Author Archive

  • Bove: Bear Will End Up Costing JPM $65 a Share
    , March 25th, 2008 at 10:04 am

    Richard Bove said that when you add it all up, Bear will eventually cost JPMorgan Chase $65 a share.

    While some may think that JPMorgan is getting Bear Stearns at a bargain price, “I do not,” Bove said in a note to clients. “Bear Stearns is a deeply troubled company which would have no value if the Federal Reserve had not stepped in to bail it out.”
    JPMorgan does not need Bear Stearns mortgage operation, has a “much stronger investment banking business,” and the Bear Stearns New York headquarters is “just another piece of Manhattan real estate that it must rid itself of,” Bove said.
    While JPMorgan Chase may want Bear Stearns’ prime brokerage business, it is likely that the unit’s best customers have already left for Goldman Sachs, he said.
    Bove currently has a “Market Perform” rating and $44 price target on JPMorgan Chase. The target implies he expects shares to drop about 6 percent over Monday’s $46.55 close.
    “What is most disturbing about this deal is that it uses a great deal of Morgan capital to buy a company that is losing market share, in a series of businesses that are declining in size, with a top management team that is best described as sclerotic,” he said.

  • Pot Takes Out Ad on Kettle
    , March 24th, 2008 at 8:14 am

    Fox Business Network has taken out a big ad in the NYT and WSJ to question Cramer’s credibility over his Bear Stearns call. Here’s the PDF.
    (Via: The Stalwart)

  • Boozing British Bankers
    , March 21st, 2008 at 10:16 am

    The Independent is on the scene:

    Rumour-mongering and rogue traders; buy-outs and bonus cuts: it’s been quite a week for bankers. And, yesterday, as drizzle fell and storm clouds gathered over the capital, the pub was the only place the nervous denizens of Canary Wharf wanted to be.
    They emerged from their offices, loosening their ties, to toast a long Easter weekend which, regardless of the turmoil which preceded it, will at least bring respite to anxiety. “We are meant to be at work but we’ve come here for some solace,” a group of Lehman analysts said.
    Lunchtime had just begun but they, along with many other suited drinkers, were on their fourth round of beers at the packed All Bar One branch under Reuters’ FTSE-100 ticker.

    Well done, lads. Well done.

  • JPMorgan offers Bear Stearns staff bonuses
    , March 21st, 2008 at 7:59 am

    Reuters reports:

    JPMorgan Chase & Co is offering bankers at Bear Stearns Cos bonuses to stay and support the controversial takeover, a person familiar with the situation said on Thursday.
    JPMorgan Chief Executive Jamie Dimon met with hundreds of Bear Stearns executives late Wednesday, his first meeting with bank employees since the takeover was agreed to on Sunday.
    At the meeting, Dimon, aiming to head off an exodus of Bear Stearns staff, proposed incentives to bank employees who stay and support the deal. He also expressed confidence that the deal would be completed as proposed, said the source, who was briefed on the meeting and is familiar with JPMorgan’s thinking.
    Employees who are offered jobs by JPMorgan would receive a bonus that includes JPMorgan shares. Employees who are not offered jobs will receive at least a cash bonus of about 30 percent of their 2007 compensation if they stay through the completion of the deal, the source said.
    It is unclear whether Bear Stearns employees, who own about 30 percent of the firm, were swayed by the offer.

    Well, allow me to clear it up—yes, they were swayed. The only question now is how much.
    The most important number to consider in this deal is that JPM’s stock is up 25.8% this week. That’s an increase of $32 freakin billion, which is far more than Bear was ever worth. The BSC folks don’t want to hold on to their stock, they want JPM’s.

  • Why Is the Stock Market Closed for Good Friday?
    , March 21st, 2008 at 7:39 am

    Today is Good Friday and the stock market is closed. I have no idea why this is since most of the rest of the country is open for business. I live in Washington, DC and the Feds will shut down for practically anything. But not today—it’s only Wall Street.
    When I got my first job as a broker, I remember my branch manager saying that it was some sort of ancient inter-confessional deal to have one Friday off for the Easter/Passover season. That could be right but I’ve never found anything to back it up. Today, however, a closed market on Good Friday is more likely so traders can follow their brackets without interruption.
    (By the way, there’s some doctoral dissertation waiting to written on the effect of fantasy sports on finance. Every trader I’ve ever known has had several fantasy football or baseball teams going. Wall Street is quite good at alternate reality; real reality is still a bit iffy.)
    The stock exchange closed for two hours in honor of the death of J.P. Morgan (the man, not the stock—that’s doing fine, thank you very much).
    The stock exchange used to have a brief Saturday session that was discontinued in 1952. Interestingly, the Saturday sessions have nearly been erased from history. If you look at many data files, like the Dow or S&P historical data at Yahoo Finance, the Saturday sessions aren’t there.
    Poor Saturday, it’s gone down the memory hold.

  • Pop!
    , March 20th, 2008 at 3:17 pm

    Gold has not had a good week. The April contract closed at $1004.30 on Tuesday. It dropped $59 yesterday and it’s down another $25.30 today.
    goldmarc20.png
    From Karl Marx in 1867:

    A commodity appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing, abounding in metaphysical subtleties and theological niceties.

  • Santelli TV
    , March 20th, 2008 at 2:49 pm

    I love this guy. Santelli needs his own reality show. This needs to happen.

  • The Long Shot
    , March 20th, 2008 at 7:47 am

    Matthew Yglesias comments on the absurdity of John Meriwether blowing up, yet again. He includes this parable:

    Imagine I find a kind of gambling machine somewhere that works kinda sorta like an enormous roulette wheel. It has 100,000 possible outcomes, and on 99,999 of those outcomes it pays off at a 1:1 ratio. But on the 100,000th outcome, you lose at a 1:300,000 ratio. Obviously, placing a bet on that machine would be foolish.

    Not to me.
    I’d lay down $1,000, let it roll for 20 spins and walk away a billionaire.
    Addendum: Or there’s a very remote chance that I’d go in the roulette business. I’d be cool with either outcome.

  • The Return of Volatility
    , March 20th, 2008 at 7:42 am

    image641.png
    According to a recent report by S&P, market volatility is at a 70-year high. I think that’s merely going by 1% daily changes. Other measurements indicate that volatility has indeed risen, but it’s more accurate to say that volatility has returned to normal from an unusually calm period.
    The VIX still hasn’t reached the heights of 1998 to 2002. The index has closed above 30 for a few times recently, but it did it fairly regularly a few years ago.
    I think the effect of volatility on equity returns is not very strong. The current VIX seems to have an effect on the dispersion of returns, but not the direction.

  • How NCAA Tournament Seeds Have Fared
    , March 19th, 2008 at 7:45 pm

    The Chicago Tribune looks at how the NCAA tournament seeds have fared since 1985. I love the idea of a big tournament that invites a huge number of teams. It seems the most democratic, but there are some gaps in justice. For example, the #8 or #9 seed is really screwed because they always must play a #1 in the second round. Only 12 #8 or #9 teams have made it past the second round.
    On the other hand, #12 is a pretty good seed. Those teams have a losing, but respectable record against the #5 seeds. A total of 14 number #12 seeds have made it past the second round.
    My guess is that the seeds increase linearly while quality increases geometrically. The difference between a #12 and a #5 is probably about the same as a #1 and a #3.
    If we wanted to be hard-headed, we could really make it a 12-team tournament and the results would be almost the exact same. Twenty of the 23 winners have been #1, #2 or #3 teams. Of course, that would ruin a lot of the fun.
    I’ve noticed that no matter what happens, the media talks about how the first weekend was a “Cinderella Weekend.” But going by history, there’s nothing that surprising by having at least one #14 beat a #3, or having a #2 or #3 lose in the second round.
    It’s fun to root for the Cinderella teams (we have a couple of local teams ranked in the double-digits), but history says that the odds are against them.