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Crisis or Opportunity? My take on the Bear Stearns buyout

Posted on March 17, 2008

Wow. Who would have thought a year ago that Bear Stearns would simply crumble like it did? The stock was around $140, things were looking good and, bam, the mortgage crisis hits and Bear Stearns stock enters into a tailspin that “ended” today at $4.10 per share (a couple bucks above the proposed buyout price of $2 which could mean shareholders are optimistic that the deal price will edge up in the coming days and weeks).

As a long time student of the financial markets (and not an owner of Bear Stearns stock) today was one of those days that gets me excited. Will there be a massive sell off? Further loss of wealth? Or will people be rational about things and take this situation for what it is, a “trimming of the fat” if you will?

With all the sensational media coverage early this morning I feared the worst. I figured investors would send the market into a downward spiral. Investors have overreacted in the past so why would today be any different? Then, Maria Bartoromo appeared on the TV and, lo and behold, was pretty rational about the situation.

Maria spoke about this situation being a good thing for markets long terms and suggested this was not a huge crisis of epic proportions and in fact a good thing. I almost fell off my couch not because Maria is usually sensationalist (she is usually level headed actually) but because she was the only media person not talking about doomsday. It was then that I had hope that this time things would be different.

As the day unfolded there was, as to be expected, a run to the big blue chip stocks sending the Dow up 21 points for the day (partly due to JP Morgan’s stock rising about 10% due to the deal). Holy smoke! It was up! Of course the S&P and the NASDAQ ended down but not by too much. They were only down 0.90% and 1.60% respectively at the close of trading and some companies in various sectors had OK to good days in both of those indices.

It seems that investors acted fairly reasonably today and recognized this situation for what it was: a consolidation that needed to happen in order to maintain stability and to allow things to push forward.

If anything today was a day to consider buying solid companies (which a lot of folks did) since a lot of them would be selling at a discount due only to the Bear Stearns sale and not to anything they could control. Today was a day for the smart value investors to step up and shine.

What a fascinating day. The mob could have ripped the markets to shreds but they didn’t. Well, I guess there is always tomorrow but for now I am impressed with how things turned out. Are investors getting smarter and more rational? Who knows but if today is any indication I think we’re heading in the right direction in terms of mindset.

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1 Comment so far
  1. Finnsense March 18, 2008 12:22 am

    Hmmmm, I’m not convinced. The market is not behaving rationally if it doesn’t look at the big picture and the big question there is whether all these problems are due to illiquidity or actual insolvency. If they are due to insolvency equities still have a way to fall because the US is in for quite a protracted recession. If illiquidity then you may be right. I don’t know which is right.