Bear Stearns collapse prevented by a bailout from JPMorgan and Fed March 14, 2008

 

Bear Stearns (BSC) is the fifth largest global investment bank and securities trading and brokerage firm in the world.  Today, it had to turn to its stronger rival JPMorgan for help to prevent what could possibly have been a monumental collapse.  On March 10, 2008, Bear Stearns had formally denied market rumors that it had developed cash liquidity problems.  Apparently, its liquidity has significantly deteriorated over the past day and the temporary funding from JPMorgan will help it continue to operate normally.

According to the AP:

Nearly half the value of Bear Stearns, or about $5.7 billion, was wiped out in a matter of minutes as investors felt the bailout signaled that the credit crisis has reached a more serious stage, and now threatens to undermine the broader financial system — and the U.S. economy.

The market speculation about liquidity problems lead investors, customers, and lenders to withdraw their business and credit lines.  As a result, Bear Stearns looked for help but since they are a non-depository institution, they are ineligible to borrow directly from the Fed.  JPMorgan was selected as the intermediary, and it will be receiving a loan from the Federal Reserve to provide secured funding to Bear Stearns for up to 28 days.

Schwartz confirmed, as many on Wall Street suspected, that Bear Stearns could now be up for sale. He told analysts during a conference call that the short-term funding “is a bridge to a more permanent solution.” Bear Stearns is working with investment bank Lazard Ltd. to explore its options.

Since last year, they have racked up $2.75 billion in write downs.  They have struggled since two hedge funds under their control imploded and lost billions after betting heavily on securities backed by subprime mortgages.

“They were the dominant firm for repackaging mortgages,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC. “That’s where all earnings came from. They had the least diversified earnings stream of all of Wall Street securities firms, and as a result, they’re paying the price today.”

The overall market today is down with financials being sold off by scared investors.

Sidenote:  They posted some jobs at my university last year, I was going to apply for a technology analyst position with them after graduation!!!  Phew!!!

Majority of economists say that the United States is in a recession for 2008. March 13, 2008

The past couple of months have been a roller coaster ride for the U.S. market.  Hedge funds have collapsed, banks are facing massive problems, mortgage meltdowns and the credit crisis are mentioned every day in hundreds of articles.

Lets do a quick rundown of the more notable pieces of news.  Check number 5 and 9 on the list for the articles on recession.

1. On January 11th, 2008, Bank of America offers to buy Countrywide Financial, a troubled mortgage lender for $4.1 billion in stock. 
2. On January 22nd, 2008, stock market futures pointed to big plunges.  Sure enough, by the end of that day, the panic selling was through the roof and markets plunged to new lows.
3. After a short time, the Société Générale trading loss incident was made public.  Apparently, the large drop in equity indices was partially affected by the actions of Jérôme Kerviel, a trader with the company.  He had lost the company approximately $4.9 billion euros.
4. February 1st, 2008…there was a huge announcement that Microsoft would be offering to buy Yahoo for $44.6 billion, a 62 percent premium on its stock.
5. Warren Buffett comes out and declares that the US is in a recession.  Many people think he’s wrong….but he’s right because his name is Warren Buffett.  Also, there are opportunities in this kind of market.
6. On March 11th, 2008, the Fed decides to pump $200 billion into the financial system.  The Dow had lost about 500 points in the past few days and regained ground after this news.
7. Eliot Spitzer, known as the sheriff on Wall Street resigned on March 12th, 2008 because of his involvement in a prostitution scandal.  Check below for pictures of the woman.
8. Today, it was reported that gold hit a record $1, 000 an ounce.  It has been on a meteoric rise for months now.  EA also declares a hostile takeover for Take-Two Interactive Software, makers of the popular Grand Theft Auto series and the wildly popular Bioshock.
9. Finally, the WSJ comes out with an article about a bunch of economists finally admitting recession.  Furthermore, chief financial officers also believe the U.S. is already in a recession.  As said earlier, Warren Buffett sees recession.  Bush however refuses to declare recession.  A bunch of other reporters from various publications such as US News also refuses to believe recession talk.

What I see in all this doomsday talk is plenty of opportunity in beaten down companies.  Recession is not the same thing as the end of the world, but people make it seem like that.  Most importantly, a majority of the financial news everyday should be ignored…especially those that try to feed fear or courage into investors.  I find a lot of the titles hilarious.  “Market plummets on ‘insert arbitrary news item here'”.  “Investors rally on upbeat sentiment from ‘insert arbitrary news item here'”.  “Dollar plunges, oil soars”  “Market erases earlier gains”.  I could go on and on.  If it seems like articles are being rehashed every week, they ARE.

Here are some pictures of the call girl “Kristen”, also known as Ashley Alexandra Dupre that destroyed Eliot Spitzer’s career.  He paid her $4, 300.

Click on thumbnails to enlarge

     

General Motors proposal to compete with Tata Motors January 14, 2008

General Motors has recently been getting back into making cars instead of boxes with wheels.  They’ve been doing a pretty good job.  The new Malibu and the future Camaro offer much promise for GM’s future.  Now because of Tata Motors in India, GM has decided to work on a car that costs below $4, 000 to compete with Tata’s $2, 500 car.  How would a car like this be made?  Well check out this schematic from the NYTimes.

I found this quote in a MONEY article “Detroit’s ‘new’ idea: Cars Americans want”

“If your goal is to grow your business, you have to get serious about the small car market,” said George Pipas, sales analyst for Ford Motor (F, Fortune 500). “The steady decline in the Big 3 share can be traced directly to the lack of interest in the small car market.”

No George, I think the steady decline of the the Big 3 can be traced directly to absolutely shitty cars with a laundry list of shitty qualities.  You really don’t need a sales analyst to figure out why an American buyer will go for a Japanese or German car over an American car.  When I think GM cars, I think overweight, clumsy design, raspy engines, horrifying interiors, doors that rattle at 20 mph, front axles that break off at 60 mph, throttle cables that snap suddenly, and pretty much cars that couldn’t handle well even if they were helped along on rails.

Until recently, GM couldn’t build their way out of a paper bag.  Last week, I drove a rental Chevrolet Aveo because a girl had rear ended my Acura, and the damages were severe enough to put the car in the shop for a week.  I didn’t want the Aveo, but it was reimbursed and it was all Enterprise had at the time.  Needless to say, the car was terrible.  They try to make it look all fun, spunky, and youthful.  EPIC FAIL.  If they can’t build a decent car for $13, 000, there’s no way they can build a decent car at $4, 500.  However, I guess anyone who’s buying cars priced this low have little to no concern for quality or safety for that matter.  Buy these moving coffins at your own risk.  It’s your funeral.

RELATED NEWS:

http://wheels.blogs.nytimes.com/2008/01/10/tata-nano-the-worlds-cheapest-car/