More thoughts on the Fed & JPM's BSC Liquidation

Monday, March 17, 2008 | 06:40 AM

Anyone get a great night sleep?

Not me. I kept waking up, mind racing, thinking about what all this means going forward.

I have Kudlow & Co. tonite, and Morning Call on Fed day, and I always like to bring some ideas that are not the usual clichéd blahblahblah. Hence, the adrenal overload.

This entire series of events has me thinking about some fascinating wrinkles:

• I think 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.

TANSTAAFL: Speaking of which, we see the Dollar getting whacked further, Gold at $1030, and Oil over $110.

• 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.

• Could J.P. Morgan (JPM) really complete a thorough due diligence on all of Bear Stearn's (BSC) crappy paper, leveraged risk, and counter-party obligations in 2 days? I doubt it. Hence, the $30B backstop from the Fed. Not quite free market capitalism, but definitely creative, and certainly destruction.

• JPM now 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: Bear Stearns.

• The Efficient Market Hypothesis (EMH) takes yet another hit. I am beginning to think markets are lagging indicators . . .

• The impact of the credit crunch is -- disturbingly -- showing up in places you would never expect. Example: 20% Of Silicon Valley Startups Can’t Get To Their Cash.

• Does this mean Bear's Quarterly earnings call -- scheduled for today -- will be canceled?

• EVERYTHING seems to trace its way back to Housing.

Markets are closed for Good Friday, option expiry is Thursday. Get ready for a fun filled, jam packed 4 day week!


UPDATE: March  17th, 2008

A friend IMs me, and says:

The NY Yankees paid more for A-Rod than JPM paid for Bear Stearns

Monday, March 17, 2008 | 06:40 AM | Permalink | Comments (87) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Barry...The analogy I like to use here is the Fed is 4th and 10 from their own 30 with 2 seconds on the clock. You throw a Hail Mary pass and pray for a don't do nothing. What is unfortunate is they can't really let on how bad this is, so people (Joe Lewis OMG) keep trying to catch a falling knife. And this time it is the so-called smart money that is the dumbest as they are so removed from the reality that many Americans have lived way beyond their means.

(Feel free to use my analogy on your media tour)

Posted by: Dee Leverage | Mar 17, 2008 7:26:39 AM

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