Sunday Night fun

Once again gathered over the past week+. Might be the last update I get the chance to send out for a while, so at least read the first section.

You've obviously heard about what happened to Bear Stearns and how JP Morgan had to borrow from the Fed to save them. They were the weak link of the top-5 investment banks on Wall Street (much like subprime was to loans) - if you think it ends with them, you are wrong.

From $60 to $30 in a day (was around $175 last year if I recall?) - and more in sight. Late to the show as always was S&P who downgraded them later in the day. It's actually noteworthy though, Bear can't borrow now. They basically have to get a deal done to sell themselves before we wake up tomorrow or they'll go bankrupt. They go under, then Lehman will go under. Lehman goes under... Obviously you see why the Fed is changing the rules "on the fly."

Lehman, UBS, Morgan Stanley. Watch them, it's going to get ugly. Oh, and on Wednesday the Bear CEO was on CNBC - his response to their liquidity crisis "It's ridiculous, totally ridiculous." Two days later = done. This is how quick this can all unwind. I'm hearing they'll likely be bought tonight for under $20.

UPDATE: Wow. JPM buys bear for $2. Just wow. (I should've loaded up on those puts - 18 bagger in a week though.) This is not good at all - this will hurt the other investment banks bad. Fed did an emergency cut in the discount rate too by 25 bp. Ouch - Yen at 95.9. This was at 100 Friday. Moving 1 yen is trouble - but 4+?! Just what we need now, a carry-trade unwind causing margin calls. This is going to get violent. S&P futures down 33. Let's see what changes by morning. Look out Lehman/Morgan Stanley. Wait, why did the Fed only cut it 25bp? Does that imply they will only cut 25bp on Tuesday now? Oh my will that be a shock (100% chance of a 75 priced in, many expecting 100). There will be intervention.



Need some humor after that?

Cramer answers mail on Wednesday:

Q: Should I be worried about BSC, in terms of liquidity, and get my money out of there?JJC: No, no, no! BSC is fine! Do not take your money out... If there's one takeaway on a plus-400 day...

BSC is not in trouble. I mean, if anything, they're more likely to be taken over. Don't move your money from BSC! That's just being silly! Don't be silly!



Lost in the shuffle on Friday was this: 45% of all foreclosures are no longer subprime - they are on "prime paper" of various forms.

Also lost was the flat CPI. It said that last month Energy was down???Over the month gas up 10%, nat Gas up 12%, diesel up 17%. Surrrrre.

I've mentioned Ultra funds in the past as good hedges (TWM, SRS, SKF). I'm telling you to be VERY careful with these. These are done with swaps. The counterparties on these swaps are companies like Bear Stearns (it's pretty much kept secret, so nobody knows). It may actually turn out to be unsafe to hold these if things start to get ugly. I'm strongly debating whether to take mine off - and I know many who are. (If you really wanted to be tricky, just short the "long" funds that are the opposite of these - then if it defaults and goes to zero, you're fine. But you can't do that in a 401k/IRA anyway). I hate that nothing is becoming safe.

Over the next couple months I expect a serious unwinding. I'm urging safety. I'd be more than happy to look back at this message at year-end and laugh. In the meantime I have NO reason to believe that will be the case. Is there such a thing as one cockroach? No. These companies all did the same things (well not as badly as Bear), and it's on the verge of collapse - which obviously happens quickly. They can spend the entire weekend sorting out Bear Stearns now - but after a few of these pop up, they are not going to be able to bail them all out (much less make them non-recourse - meaning JP Morgan is not on the hook if this blows up, taxpayers are). Don't be surprise if the markets are closed for a period of time at some point. You WILL be able to buy back at lower prices.

This'll say it better than me.
http://market-ticker.denninger.net/2008/03/very-beary-future.html

Expect craziness this week - after tomorrow's nuttiness we have the Fed on Tuesday - 75bp's priced in, Citi calling for at least 100bp cut! Said it before - won't help. Bye-bye dollar.

Nobody knows what the market will do and when (the biggest rallies happen during bear markets), but as I've said before, the "experts" are not the ones you should be trusting - they laughed at those of us who thought these things might happen. You want the stock market in a nutshell - here you go:

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.The villagers seeing that there were many monkeys around, went out to the forest, and started catching them.The man bought thousands at $10 and as supply started to diminish, thevillagers stopped their effort. He further announced that he would now buy at $20.

This renewed the efforts of the villagers and they started catching monkeys again.Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!The man now announced that he would buy monkeys at $50!

However, since he had to go to the city on some business, his assistant would now buy on behalf of him.In the absence of the man, the assistant told the villagers. "Look at allthese monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!

Don't trust the "experts".


(But if you want to trust "little birdies", they think CTX and RYL will be done by year end.)

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"Bernanke clearly has some new innovations, but the name of the gameitself has not changed much: Banks are so capital impaired theycannot lend. They refuse to write down assets to reasonable levelsbecause to do so would bankrupt them.Thus with each passing day, the more asset values plunge, the morezombified our banking system becomes. Zombification of banks isexactly what happened in Japan. Bernanke could cut interest rates tozero tomorrow and it would not change matters much if at all.Academia is meeting a real world test, and Bernanke has met his match."

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"The median household earned $48,201 in 2006, down from $49,244 in1999, according to the Census Bureau. It now looks as if a fulldecade may pass before most Americans receive a raise."Has the price of anything people buy gone up since 1999?

You want to know when this ends, when people can afford stuff. Which means when house prices are back to about 3X income. In the meantime, there will be pain felt from the top down.

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Now Countrywide has the FBI investigating (along with nearly every other agency out there).
As pointed out by calculated risk, the quote of the day comes from this article:"Getting the FBI to do your due diligence doesn't seem like a particularly great business strategy."
http://www.marketwatch.com/News/Story/Story.aspx?guid={0D8468B0-B2DF-44AD-8531-D4F516F080D4}&siteid=nbs

Seriously, why does BAC continue to say they are doing this deal after this? What gun is being held to their head?

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Carlyle from the London Times. If I recall they had about 600M incapital, but they controlled about 20B in assets. That makes sense -32 to 1. Triple A rated, and highly respected - a good read.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3549632.ece

By the way, Carlyle went public last July. Now they are worthless.

The new TAF increase last week that everyone loved will destroy these little guys. It made it so the big boys will cannibalization them for their mortgage backed securities, so they can use them as collateral at the Discount window. This is going to destroy hedge funds, just you watch.

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Yen breaks 100 vs the dollar. This thing looks to be heading muchlower. Japan isn't going to be happy when all their electronicexports over here are suddenly 25% more expensive forus. Ugly. Keep cutting Ben.

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Chrylser shutting down for two weeks to save money. Interesting(well not for the employees).

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2 fed interventions in 3 days - your nuts if you don't think something is very wrong. if I had to place a wager, I'd say thatbear stearns was on the edge of the abyss. that will be ugly.

Update: Guess I should've sent this out sooner???

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S&P says the end is in sight for writedowns and the market shoots up 300points. Why does ANYONE bother to report was S&P says?

Update: The very NEXT day Bear Stearns almost had to write down their ENTIRE company.

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Gold over 1000 for the first time. Oil hitting continual new highs. Watch for $130+ in the not too distant future. Also watch for it to crash at some point, as I'm guessing this is being fueled by speculators who simply have NO other place they trust to put their money.

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We may never get the full story, but the scoop behind the Sptizer stuff is apparently MUCH more interesting. Note the phone call he got from the President cutting short his cut-throat presentation to congress - which just happens to be the day after his meeting with "Kristen"...

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Why Fannie, Freddie and a whole lot of other stuff will eventually bedone. The interactive graph it links to is very cool - and shows theamazing joke that is the ratings agencies - wow.
http://market-ticker.denninger.net/2008/03/ratings-fraud-and-structured-credit.html

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This does continue to get more and more strange.
http://globaleconomicanalysis.blogspot.com/2008/03/amazing-action-in-ambac-mbia.html

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"Stephen Joynt, the chief executive of Fitch Ratings, told MBIA Inc. on Monday it seemed "disingenuous at best" that the bond insurer asked the rating agency by email to destroy non-public information while telling the public it would work with Fitch to keep a AAA rating."

That sounds pretty illegal to me.


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Very cool interactive chart!
http://bigpicture.typepad.com/comments/2008/03/world-clock.html