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.

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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.

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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.

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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.

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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.

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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.

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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.

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Filed under: Rants and raves, Scandals, Media World, Politics, Headline news

Pushing aside many other newsworthy stories today is one more very sad tale about a do-gooder gone bad. Today it was learned that New York Governor Eliot Spitzer (and former Attorney General) has displayed the ultimate in hypocrisy that’ll leave a stench so thick it will tarnish not just his reputation, but that of every public official. An already cynical public can only become even more cynical now.

It is being reported that Governor Spitzer engaged the services of a New York prostitution ring in advance of a trip to Washington DC. I will not get on my own moralist high horse about the subject of prostitution, even though, I could probably understand the arguments in favor of it being legalized. However, this is much greater than that. This is a question of hypocrisy, illegal activity, betraying a public trust, lying, cheating and stealing.

If the facts play out as initially reported, then he has betrayed his family, friends, business associates and the public. This made all the worse by his self-aggrandizing and many would argue overzealous approach to chasing Wall Street executives up a tree and then leveraging the chase to build a platform for his now shamed office of Governor.

If Mr. Spitzer were single and a private citizen, we could debate a whole range of other issues. But given his history, and moralizing and de-moralizing others — to state the obvious — this stinks to the high heavens.

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.

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Filed under: Law, Headline news

The New York Times reports that New York Governor Eliot Spitzer will give a press conference this afternoon to announce his involvement with a prostitution ring. This is something I would expect to see on the cover of a tabloid, not the Times.

Spitzer informed his most senior administration officials that he’d been involved in a prostitution ring. Just last week, federal prosecutors arrested four people in connection with an expensive prostitution operation. Administration officials wouldn’t say that this was the ring with which the governor had become involved.

Stay tuned for Spitzer’s press conference for word on whether any of those four people implicated Spitzer or whether Spitzer will resign. No word on how his wife and three kids feel. In January, Vanity Fair wrote after reviewing Spitzer’s tough first year in office “Ask Jim Cramer of CNBC’s Mad Money, Spitzer’s pal from Harvard Law School, about the guy [Spitzer] and he’s uncharacteristically speechless.” No doubt Cramer would also be speechless about Spitzer’s latest news.

Update: The Associated Press reports that court papers indicate that Spitzer was a client of Emperors Club VIP, the prostitution ring mentioned above. The Times reports that Spitzer was identified as the ‘Client 9′ in a wiretap who met with a prostitute in a hotel room 871 — believed to be Washington, D.C.’s Mayflower Hotel on February 13.

In a statement Spitzer said, in part, “I have acted in a way that violated the obligations to my family and that violates my - or any - sense of right and wrong. I apologize first, and most importantly, to my family. I apologize to the public, whom I promised superior.” He didn’t take questions.

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Filed under: Forecasts, Other issues, Bad news, Management, Employees, Politics, Headline news, Recession

Just last week I reported about the insolvency problems in New Jersey to Walletpop readers, see: The snowball starts in New Jersey. Now, that nasty old snowball has streaked across the country and landed in the California suburb of Vallejo, wreaking havoc on the local government there. CNBC reports that Vallejo Councilwoman Stephanie Gomes states “Our financial situation is getting worse every single day”. Ask not for whom the bell tolls, it tolls for the heavy handed labor unions which have coerced sweet pay and benefit packages for the 30% of our workforce which is supported via tax dollars produced by the rest of us who actually make things.

The insolvency of Vallejo should come as no massive surprise, and in fact Vallejo is just the leader of what will become a very large pack. Before the end of this year I envision the entire state government of California will be in tears due to a lack of spending cash. You’ve been warned, it’s to become a nationwide trend.

We just can’t expect that private sector declines will leave the government sector untouched. The toughest part is that there’s nothing government agencies can do about it, except to cut spending or raise taxes. Local governments are in the business of taking constructive dollars from the people who created them and then throwing them into the bottomless pit of entitlements, waste and graft. Now, the chickens have come home to roost, and they’re huge, mean, hideous chickens at that.
So, cry me a river Vallejo. You’ll soon be joined by the rest of your once hearty say.

Boondoggled naysayers have been laughing in my face for years while claiming that local governments can’t go bankrupt. You cannot however, collect taxes from people who aren’t working, and foreclosed properties don’t generate much in property taxes.

Guess who’s laughing now.

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