Filed under: International markets, Other issues, Rumors, Rants and raves, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Apple Inc (AAPL), Ford Motor (F), India, Private equity, Scandals, Citigroup Inc. (C), JPMorgan Chase (JPM), Merrill Lynch (MER), Oil, Headline news, Bear Stearns Cos (BSC), Federal Reserve, Recession

Every day another story about our recession and the related fallout pops up. Are we in a recession or not? Or will we just teeter on the edge? The debate continues between those anal retentive types that must see all the actual facts, and those that see the signs all around and proclaim that “if it looks like a duck and it quacks like a duck, then by golly…”

The Federal Reserve Board has acted as if we’re in a recession. They sit on one side of the teeter totter lowering interest rates to counter balance the weak economy and moderate the impact of potential negative growth. Clearly they’re throwing ballast off a sinking ship.

There has been much debate recently about the Fed’s dramatic bailout of The Bear Stearns Companies, Inc. (NYSE: BSC) with the cooperation and maybe hand rubbing of JP Morgan Chase & Co. (NYSE: JPM). Some feel Bear Stearns should have been granted to collapse and others feel that the Fed had no choice in the matter and wasn’t protecting BSC, but the overall confidence in world financial markets.

I take the latter position because I think it’s self evident that BSC’s rapid fall two weeks ago was simply a modern day run on the bank, one resulting from a lack of confidence. The Federal Reserve has an imperative to maximize market confidence. Maybe Bear Stearns falls to it’s doom by itself and maybe it is the first in a series of dominoes. Those that say let it collapse are proponents of taking a risk that might begin an unstoppable tidal wave of financial ruin.

You could no more let BSC go bankrupt than you can wait to see the two consecutive quarters of negative growth before taking recession watch action. It is interesting that some wizards would take action in one case but not the other without seeing the contradiction in their positions. Citicroup Inc. (NYSE: C) and Merrill Lynch & Co., Inc. (NYSE: MER) are not out of the woods yet. Both companies had such nightmare investments in their portfolios that they had to clean house at the top by firing their chief executive officers. They certainly have some of the same ailments of Bear Stearns and resemble large dominoes in my eyes.

Unemployment is going up. On Wall Street and there’s no debate about that. On the other hand on the west coast, the housing market is having a crippling effect on parts of the economy, and the Say budget is a disaster. The only thing this has not affected is the tech sector and Apple, Inc. (NASDAQ: AAPL), with its CEO Steve Jobs. Apple has mountains of cash and a strong product line, and has sworn to maintain full employment and expand R&D no matter what. The tech sector may be down in 2008 in terms of sagging stock prices but jobs seem to be stable — both Steve Jobs and your tech job.

What’s not stable is the price of oil, as oil dips to $106 on renewed flows from Iraq pipeline, or gold with its own bubble which are near all time highs. They were showing signs of temporary softness earlier in the week but that’s nothing a good war like the one in Iraq can’t sway in a moments notice.

While Wall Street suffers in the east and housing suffers in the west, Ford Motor Company (NYSE: F) has been busy hoping to minimize their employee and shareholder suffering by selling off Jaguar and Land Rover to Tata Motors ADR (NYSE: TTM) of India. I am not sure which will help them more: the infusion of $1.7 billion or simply having a few less things on their plate to worry about.

Consumer confidence is down, no surprise, the market has been mostly up lately… which is a massive surprise. Google Inc. (NASDAQ: GOOG) remains a center of attention as the guessing game about earnings growth and the value of a click continue and while that remains massive news, even larger news, the acquisition of Yahoo! (NASDAQ: YHOO) by Microsoft Corporation (NASDAQ: MSFT) has gone silent. And the silence is deafening. Are they hammering out a deal?

Recession or not, the market will remain very active and the guessing games will go on. Have a good week end. Hopefully the Fed can take a rest so that we might too.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: We own shares in BSC & TTM.

Share This

Share This

Filed under: Management, Private equity, Mutual funds, Headline news, S and P 500

In fascinating endowment news yesterday, Harvard University turned to one of its former investment stars to take the helm of the Ivy League’s biggest endowment of $35 billion.

Currently chief investment officer at Wellesley College, Jane Mendillo has been tapped o become the president and chief executive of Harvard Management Company. She fills in the slot vacated by Mohamed El-Erian, the emerging market bond guru, who left last year after less than two years in the job to return to his previous post with Bill Gross’ PIMCO.

Famed uber-investor Jack Meyer racked up impressive returns in his tenure at Harvard Management Company during the 1990s. According to Wikipedia, Meyer grew an endowment “worth $4.8 billion to a value of $25.9 billion (including new contributions). During the last decade of his tenure, the endowment earned an annualized return of 15.9%.”

Not too shabby.

It’s great to see a woman take over the helm of such a high-profile investment fund. The ideal part of this whole move is that Mendillo is a Yale grad!

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

Share This

Share This

Filed under: International markets, Competitive strategy, Ford Motor (F), India, Headline news, Tata Mtrs Ltd (TTM)

It was reported long ago that Ford Motor (NYSE: F) was shopping its Jaguar and Land Rover brands. This day it finally announced it has closed the deal to sell these premier British brands to Tata Motors (NYSE: TTM) of India for $2.3 billion. Ford, which has been losing money, found its share price way down, closing yesterday at $5.96 (now up a few cents in premarket trading) and was in need of a cash infusion.

Tata Motors, having just introduced a low-end $2,500 vehicle to the Indian market, is now filling out the upper end of the spectrum by bringing these two well known British brands to a country with a tradition and heritage long ago saturated with British “imperialist” remnants like cricket and tea time. If Jaguar and Land Rover are to be revitalized, then Tata Motors probably has a better chance of success than most.

Ford purchased Jaguar for $2.5 billion in 1989 and Land Rover for $2.7 billion in 2000. Nine months ago I posted Chasing Value: Tata Motors LTD - patience, patience, GOT IT! and now Tata has got it! What it hopes to do with these brands is gain some international credibility, based on a solid Indian foundation.

Tata’s stock closed yesterday at $17.36, up slightly on the rumors. It is about midway between its 52-week low of $14.71 and its high or $21.30. This deal could send both companies forward humming a new tune. I would even speculate more wildly just for fun that in this world of expanding markets, integrated economies and corporate consolidation, Ford and Tata Motors could one day find reason to unite.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: We own shares in TTM.

Share This

Share This

Filed under: Rants and raves, Scandals, JPMorgan Chase (JPM), Headline news, Bear Stearns Cos (BSC), Stocks to Sell

At a mere $276 million, celebrity talk-show host and entertainment billionaire Oprah Winfrey could afford to buy Bear Stearns (NYSE: BSC), which closed Tuesday at $5.91 per share and keeps on climbing to over $6.50 a share in morning trading. The story alone and the associated publicity would be worth at least that. Furthermore, she could at least make an offer and demand a meeting with the Federal Reserve Board to discuss the issue.

If her offer was rejected, she would still be able to generate millions of dollars of publicity and perhaps she might want to acquire the asset, in particular if the Fed is going to protect the acquirer from potential losses. She could really become an international mogul, the likes of which has not been seen. We all know that Oprah wants to do good. She’s so giving, this could be the ultimate.

I could just see the headlines: Oprah Winfrey takes on JP Morgan Chase (NYSE: JPM) and the Federal Reserve to rescue John Q. Public.

For those of you who think I jest, I kid you not. Bear Stearns is being sold way too cheap and this dubious thought about potential white knights came to me because I myself would make an offer if I had the money. If nothing else, it would grant me see JPM’s deal sheet.

Oprah is not the only celebrity who could do this deal. Given the level of risk, perhaps Michael Jordan would have an interest? He’s a notorious gambler, and like all the other Wall Street large shots, is a heck of a golfer and smokes large cigars. He has historically done very well in massive games; this is a big game for sure! His headline would be very adorable too: Bear Stearns saying to the Fed: Hey, I know, lets get Mike-ee!”

The possibilities are endless. Maybe Steven Spielberg would purchase BSC for the story rights. Many of his films have made far more money than the reported BSC price tag. He could make it a mini-series. Teamed up with his pal George Lucas, they could make back the money and have a head start by selling Bear Stearns $1.1 billion headquarters and relocate the staff to Skywalker Ranch in California.

So much of what goes on in Wall Street is fiction anyway. Harrison Ford would sign on in a heartbeat for the lead, and at his age he would be perfect to play a cross between Indiana Jones and Carl Icahn. I’m sure Carl would sign on for a cameo scene. Okay, I’ll stop now before someone comes to take me away.

In the real news, it was reported this morning that “Secretive billionaire Joseph Lewis and former Bear Stearns chief Jimmy Cayne are quietly searching for a white knight to top the $276 million takeover offer by JPMorgan.”

I hope they read this post; it may give Joe and Jim some creative ideas.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I am a shareholder in BSC.

Share This

Share This

Filed under: Major movement, Rumors, Rants and raves, Market matters, Scandals, JPMorgan Chase (JPM), Serious Money, Headline news, Bear Stearns Cos (BSC), Stocks to Sell

There must a few other market saps out there like me who are wondering why Bear Stearns (NYSE: BSC) shut yesterday at $5.91 per share when it has been reported continuously for the last 72 hours that JP Morgan Chase (NYSE: JPM) was only paying $2 per share to take over the company. Now it is being reported that the figure is $2.34 — Oh boy!

I say market saps because I hold the stock and could sell it for more than the $2 but I don’t. Why not? What am I hoping for? Until this morning there has not even been the slightest rumor that some white knight will come to the rescue and acquire the company for more than the measly $238 to $276 million price tag being discussed.

Yesterday I wrote that what “JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) would not have been enough to buy the brand name last year, never mind the whole company.” This being the case, I would love to see the line by line worksheet that the negotiators (some might call them scoundrels) assisted by the Federal Reserve Board worked up to determine the acquisition price. I understand that JPM is assuming a mountain of liabilities but I thought that the Fed has given JPM assurances that they would cover short term losses. In the long run, some of that bad paper is going to be worth billions of dollars.

I would like to know what the actual risks are that JPM is assuming? On the other hand, no one else has stepped forward to do the deal. So what are the possibilities? We have all heard that truth is stranger than fiction. I have a feeling that if we ever learn the truth about the BSC - JPM deal, this will be demonstrated once again.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I’m a shareholder in BSC.

Share This

Share This

Filed under: Deals, Management, Rants and raves, JPMorgan Chase (JPM), Serious Money, Headline news, Bear Stearns Cos (BSC)

For me, I just find it unfathomable that management would either bet the farm on some very high risk investments, or equally bad, bet the farm on investments they did not fully understand. This is such an extreme case of mismanagement that investors the world over can not believe it was possible. As a matter of fact it seems so impossible that it is probably what kept many of us faithfully invested. Many of us take investment risks, some more than others, but to bet the whole farm? To bet your future existence? This is financial insanity.

Is this just a case of greed causing blindness? If so why was it so contagious among some firms and not others?

It seems to me that the reported $2 per share purchase price that JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) would not have been enough to purchase the brand name last year, never mind the whole company. What we’re witnessing is the strong (until JPM reports some surprise) taking advantage of the weak. It also exemplifies how bad the market is, that no other buyer has stepped in at these fire sale prices.

I also do not understand why management was so slow to act over the course of the last year as the picture became more clear as to how bad things were getting in the credit markets. Perhaps they were in denial. Do we give them the benefit of the doubt as to why they kept telling the market they didn’t have a liquidity problem until last Friday morning when we all woke up to hear they did? Did they actually believe all the trash they were telling us?

It looks like the strong will become even stronger after the market shake-out —or even more appropriately, the market shake-down. We should not forget that the assets that Chase is buying are impaired now, but likely will be worth some number of billions of dollars more as the credit and liquidity problems work themselves out over the next few years.

Even though this might make JP Morgan Chase look like a good purchase right now, since the stock is down and there’s so much possible potential, we all have thought this about other institutions, including Bear Stearns, only to watch things fall apart as we’re taken by surprise, as new disclosures of mismanagement and untimely decisions are made public.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I’m a shareholder in BSC.

Share This

Share This

Filed under: Major movement, Bad news, Market matters, JPMorgan Chase (JPM), Headline news, Bear Stearns Cos (BSC), Federal Reserve

Bear Stearns (NYSE:BSC)was sold to J.P. Morgan Chase (NYSE:JPM)over the weekend for $2 per share in stock. The Federal Reserve also provided substantial financing to J.P. Morgan Chase to facilitate the transaction. This is quite astounding since Bear Stearns stock traded over $60 per share last week and over $100 per share late last year.

The Federal Reserve also announced additional measures to provide liquidity to the market. It lowered the discount rate by 0.25% to 3.25%, reducing the discount window penalty to 0.25% from 0.50%. It also established a lending facility for primary dealers directly as opposed to through banks.

What do we make of all this? The Fed has established that it won’t allow the system to fail. It comprehends the danger that a bankruptcy from a major bank or brokerage firm would cause and won’t allow this to occur. This could cause a breakdown of the financial system on a global scale. A similar credit crisis occurred after the Crash of 1987.

On the other hand, this seems to indicate that shareholders will not receive a bailout. The Fed is essentially saying to a non-bank player, such as Bear Stearns, if you get into trouble which endangers the financial system, we’ll arrange for an orderly pre-packaged bankruptcy. Our concern is the financial system, not your survival. In essence, if you come to us, we’re concerned that death occurs in an orderly manner.

This is very similar to the Fed takeover of Continental Illinois in the mid 1980’s. This bank was considered too massive to fail. The Fed took over, and shareholder value was eliminated.

Any actual bailout will probably be limited to banks that are regulated by the Fed. However, there will be no free lunch. The Fed is concerned with market stabilization now. In the future since these institutions are under the regulation of the Fed, the costs of this bailout will then be accessed on them. If you want to look at precedent for such a situation, the early Chrysler bailout is a good example.

The Fed has indicated that it won’t grant the system to fail. However, the penalty for those who put the system in danger will be severe, quite possibly fatal.

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve’s impact on the stock prices. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.

Share This

Share This

Filed under: Bad news, Rumors, Management, Rants and raves, Market matters, Scandals, Economic data, Politics, Headline news, Recession

There has been so much crap thrown around about whether WE ARE in a full blown recession OR NOT that all the talk, is just that — a lot of speak. Long time investors know well that if there’s anybody left that thinks we are not in a recession than we have not reached final capitulation.

If we don’t reach this level of pain, then we can’t get superior. Admitting the problem is a major path to recovery. That is true for an alcoholic and our ailing economy. As long as the alcoholic keeps saying they can handle the problem, its not going away.

Our economy is drunk and falling over. You can call our current economic crises a “rose” for all I care, and for those that want to wait for the classic two quarters of negative growth to appear you can consider yourself followers not leaders. Leaders take action and try to avoid a crises. Followers, wait until there is a crises… and historians document and report on the difference between the two.

I myself have written that we may not have a recession, however, that is not going to prevent me from understanding and admitting that we might have all the symptoms and be suffering. We might be like the burly fighter in the final rounds of a heavy wait fight. We’re done, but we just haven’t bothered to fall down. Everyone can see it. The referee can call a technical knock-out (TKO) without witnessing a total collapse.

President Bush who spoke on the subject again this day tried to be very reassuring and calm the markets. He wants to get the message out that he and his fellow cohorts in Washington D.C. are taking the matter seriously. I think historians are not going to be portraying him as the leader he thinks he is. To be that leader he must capitulate and use the recession word, which I’ll now codename “rose”.

So Dub-ya, start throwing roses, and the rest of us will give the all clear sign with a wink and a nod and maybe believe that better times are ahead. But for now we don’t.

The vehicle industry doesn’t. The construction industry doesn’t. The financial industry doesn’t. The airline industry doesn’t. The investment world doesn’t. The retail industry doesn’t. The financial analysts and legislatures of each State in the Union (and most major cities) don’t and the falling dollar is the sign post.

Mr. President, I respectfully submit that you are going to be the one to call the bottom. When you clearly state we are in a recession then Wall Street will ring the all clear bell. It’s time to call an economic TKO.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.

Share This

Share This

Filed under: Bad news, Rumors, Press releases, Newspapers, Rants and raves, Scandals, Media World, Politics, Headline news

After the news Monday that he was involved in a prostitution ring, the pressure on New York Gov. Elliot Spitzer to resign began to mount. This morning The New York Times is reporting that he’ll do so this morning. An official announcement is expected at 11:30.

Yesterday, it was reported that his spectacular failure in judgment to engage the services of a ‘prominent‘ prostitution enterprise was not just a one time affair! Spitzer spent $80,000 on prostitutes and met with them in Santa Monica and Las Vegas, not just the originally reported Washington, D.C., according to new media reports.

After betraying his wife and kids, the public trust, not to mention the law, this former Attorney General, who won office by a landslide as a zealous prosecutor now finds that he is among the ‘evil wrong doers’. He has gone over to the dark side!

Now while the Times is reporting on his imminent resignation from office humiliated and shamed, in the next few minutes perhaps, some are wondering what held up the announcement this long. The Times is reporting that his wife, whom he publicly embarrassed, is urging him to stay in office. Lt. Gov. David A. Patterson would assume Spitzer’s job upon his departure.

Spitzer is now like an ace pilot who finds that all of the sudden one of his engines is on fire and knows his time is limited and his life is in jeopardy. He’s searching desperately for any clearing below where he might be able to land the plane without hurting anyone more and without crashing and bursting into flames. He knows the mission is over, and that this story will not end pretty (or soon), but he cannot bring himself to bail out of the plane.

Regardless of what happens to Spitzer in terms of his legal trouble, his shame couldn’t be greater and there’s no escaping that; there’s nowhere to hide from the suspicious and disapproving eyes of people who will hold him in contempt wherever he goes. He will pay a very high price for his unfortunate misdeeds.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.

Share This

Share This

Filed under: Major movement, International markets, Good news, Market matters, Economic data, Headline news, Federal Reserve, Recession

The Federal Reserve announced this morning several measures to deal with the current liquidity crisis on Wall Street. It is creating a new Term Securities Lending Facility (TSFL) that will lend Treasury securities for 28 days as opposed to overnight under the current program. The key element of this program is that it will accept residential mortgage-backed securities (MBS) as collateral.

The Fed is also taking coordinated action with the other major central banks: The Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank. It has also authorized increases in the currency swap lines with the European Central Bank and the Swiss National Bank.

These actions are significant for several reasons:

• The Fed, by accepting MBS as collateral, is now attempting to inject liquidity directly to the area that’s the source of the credit crunch.
• It is extending the term in order to give additional confidence that funding will be available for a longer period of time. No one will lend unless they are certain that funding will be available. This addresses the issue.
• The Fed is taking action on a global basis with other central banks. This an additional measure to build confidence in the financial markets.

The Fed is truly acting as a lender of last resort. Will this be enough to stabilize the financial markets? For now, stocks are up strongly across the board. However, only time will tell.

These actions can work if the Fed views this as the first of a series of actions to deal with current financial problems. They weren’t created over night and will take time to resolve. The Fed must be perceived as an active participant in this process, not an observer. I have said that much of the problem with the Bernanke Fed has been the perception of it being behind the curve, lessening the effectiveness of its actions.

Hopefully, these actions represent only the initial step in dealing with the current credit crisis.

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.

Share This

Share This