Hey, look who’s on Kudlow & Co. tonite, from 7:00pm to 7:30pm. Also on the show tonite are Art (92% undervalued SPX) Laffer, Andy Busch and Vince Farrell.
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. (More Dollar pressure, Gold & Oil both up) Market action today was positive: Bad news, big gap down, positive close. It is only one day, and it is likely in anticipation of FOMC tomorrow. We continue to look at this as a modest rally.
Here are the talking points I sent in:
1) This was not a “bail out,” at Two Dollars/share, it was an "Orderly Liquidation"
2) JPM looks to have gotten a great deal – the Fed is actually taking on the first $30Billion in risk; Unless BSC’s losses exceed that, it’s a winner for JPM.
3) The Fed took this risk because JPM could not possibly have done the due diligence over the weekend. (GS just took a $3 Billion hit).
4) 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.
5) JPM 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
6) The impact of the credit crunch is — disturbingly — showing up in places you would never expect. Headline: 20% Of Silicon Valley Startups Can’t Get To Their Cash.
7) Lehman’s chart looks shockingly like Bear Stearns chart
~~~
UPDATE: March 18, 2008 5:18am
Here’s last nite’s video:
http://www.cnbc.com/id/15840232?video=687667784
BR, perhaps you have been missing my quote: “There is no means of avoiding the final collapse of a boom brought about by crdit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
BR, we know that there was no “voluntary abandonment of further credit expansion.” Now can you help us with timing?
Will be watching intently. Tell Vince, to quit being the consumate money manager and think 100 year rain.
Uh shit! I forgot to mention that the quote is: Ludwig von Mises
So, how would’ve it been received if over the weekend:
1) Microsoft drops Yahoo bid (only to return later with a $15/share bid)
2) Microsoft pays $249 million for Bear Stearns and the same $30 billion Fed backing. Why? Try to do the same thing Warren Buffett has done with the muni bond business: enter when the current players are boxed in. No telling how many other players MSFT could gobble up with their cash. Just keep sticking the Fed with the bad paper….
Can someone explain me :
If wasn’t the JPMORGAN rise today, what would be the DOW value?
Thanks
Barry,
This is only peripheral to the economy and to most people, but considering all the
“big boys and girls” that took a hit with BSC, do you think the auction outfit Christies will have some bargains on the block soon? The liquidity scramble is on.
Consider what was driving the market in 2006-07:
1. Record earnings (Quarter after Q of double digit year-over-year gains),
2. Increasing dividends
3. Private Equity / M&A activity
4. Rich Share buybacks
Now, what of the above is left?
The human tradegy amongst the midlevel Bear employees must be immense. Thoswe 401 K statements at the end of the first quarter will tell thm how many Venti’s they can afford.
I have a great idea – why doesn’t the fed extend a credit line to insurance companies, pension funds, and even mortgage brokers in order to aviod more financial trouble. Hey why not take over GM and Ford’s pension and health care liabilites while they are printing…
Nothing has changed for the consumer. Still not able to pay for debts including mortgage,CC, Auto, Boats, various ATV’s and assorted expensive toys. No bail out for RE sales velocity=end of mortgage industry as we know it.
I have zero sympathy for the BSC employee / co-conspirators. They all know what was going on and loved every minute of it. Only a fool invests in the company that employs them. It’s always been one of the paramount rules for financial survival.
“It aint over til its over.” “If there is a FED in the road, take it!” lol
Barry, you’re missing something significant:
The Fed is actually engaging in a “half bailout.” Yes, the equity holders were effectively wiped out, BUT by providing $30b in NON-RECOURSE financing the Fed bailed out the debt holders(and other creditors). Without the Fed taking the first $30b in losses, JPM would not have done this deal and Bear’s debt holders would be taking large losses. Instead, Bear’s creditors(we’re talking tens of billions of debt) now face JPM and their debt is money good. The Fed is clearly encouraging moral hazard in the debt markets.
Word on the street is Kudlow talked to Ben and told him “I am inviting Barry over, make sure I don’t hear any ‘I told you so’s from him tonight”
Kudlow blaming the Fed for Bear Stearns demise!
Pam Martens
The Fed’s Wall Street Dilemma
The above article at Counterpunch covers the causes of our current economic woes succinctly.
After reading the article, knowing of the knowledge of history that the main players like Greenspan had in convincing congress to repeal Glass-Steagal, there is no way this could be called negligence; it was complicity, duplicity and greed.
Barry, nice tie;
Kudlow is right about the dollar, I would not go too long on Gold.
“All that glisters is not gold; Often have you heard that told”
William Shakespeare
I can’t believe it! Barry is actually getting some TV time on Kudlow tonite. Usually he gets cut off by Larry.
NY Empire State Index
Prior: -11.7
Market Expects: -7.4
Briefing Forecast: -8.0
Actual: -22
and BSC gets liquidated
and dow is up…
I love it!! you can call it anything, but you can’t call this market boring!
A new slightly different quote on Larry’s show, during commercials: ” I believe that free “EQUAL” markets are the best path to prosparity.”
So what do people think will happen with china since they’ve been running for a while with negative real interest rates, and have ridiculous overinvestment into low margin industry, tons of bad loans, a stock market with a P/E of 80 and a GDP which depends a lot on selling crap to debt heavy, slowing economies?
An excerpt from A. Smith’s “Theory of Moral Sentiments” pertaining to the latest sort of crises:
“Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connection with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment…. And when all this fine philosophy was over…, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquility as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger to morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren.”
I couldn’t listen past the moment when I realized that Larry Kudlow doesn’t understand the difference between FDIC and SIPC.
That, of course, is the difference between a bank and an investment bank, the point that Barry kept trying to make. It’s the major taxpayer money in the FDIC pot that gives the Fed the obligation to bail out a Continental-Illinois, but not the obligation to bail out a Bear Stearns.
I couldn’t continue to listen because I couldn’t stop wondering, “Did Larry Kudlow personally engineer the S&L crisis?”
There were 55,000 Put contracts on BS last Tuesday when it was trading at 65 dollars a share betting it would drop 50% within 10 days, as their CEO was saying all was well
http://www.thestreet.com/s/who-traded-55000-bear-30-puts-tuesday/newsanalysis/optionsfutures/10407812.html?puc=_htmlttt
Most of them were executed last Friday, BS last day of trading, with over 1 million dollars plus change in profits. Nice. I am sure the SEC will be all over it. LOL.
Anybody following put contract volume on Lehman Bros?
Since today is St Patrick’s Day:
The price of my house keeps a’falling
They say the economy’s stalling
Bernanke yells “stop!”
With another rate drop
But the size of this mess is appalling!
I think the Kudlow show has gotten less watchable. Larry is too hyper; he cuts off people whose thoughts I’d really like to hear, only to repeat himself again and again.
And the endless repetition of the “capitalism is good” slogans is a pointless waste of time. These phrases won’t sell anyone whose mind isn’t already made up.
I love the US! The PPT propped everything up in order for me to get all my 401K stuff out of the market.
I also had some longs I held over the weekend that I should have been taken to the woodshed on and wasn’t.
What’s next foreign banks to pull investments from the US? It looks that way by the way they are punishing the dollar.
Now Fannie and Freddy can buy more junk and when they collapse someone can buy them for $2 too.
Perhaps the idea of “creative distruction,” is the artists’s revenge? and math isn’t so powerful after all. lol
Almost every commodity market there is fell out of bed today at about the same time MF Global began its 65% share price plunge. Know the real story of another firm and or hedge fund who also met their demise today?
Saw the show. Kudlow was literally ranting that the Fed was responsible for the BS meltdown. Unbelievable. He was so obviously looking for an alibi it wasn’t true. BR I know we all have to make a living but this guy is a total joke. Why didn’t someone rips his face off. I have to say it you were way too polite.
And I don’t feel right after last night. I kind of feel like I did when the planes hit the towers on 9/11.
Oh! and did you happen to here CNBC, this morning mention that, “perhaps the u.s. markets are ahead of the OVERSEAS MARKETS, in that the u.s. markets have discounted the negativity already? lol
I know I’m late to this party but what I found fascinating today was the statement that only JPM had the $345M in cash to buy BSC.
This is not a good point to make but remember when they told us it was only subprime? There was only one? Now there is only one bank that will go under right?
In disclosure I have tiny piece of LEH (as of today), DUG, Short GLW and EEV. I would like to get long US but I think this is far from over.
BR, I have to agree with John, that you were way too polite. These guys are seasoned egomaniacs that believe what they believe because they only look in the direction that they choose to. I learned a long, long time ago that one has to look in every direction in order to interpet the truth. Tell Larry he needs to stick his forked tongue out a little more in order to gather what the wind of the economy.
Kudlow has excellent guests but he doesn’t allow them to finish a sentence! Larry pointless pontificates for 5 minutes before each question and then cuts the guest off 5 seconds into his answer. I agree. He’s getting awfully hard to watch.
It sounded like Kudlow lost some money on BSC to me. That or, he new Alan personally and feels for the guy.
Larry Kudlow is the new John McLaughlin. WRONG!
Speaking of the Kudlow show – you have to watch this- Laffer debates Shiff on recession prospects on Kudlow & Co. in August 2006. Someone needs to make Laffer pay off his debt. He was the emblematic neocon new dynamics voice.
http://news.goldseek.com/GoldSeek/1205727731.php
1. Commodities fell because we’ve bottomed and the next business cycle is ready to begin (and I own a bridge in Brooklyn that I will sell for the right price).
2. Commodities are now among the rarities, assets that are appreciating, and as insolvency grows liquidity problems can only be overcome by selling the good stuff to mask the stink of the bad stuff until there ain’t no more of one or t’other.
3. The only assets worth anything now are shotgun shells and beef jerky.
JustinTheSkeptic, I love that quote. Are you the one who posts it just about every other day? :-) I will go to my grave repeating that and choice phrases like “THEY KNOW NOTHING!” and “we have armageddon in the fixed income markets”. These quotes should in 100 years’ time be repeated as often as some of those quotes from 1929.
David, how do you come up with these Shakespeare quotes?? Good stuff… :-)
Good show BR. I believe Kudlow let you get 2 complete sentences out before he cut you off.
I don’t get it. Does Kudlow tell his guests ahead of time that he will be cutting them off just as they are making a crisp point?
And whats with that Jerry Bowyer guy? What a hack.
Tell us the truth BR….Kudlow’s show is really just scripted theatre. Kind of like Jerry Springer with a different demographic, isn’t it?
Totally unscripted — I had no idea Glass-Steagall was going to be discussed.
Usually, there is some overview as to the subject matter, but its pretty free form.
As to being too polite — hey, that’s how I was raised.
Just like that, some people’s stakes of $100 million or more in Bear were ravaged.
There was talk Monday that with their life savings nearly depleted, some executives had moved quickly, putting their weekend homes on the market.
http://www.nytimes.com/2008/03/18/business/18bear.html?ref=business
So what do people think will happen with china since they’ve been running for a while with negative real interest rates, and have ridiculous overinvestment into low margin industry, tons of bad loans, a stock market with a P/E of 80 and a GDP which depends a lot on selling crap to debt heavy, slowing economies?
Posted by: Bucket | Mar 17, 2008 7:39:00 PM
?????????????????????????????
is this the american view of china ??
you make china sound like they are the ones with trade deficits, mortgage meltdowns, etc,
wake up and smell the american propaganda your sprouting.
More so than other firms on Wall Street, Bear had encouraged its employees, from secretaries to top executives, to be long-term holders in the company’s stock, and the employees own over 30 percent of the company.
Ha Ha! Suckers !
Bad enough Johnny Lunchbucket does this with his 401k match, because he is too lazy or intimidated to regularly sell the company stock and diversify.
I would think you have to be pretty sharp to get and hold a job at an investment bank-Do these people really bet paycheck and bonus money on the house?
Barry, the only guest on CNBC to be caught drinking on live TV!!!
I still haven’t exactly figured out what I’m thinking about this. I think the whole notion of corporate socialism is wrong, and I don’t like the idea of a falling dollar or bailouts, but no one can really say shareholders receiving 4% of the market value from a week ago is a bailout. That’s more just a slap in the face if anything.
On Friday, I was upset, cause the Fed was providing a non-recourse loan to Bear Stearns via J.P. Morgan. The reason I was upset was cause it didn’t take a genius to figure out the Fed would never get that money back.
On Sunday, Bear Stearns is getting the equivalent of a fried motherboard for its entire business. The first $30 billion of the downside on Bear Stearns will be covered by the Fed.
Bear Stearns is dead, which I think most of us believe is ample reward for their actions throughout this bizarro housing market and ever rising debt. I feel sorry for the innocent employees, but they were going to get screwed anyway.
with 82% decliners on the NYSE today you don’t have to wonder how bad the DOW would have been without JPM.
Leawoodblues said:
“Tell us the truth BR….Kudlow’s show is really just scripted theatre. Kind of like Jerry Springer with a different demographic, isn’t it?”
Hilarious man!
Drinking on TV? I like this guy more and more.
I’m not 100% sure of the specifics of this comment, but I’m confident of the spirit and general thrust of it.
I believe that the Fed engineered the liquidation of Bear by essentially asking JPM to assume their mortgage portfolio (and other assets) at a deep discount to face value. The Fed has no intentions of being a mortgage lender or servicing company.
It is true that the Fed has no recourse to JPM if JPM were to experience a similar credit lock-up as Bear did and be unable to repay (buy back the repo collateral), but otherwise as long as JPM stays solvent, they’ll be able to service the loans and recoup the funds to repay the Fed’s repos. They weren’t given the money gratis… but only given the right to give the loans back to the Fed as full payment for the repo loan for purchasing Bear in the event the mortgages sour to a greater extent than the discount price they paid.
What it means is that the Fed would be *no worse off and possibly better off* than they would have been owning all of Bear’s mortgage portfolio directly, as long as the mortgages are serviced sufficiently enough to cover the average net discount price they provided the repo funds to JPM for JPM to acquire Bear.
It’s no different than if you as an individual became insolvent and your creditors agreed to take a mortgage you personally were holding on a third party as partial payment but maybe for only 80 cents on the dollar of face value. You might not have become insolvent had your mortgagee paid off his mortgage, but your insolvency would not necessarily transfer to a third party creditor of yours with superior liquidity and the ability to absorb your own mortgagee’s continued normal illiquidity (the privilege of the mortgagee to service his loan normally and keep it outstanding).
JPM had the superior liquidity and the Fed had no time (or inclination) to shop the deal for better terms just for the purpose of helping to save Bear.
Their objectives were not to inject moral hazard or to hold the discounted mortgages for profit, but rather to preserve the financial system. The Bear shareholders have taken the moral hazard hit already. There will yet be other financial institutions and individuals that will take this same hit before the mortgage debacle is over.
JPM may do very well with this acquisition of Bear, but apparently they aren’t likely to do badly.
The Fed may fully recoup all their discount repo loans to JPM or they may not, but they won’t be any worse off than if they’d just assumed them directly upon Bear’s liquidity crisis.
I’ve seen some today complaining that Bear wasn’t shopped for higher than $2. I feel really sorry for people who lost money in Bear stock (innocent people too, it’s not pretty), but for Bear to now be shopped for a higher price with some supposition that the shareholders have the right to refuse the deal with JPM makes one implied assumption that I don’t think will hold.
The Fed wouldn’t necessarily have an inclination to snatch the non-recourse status they gave JPM, and without that status, other financial institutions with deep enough pockets to acquire Bear’s assets and liabilities might not be so quick to bid. The Fed isn’t interested in playing market ping-pong, which itself is part of the liquidity crisis. They’ve found a place to put this baby to bed and I doubt they’ll be willing to wake it up again.
>>I sill haven’t exactly figured out what I’m thinking about this. I think the whole notion of corporate socialism is wrong, and I don’t like the idea of a falling dollar or bailouts, but no one can really say shareholders receiving 4% of the market value from a week ago is a bailout. That’s more just a slap in the face if anything.
Rj, that’s not a slap in the face —
it’s a royal screwing! Welcome to the world of free capital markets!!
Too, let me add this.
I may be wrong but I don’t think there are any financial institutions out there that would be willing to knock heads with both the Fed and Treasury Department right now about their behind-the-scenes participation in the JPM/Bear deal.
Any of you think there’s one with that big a set of nuts?
Seriously, do you?…
Imagine for a moment that you’re “Amalgamated BigNuts Financial, Inc.” and you decide you didn’t like the deal and you want to try a piece of Bernanke and the Fed, Paulson and Treasury – not to mention the Big White Ass House – on.
It’s funny just thinking about it.
I’m glad to be living in europe and no longer have the CNBC feed that would allow me to watch Kudlow.
From what I gather, his show has become a means to tow the republican conservative mantra in a manner that is anything but fair & balanced…(sound familiar yet?)
Below is a ‘must see’ link that details the demise of responsible journalism in America.
There is also a scary parallel ‘foreshadowing’ all that is occuring at CNBC along with the financial markets chaos/bailouts via the propaganda machine of corporate media. Parts of this video will make you squirm…but you will instantly think of Kudlow and unfortunately the kind of friends that he hangs with.
OUTFOXED: Robert Murdoch’s War On Journalism …video 78 min.
http://video.google.com/videoplay?docid=6737097743434902428
“I’m glad to be living in europe and no longer have the CNBC feed that would allow me to watch Kudlow.”
BUT, you have internet so you can go to the CNBC website and watch Kudlow over the net.
[Fear not though: surely there is some type of “Kudlow & Company” drinking game you may make use of… like it’s a sip everytime Larry cuts someone off, or a sip everytime Larry says Goldilocks, or chug a whole beer everytime Larry opens the show by going to someone who’s bullish, or chug a beer everytime they run “I believe free markets are the best path to prosperity”, BUT definitely a beer chug for “Kudlow 101”.]
You’re lucky to be in Europe. You could get plastered watching Larry over the net in a bar and instantly draw sympathy from the Euro gals for sitting through such bombasticism.
“Kudlow & Company”: what would it sound like in French?????????
Plase don’t tell me that Chief…I might be tempted to watch his corrupt show.
…but not a bad idea regarding drawing sympathy from the gals…there’s always a silver lining.
Barry, for the life of me cannot understand you, greenberg, Reich or anyone else who is not a Kudlow “ditto head” going on the show…it had become a parody of itself….seriously can anyone tell who gives money for management to Bowyer, Luskin or read Pethokoukis(?) or believes in the “Laffer curve”….don’t dignify his show with any appearances…..it a repeat of the ’70s Gong Show for heavens sake
BR “way too polite” was a bit of euphemism for not pointing out to the doctrinaire Mr Kudlow just how full of the proverbial he is. The problem here is that this is supposed to be a financial show but in fact Kudlow uses it as platform to promote right wing Republican politics. So when the wheels are coming off the cart of his basic ideologies he has to find scapegoats. For example I clearly remember him screaming for rate cuts to rescue the market last summer and then five minutes later he’s screaming because the dollar is going in the tank. The guy is not anchored in any sound economic principles just in promoting an agenda. It’s deeply ironic that Wall Street is currently being “bailed out” using vehicles invented by FDR who folks like Kudlow spend most of their time excoriating. At some point someone has to demolish the ridiculous posturings of Kudlow so I was just looking for a white knight perhaps called BR. Larry does however have great taste in suits, shirts and ties, perhaps he’d be better of working in Brooks Brothers.
I just watched this show this morning and I have to say that Mr. Kudlow is such an overpowering host. I’m surprised you didn’t call him out on his Ad Hom. attacks and childish tactics to drown out your opinion Barry. You should have bluntly told the man “it’s hard to talk over your ego.”
Barry
It was great to see you on Kudlow last evening. I do not understand why you do not walk off the show when he continually cuts you off.
I watch his show to be able to see guests like you.
A bailout for Wall Street may not be very palatable during a recession in a election year.
The odd thing is, beyond a few platitudes or mentioning that we’re in a crisis, none of the major candidates have mentioned it in any detail.
That may be because events have moved to quickly to articulate an opinion on the wisdom of the Fed now standing as the guarantor of nonbank lending institutions — and it may also be because McCain, Clinton and Obama as senators have to take a share of blame: They were happy to let the Big Boys make The Good Times for themselves.