Media Appearance: Kudlow & Company (3/17/08)
Hey, look who's on Kudlow & Co. tonite, from 7:00pm to 7:30pm. Also on the show tonite are Art (92% undervalued SPX) Laffer, Andy Busch and Vince Farrell.
The Fed is acting appropriately to avert an entire financial system meltdown. Whether they will be successful is as of yet, unknown. As we are so fond of saying, there will be costs: Financial, economic, psychological, and prestige wise to this debacle. (More Dollar pressure, Gold & Oil both up) Market action today was positive: Bad news, big gap down, positive close. It is only one day, and it is likely in anticipation of FOMC tomorrow. We continue to look at this as a modest rally.
Here are the talking points I sent in:
1) This was not a “bail out,” at Two Dollars/share, it was an "Orderly Liquidation"
2) JPM looks to have gotten a great deal – the Fed is actually taking on the first $30Billion in risk; Unless BSC’s losses exceed that, it’s a winner for JPM.
3) The Fed took this risk because JPM could not possibly have done the due diligence over the weekend. (GS just took a $3 Billion hit).
4) A bailout for Wall Street may not be very palatable during a recession in a election year. Thus, we should expect a major Housing/Mortgage bailout along any day now. Cost: Very expensive.
5) JPM gets a terrific scapegoat for the next 4 (or 8 or 12) quarters to blame for all of their crappy paper, leveraged risk, and counter-party obligations
6) The impact of the credit crunch is -- disturbingly -- showing up in places you would never expect. Headline: 20% Of Silicon Valley Startups Can’t Get To Their Cash.
7) Lehman's chart looks shockingly like Bear Stearns chart
~~~
UPDATE: March 18, 2008 5:18am
Here's last nite's video:
http://www.cnbc.com/id/15840232?video=687667784
Monday, March 17, 2008 | 05:38 PM | Permalink
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BR, perhaps you have been missing my quote: "There is no means of avoiding the final collapse of a boom brought about by crdit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
BR, we know that there was no "voluntary abandonment of further credit expansion." Now can you help us with timing?
Will be watching intently. Tell Vince, to quit being the consumate money manager and think 100 year rain.
Posted by: JustinTheSkeptic | Mar 17, 2008 5:49:02 PM
Uh shit! I forgot to mention that the quote is: Ludwig von Mises
Posted by: JustinTheSkeptic | Mar 17, 2008 5:51:09 PM
So, how would've it been received if over the weekend:
1) Microsoft drops Yahoo bid (only to return later with a $15/share bid)
2) Microsoft pays $249 million for Bear Stearns and the same $30 billion Fed backing. Why? Try to do the same thing Warren Buffett has done with the muni bond business: enter when the current players are boxed in. No telling how many other players MSFT could gobble up with their cash. Just keep sticking the Fed with the bad paper....
Posted by: Chief Tomahawk | Mar 17, 2008 5:59:30 PM
Can someone explain me :
If wasn't the JPMORGAN rise today, what would be the DOW value?
Thanks
Posted by: Bullion | Mar 17, 2008 6:03:49 PM
Barry,
This is only peripheral to the economy and to most people, but considering all the
"big boys and girls" that took a hit with BSC, do you think the auction outfit Christies will have some bargains on the block soon? The liquidity scramble is on.
Posted by: AGG | Mar 17, 2008 6:05:15 PM
Consider what was driving the market in 2006-07:
1. Record earnings (Quarter after Q of double digit year-over-year gains),
2. Increasing dividends
3. Private Equity / M&A activity
4. Rich Share buybacks
Now, what of the above is left?
Posted by: Barry Ritholtz | Mar 17, 2008 6:09:04 PM
The human tradegy amongst the midlevel Bear employees must be immense. Thoswe 401 K statements at the end of the first quarter will tell thm how many Venti's they can afford.
Posted by: lllarster | Mar 17, 2008 6:15:09 PM
I have a great idea - why doesn't the fed extend a credit line to insurance companies, pension funds, and even mortgage brokers in order to aviod more financial trouble. Hey why not take over GM and Ford's pension and health care liabilites while they are printing...
Posted by: Kurt Milne | Mar 17, 2008 6:16:00 PM
Nothing has changed for the consumer. Still not able to pay for debts including mortgage,CC, Auto, Boats, various ATV's and assorted expensive toys. No bail out for RE sales velocity=end of mortgage industry as we know it.
Posted by: ron | Mar 17, 2008 6:23:53 PM
I have zero sympathy for the BSC employee / co-conspirators. They all know what was going on and loved every minute of it. Only a fool invests in the company that employs them. It's always been one of the paramount rules for financial survival.
Posted by: Chief Elf | Mar 17, 2008 6:24:55 PM
"It aint over til its over." "If there is a FED in the road, take it!" lol
Posted by: JustinTheSkeptic | Mar 17, 2008 6:52:19 PM
Barry, you're missing something significant:
The Fed is actually engaging in a "half bailout." Yes, the equity holders were effectively wiped out, BUT by providing $30b in NON-RECOURSE financing the Fed bailed out the debt holders(and other creditors). Without the Fed taking the first $30b in losses, JPM would not have done this deal and Bear's debt holders would be taking large losses. Instead, Bear's creditors(we're talking tens of billions of debt) now face JPM and their debt is money good. The Fed is clearly encouraging moral hazard in the debt markets.
Posted by: Myr | Mar 17, 2008 6:58:59 PM
Word on the street is Kudlow talked to Ben and told him "I am inviting Barry over, make sure I don't hear any 'I told you so's from him tonight"
Posted by: Mich(^IXIC1881) | Mar 17, 2008 7:01:37 PM
Kudlow blaming the Fed for Bear Stearns demise!
Posted by: maximo | Mar 17, 2008 7:03:01 PM
Pam Martens
The Fed's Wall Street Dilemma
The above article at Counterpunch covers the causes of our current economic woes succinctly.
After reading the article, knowing of the knowledge of history that the main players like Greenspan had in convincing congress to repeal Glass-Steagal, there is no way this could be called negligence; it was complicity, duplicity and greed.
Posted by: AGG | Mar 17, 2008 7:22:14 PM
Barry, nice tie;
Kudlow is right about the dollar, I would not go too long on Gold.
“All that glisters is not gold; Often have you heard that told”
William Shakespeare
Posted by: David | Mar 17, 2008 7:24:45 PM
I can't believe it! Barry is actually getting some TV time on Kudlow tonite. Usually he gets cut off by Larry.
Posted by: maximo | Mar 17, 2008 7:33:41 PM
NY Empire State Index
Prior: -11.7
Market Expects: -7.4
Briefing Forecast: -8.0
Actual: -22
and BSC gets liquidated
and dow is up...
I love it!! you can call it anything, but you can't call this market boring!
Posted by: Mich(^IXIC1881) | Mar 17, 2008 7:34:54 PM
A new slightly different quote on Larry's show, during commercials: " I believe that free "EQUAL" markets are the best path to prosparity."
Posted by: JustinTheSkeptic | Mar 17, 2008 7:38:11 PM
So what do people think will happen with china since they've been running for a while with negative real interest rates, and have ridiculous overinvestment into low margin industry, tons of bad loans, a stock market with a P/E of 80 and a GDP which depends a lot on selling crap to debt heavy, slowing economies?
Posted by: Bucket | Mar 17, 2008 7:39:00 PM
An excerpt from A. Smith's "Theory of Moral Sentiments" pertaining to the latest sort of crises:
"Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connection with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment…. And when all this fine philosophy was over…, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquility as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger to morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren."
Posted by: RPB | Mar 17, 2008 7:39:52 PM
I couldn't listen past the moment when I realized that Larry Kudlow doesn't understand the difference between FDIC and SIPC.
That, of course, is the difference between a bank and an investment bank, the point that Barry kept trying to make. It's the major taxpayer money in the FDIC pot that gives the Fed the obligation to bail out a Continental-Illinois, but not the obligation to bail out a Bear Stearns.
I couldn't continue to listen because I couldn't stop wondering, "Did Larry Kudlow personally engineer the S&L crisis?"
Posted by: Charles | Mar 17, 2008 7:54:42 PM
There were 55,000 Put contracts on BS last Tuesday when it was trading at 65 dollars a share betting it would drop 50% within 10 days, as their CEO was saying all was well
http://www.thestreet.com/s/who-traded-55000-bear-30-puts-tuesday/newsanalysis/optionsfutures/10407812.html?puc=_htmlttt
Most of them were executed last Friday, BS last day of trading, with over 1 million dollars plus change in profits. Nice. I am sure the SEC will be all over it. LOL.
Anybody following put contract volume on Lehman Bros?
Posted by: PFT | Mar 17, 2008 7:56:14 PM
Since today is St Patrick's Day:
The price of my house keeps a'falling
They say the economy's stalling
Bernanke yells "stop!"
With another rate drop
But the size of this mess is appalling!
Posted by: Alex | Mar 17, 2008 7:57:31 PM
I think the Kudlow show has gotten less watchable. Larry is too hyper; he cuts off people whose thoughts I'd really like to hear, only to repeat himself again and again.
And the endless repetition of the "capitalism is good" slogans is a pointless waste of time. These phrases won't sell anyone whose mind isn't already made up.
Posted by: david foster | Mar 17, 2008 7:59:36 PM
