buy?

Hold on your horses for NOW: RECESSION JUST START

BANK WILL GET DOUBLE DIP BEFORE MOVING UP FOR REAL....

READ THIS...
Risk of a Global Recession Following the U.S. Hard Landing?
Nouriel Roubini | Jan 30, 2008
It is now clear that the US economy is already into a recession that started in December 2007: the data on December employment, retail sales, manufacturing ISM, housing and other macro variables confirm it. And the 0.6% growth for Q4 GDP confirmed that sharp slowdown of the economy in Q4 and its tipping over into a recession by December. It may take –as usual – almost a year for the NBER to formally declare that a recession started; but when that decision is made it will be clear that the great US recession of 2008 started in December 2007 or – at best – Q1 of 2008.

At this point it is clear that the debate has shifted to how deep this recession will be, a mild one lasting two quarters as the new consensus claims or a deeper, longer recession – lasting at least four quarters – as I have been arguing for a while.

It is also clear now that this US recession will lead to a global economic slowdown – short of a global recession that would occur if global growth were to be below 2.5% - and to actual recession in a number of individual economies.

Jim Cramer's Mad Money In-Depth, 1/10/08: Bottom's Up

Jim pay attention to Mike Perry CEO of IMB

www.indymacbank.com/

IMB own this Gem:

www.financialfreedom.c.../

Explanations...

"With that said, management and certain key employees (about 130 employees total) have over $40 million in the deferred compensation plan, and the company has arranged to be able to “open this plan up” and for individuals to be able to use these funds to purchase IMB stock….and several of us, including myself, plan to do this (personally, I am planning to invest more than $1.5 million)."



Shareholder’s Email:

Mike,

It’s been some time since we’ve had a chance to meet and talk. I’m a shareholder once again … While I realize that the decline in IMB’s stock price has been painful to you in many ways (not just financially) I think there can be no stronger message about the viability of IMB as an institution than significant insider buying at these depressed levels. If management can’t step up at these levels, then imagine what a “leap of faith” it must be for outsiders to purchase the stock at these levels. Thanks for taking the time to read my email in what must be an incredibly hectic time for you. Best of luck.

Mike Perry’s Response:

I completely agree with the point of your note. I think you know I bought $1 million of our stock earlier this year at $29. In addition, we have had a lot of other managers and some directors purchase this year, too.

Also, management and the board have lost more personally this year than anyone else by far…as most of us have not sold any stock or options in 2006 or 2007 (no sales from the CEO, President and CFO during this time). As a result, most of us are not in a personal financial position to purchase shares…even though we would like to.

With that said, management and certain key employees (about 130 employees total) have over $40 million in the deferred compensation plan, and the company has arranged to be able to “open this plan up” and for individuals to be able to use these funds to purchase IMB stock….and several of us, including myself, plan to do this (personally, I am planning to invest more than $1.5 million).

Unfortunately, our window for insiders to trade IMB stock is currently closed.

I would expect that the window will reopen once we release 4th quarter earnings in late January, and I would expect to see myself and other insiders purchase in a material way (for management) at that time. I hope that makes sense.

mike

www.financialfreedom.c.../

Unlocking of Value

Another intriguing part to Indymac thats not well appreciated is a business it owns, a reverse-mortgage originator called Financial Freedom, that sits on its books for $80 million. Financial Freedom is the largest player in the reverse mortgage space. This is an area of tremendous opportunity and market focus. As the population ages, the reverse-mortgage business has been booming and is widely expected to grow at 20% or more annually for years. There lately been a lot of interest both from private equity and strategic buyers. For example, earlier in the year Seattle Mortgage, the third-largest player, was bought by Bank of America.

Indymac had bought Financial Freedom from Lehman Brothers for $112 million in 2004. The acquisition has been a home run: last year First Freedom earned $54 million. Should Indymac decide to sell this business, it’s not hard to imagine a price of, say, 15 times trailing earnings, or $800 million. To put that into context, Indymacs total market capitalization is $420 million. For myself, I'll be delighted to see the company sell a minority stake to show the value of this business.