ptgkc

Options Trader: Tuesday Outlook

Phil enjoy your columns and normally agree you. There two issues with the MER deal that I think you should reconsider.

"You will hear CNBC et al scream "20 cents on the dollar" all day long."

About 20 minutes after the market open, Faber was still reading the deal and found that the purchase is being funded 75% by MER. So, the real purchase price is not $6.7 Billion, unless the fund buyer can eventually turn a profit. Otherwise, there is basically a chargeback to MER. At 75% funding, worst case is they could only be getting 5 cents on the dollar. So some of the talking heads are using that number now. Only the bulls are sticking to the 20 cents as a positive spin.

Second, this isn't the final write-down. This represented $11.1 Billion of CDOs on the books from their last report. Even after last night's purge, they still have $8.8 Billion left, and we know for certain based on the last transaction that it is not worth that much.