Bye, Bye, Bear Stearns?

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Mar 14, 2008 4:22 pm

Today, is a pivot point.

 
I've again increased allocations to funds specializing in US companies with significant overseas operations and markets, foreign dividend-paying stocks, and precious metals.
 
The reason? An internal alarm bell went off when news came out about Bear Stearns and their liquidity problem. Though shocking enough, that wasn't the trigger for the alarm. What was the trigger was that CNBC had interviewed Bears' CEO 2 days ago and he indicated that all was well (generally speaking). I agree with the announcer (a rare event in itself), that the CEO appeared to have no prior knowledge of this problem during the interview. That's what scares me. How many others (ML, SB, Wach, etc.) are sitting on ticking time bombs and they don't know it? The major banks could also be sitting on ticking time bombs, but they have access to the Fed to bail them out without making headlines.
 
Many of you know that I am generally bearish on the US for fundamental reasons. However, I haven't built the bomb shelter (yet) or dumped all my clients' assets into precious metals funds. To do so, at this stage of the game, would be foolish (in my humble opinion) and would incur the wrath of my clients, as well. My game plan is to look for significant sign posts along the way that tell me which way to shift a percentage of assets. 
It's not a science, it's an art. Right or wrong, it makes logical sense to me and many of my clients.
 
My primary fundamental reason for being bearish on the US is that many of the economic stats the market relies upon are flawed...on purpose: CPI, GDP, unemployment, etc. I say "on purpose" because politicians have changed the way econ stats are measured, relying primarily on computer models and whatever was politically expedient at the time. For comparison purposes, employing the old way of measuring the economy says that we are now experiencing a CPI of 10+%, a negative GDP (for 3 quarters in a row), and an unemployment rate of over 10%. (Which stats seems closer to the truth to you, the new or the old?) Relying upon these "flawed" indicators gives a distorted view of the economy, causing all kinds of foreseen and unforeseen problems.
 
However, to panic and dump everything into precious metals now would be a mistake, in my opinion. The market is based on perception, not reality. It could be years before "reality" sets in. So, I've chosen to make defensive allocations as these periodic sign posts pop-up, lending credence to my theory that the economy is fundamentally flawed and unless we come to grips with the "reality" of it, the pain will only continue.
 
Hey, I could be wrong! Do your own due diligence!
 
Mar 14, 2008 4:49 pm
iceco1d:

Dobe, good post, but I do have a few questions:


1.  I understand the argument for allocations to precious metals, and foreign dividend paying stocks.  My question is, "U.S. companies with significant foreign operations and markets" - doesn't that category include just about every large cap, most mid cap, and many small cap companies?  I don't know of (off the top of my head) too many major U.S. companies in the past 5 - 10 years that do a majority of their business in the USA (or even in North America, for that matter).  Just curious about types of companies you are referencing here.


I use funds that specialize and/or have a significant portion of their portfolio in such companies. I'm not an analyst, so I use funds that offer a "conservative" approach to picking such stocks. I use those funds that employ all three market caps for investment.
 
 


I'm getting pretty darn bearish on the dollar, that's for sure (say it aint so!)...it's a shame that our entire economy, and all of our markets, are going to have to suffer because of the stupidity and irresponsibility of a small percentage of the population and unscrupulous lenders.
 
Agreed.
 
2.  There is much talk on the forum as of late, about the changes in the way economic indicators are measured.  I read a great deal of allegations about the political conspiracy of changing those measurements to mask the reality of 10% inflation, negative GDP, etc.  Could someone please elaborate on this?  With cold, hard facts, that is...what exactly has been changed, and when?
 
Suggest you go to www.shadowstats.com . They offer a free archive that explains the history and shows you everything but current stats (that requires subscription). Note: you'll need a basic understanding of economics to get their point. Yeah, I don't care for the website name (too conspiratorial), but wha' cha' gonna do?
 
I'm not saying I doubt it, and I'm not saying I concur...I'm just wondering what's changed.



 
I could be wrong....
Mar 15, 2008 1:03 am

I grow tire of your Bear'istic views Doberman. Look back at your 1100+ posts...its grows tiresome

Mar 15, 2008 1:28 am

Are we to the point of maximum pessimism yet?  Perhaps, perhaps not.  I think we are getting close either way.

Mar 15, 2008 8:35 am

I've been moving people to more aggressive allocations for about 2 - 3 weeks now. A little early to be sure, but I don't think it's too early. The research I've done suggests that when you believe you're past halfway to the bottom, you make a lot of money by doing so.

Mar 15, 2008 8:46 am

Jonzed,


We'll, be prepare to get much more tiresome..as it spreads to the main stream media...years and years to go my friend

Mar 15, 2008 9:38 am

doberman,

Lehman is next...
Mar 15, 2008 11:31 am

Anyone hear that UBS is selling its brokerage.  An advisor in my office announced it yesterday as I was leaving the office  but I cannot find confirmation.  If true, that would be a very bad sign for UBS.

Mar 15, 2008 1:22 pm

That is the rumor.....although we have:

 
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZ.7LAjh04w
 
 
Mar 15, 2008 2:46 pm

It would be interesting if this rumor is in fact true due to the fact that UBS tried to buy AGE before Wachovia.  If the rumor is true, that would highlight how fast the mighty have fallen.

Mar 15, 2008 3:47 pm
Jonzed:

I grow tire of your Bear'istic views Doberman. Look back at your 1100+ posts...its grows tiresome

 
Ohhh gee, well uhhh, how 'bout I run'em by ya before I post'em, sport?
 
Seriously though, agree / disagree whatever. I try to be realistic by determining the facts of a situation and then applying my opinion as to the outcome. That's what your clients pay you for. Simply selling your clients on your optimism for the future is doing them a disservice. You're optimistic, fine. Now, tell me why, using facts and figures that back-up that opinion. (Refer to Indyone's posts as examples.)
 
Now, why is this important to you? Because if I ever met one of your clients and you're a "gee-whiz"-type of broker, you'd lose the account. "Gee-whiz" brokers are a dime-a-dozen and will lose their accounts to brokers who have facts to back-up their opinion, everytime. 
 
Besides, having a factual, logical reason for doing what you did for a client, might save your b*tt in arbitration.
 
Just sayin'....
 
Mar 16, 2008 12:44 pm

Thanks, Dobe...you're my favorite bear...



You at least aren't in the "we're in a depression" crowd yet, and you do tend to stay factual, which I also appreciate. What Bear and others are going through right now will end up serving a valuable lesson, much as the internet bubble did. The only question here is how deep do the problems run and how quickly will they be behind us. I'm probably more optimistic than you in that regard, due to P/E retios and the number of industries that remain relatively unaffected at this point.



As the number two posting junkie here, I hereby grant you unlimited posting privileges to act as my counterbalance.

Mar 16, 2008 7:09 pm
Indyone:

Thanks, Dobe...you're my favorite bear...

You at least aren't in the "we're in a depression" crowd yet, and you do tend to stay factual, which I also appreciate. What Bear and others are going through right now will end up serving a valuable lesson, much as the internet bubble did. The only question here is how deep do the problems run and how quickly will they be behind us. I'm probably more optimistic than you in that regard, due to P/E retios and the number of industries that remain relatively unaffected at this point.

As the number two posting junkie here, I hereby grant you unlimited posting privileges to act as my counterbalance.

 
Thank you. (Knowing Indyone is posting from some swanky penthouse, beachfront hotel room overlooking scantily clad spring breakers frolicking on the sand. "Wanna play a little volleyball broker-boy?")
Mar 16, 2008 7:16 pm

This just in: Bear Stearns is history and their shareholders are getting a shower. JP Morgan is buying Bear for $2/share. (No misprint) Bear closed at $30 on Friday and on Monday JP Morgan is buying it for $2/share. WOW!!



The link says it all:
http://www.foxnews.com/story/0,2933,338306,00.html
 
Mar 16, 2008 8:07 pm

Amazing is the only way I can describe that.

Mar 16, 2008 8:50 pm

Asia's down only 2%... Let's see how we do tomorrow. 2 - 3% down day?

Mar 16, 2008 9:11 pm

Wow...just wow!

Mar 16, 2008 9:12 pm

Bear closed at $30 on Friday. JP Morgan bascially says we'll pay $2 a share and Bear agrees.   This is unbelievable. Because Bear agreed to this you have to think they weren't just having short term liquidity problems.

Mar 16, 2008 9:40 pm

ice - are you thinking that businesses will invest the cash on their balance sheets if they're told their WACC's will increase soon? While I respect this thought process, it's nuts because Bear's failure(and the current financial crisis in general) is caused by tight credit markets. An increase in interest rates is necessary to support the $ and to slow inflation, not to cause investment. There's not a direct correlation.



While I prefer these term credit facilities & discount rate cuts to lowering the fed funds rate - I don't think we need lower cd, mmkt, credit card & HELOC rates - I support fed cuts, and strongly believe they need to get to wherever they're going & to indicate that they're done cutting. This will support investment and will also loosen the credit markets.



Yeah, I'm not going to attempt to fix that run on sentence.

Mar 16, 2008 10:23 pm

Im glad with your 4 month in the industry, you went from bull to bear.  Congrats!