Posted by Davy on March 16th, 2008 in Market Commentary
Email Davy

Somehow, a firm that was worth $3B (yes, billion) at the close of trading on Friday (and keep in mind, that was after a down 40% day) gets bought out over the weekend for an anemic $270M.

Here’s the link to the Bloomberg story regarding the JPMorgan buyout of Bear Stearns.

I have no idea how this is supposed to inspire confidence in the US financial system. There must be some serious shit lurking in the balance sheets of some of these financials. And to top it off, the Fed cuts the discount window rate just 2 days ahead of their scheduled meeting. What a mess.

Fed Cuts Discount Rate

---

UPDATE:

It gets even better — apparently, the Fed will provide the financing for the deal and backstop at least $30B of Bear Stearns’ securities.  Now why you would need the Fed to finance a measly $270M deal is beyond me.

My first reaction is that this probably does not mark a bottom.  I’m sure many of the people who’ve been pounding the table for banks are going to talk this up as a buying opportunity but they’ve been wrong this whole time and I’d guess they still are.  Joseph Lewis, the British billionaire who bought over $1B worth of BSC, has seen that investment flushed away.  Supposedly, he was “smart money.”

I could be wrong and maybe now is the time to buy.  But in investing, mistakes of omission, though regrettable, are much less costly than mistakes of commission.  And I’m sure Mohnish Pabrai would be one of the first people to admit that there is tremendous risk, not just uncertainty, in the financial sector.