The trading plague that fell upon Bear Stearns (NYSE: BSC) nearly killed it this morning before JP Morgan and the NY Fed showed up with penicillin. (Stocks in article: NYSE: BSC, NYSE: JPM, Nasdaq: MSFT, Nasdaq: YHOO, NYSE: ANN, Nasdaq: ZUMZ, NYSE: DNA, Nasdaq: PSUN, Nasdaq: SIGM, NYSE: LLY, NYSE: LIZ, AMEX: SPY, AMEX: DIA, Nasdaq: QQQQ, AMEX: QLD, AMEX: SDS, AMEX: DOG, NYSE: LEH, NYSE: MER, NYSE: C, NYSE: GS, NYSE: C, NYSE: MS)The entire group of investment banks sold off in sympathy to Bear's 30+% drop. Lehman Brothers (NYSE: LEH) fell off about 9%, Morgan Stanley (NYSE: MS) slipped 5%, Goldman Sachs (NYSE: GS) fell 4%, JP Morgan Chase fell 4%, Merrill (NYSE: MER) slipped 3%, Citigroup (NYSE: C) 3%. Bear is down 34% at this hour.
The Greek knows a strong mutual fund manager over there and a hedge fund manager, and I hope for the best for those two.
We can look at the current situation in two separate manners. We could ignore the emotional extreme high and low patterns of human behavior, and say the world is coming to an end. However! I recall not too long ago when the same headless chickens gaining airtime today on CNBC and selling the market to bare bottom lows, were claiming sellers were just "lemmings."
Let's keep a level head shall we? The market typically corrects every 3 or 4 years on average, over the last 100 or so years. Recession is a normal happening. The same greed that drives market bubbles has changed its form to that of fear, driving panic today. The business news is gaining headline, front-page status, so we are likely getting close to crescendo.
Geopolitical Event Will Bring the Real Crescendo
However, I do not sense the bottom yet. That famed "crescendo" is not here yet. We suspect it will come with a geopolitical event. This bull-crap developing in South America will evolve into a war that draws the continent into conflict, if Chavez is not stamped out soon. Colombia has effectively sealed alliance between Ecuador and Venezuela now against it. Even so, the American backed nation still holds overwhelming advantage. But, it's a powder keg surrounded by flint. Colombia is not one united nation you see, but one diseased by an internal enemy as well. Chavez will seize upon the first opportunity he gets; he'll wait until the United States is busy elsewhere. In the meantime, he'll continue to support Colombian rebels every way he can.
In the Middle East, Iran is trembling. Israel is starving Gaza, weakening it. Why? To force Hamas out of power, maybe. But, the strategic oil reserve is full. Bush wants to fill it further. Why? Think about why Bush wants to fill the reserve further, when flooding the market with oil now would help ease economic stresses. We expect Israel, with the aid and cover of U.S. forces, will bomb Iran in the next few months. That's your crescendo sell-off catalyst. That's when commodities spike.
Do they top on that day though? That depends on what Russia has planned and what China decides upon when its energy partner is enveloped in war. Heavy handed fists hold power in Russia and in the United States. Unfortunately, open hands are needed now more than ever.
Bear Stearns & the Fed Rescue
Thank God for the Federal Reserve. If the Fed were abolished like Ron Paul and Jim Rogers have openly called for, the U.S. economy would now be well on its way to a depression similar to that of 1929. Without the liquidity it's offering that is admittedly weakening the value of the dollar, we would be in depression already. Would you prefer that?
If nobody wanted to trade with Bear Stearns today, and the Fed was not there to secure liquidity, Lehman Brothers (NYSE: LEH) would be next, and then the entire financial system would freeze up. The stock market would have crashed and the economy would have fallen. Americans have their wealth tied up in pension funds, IRAs and 401K savings plans invested in capitalizing American companies. When confidence in those shares falls apart, America falls apart. Thank God for the Fed and a pat on the back is offered to Ben Bernanke today from
The Greek. We have an obligation to preserve the market, because preserving it, preserves America as well.
Economic Data & Analysis
Consumer Price Index
February's Headline and Core CPI showed no change from January, offering good news to the market that was expecting increases of 0.3% and 0.2%, respectively. Futures immediately showed hope for market inflection, but then the Bear news broke.
Inflation was nowhere to be found in today's report, kind of. Not in energy prices anyway. Not in gasoline?!? Gasoline impacted the index in our favor (through the measuring date) by 2.0%. Just about everybody who drives or reads an occasional newspaper knows gasoline prices have risen and that this factor will stab us in the back next month. So, it's hard to gain too much conviction to go long from a report you know will be significantly different when reported next time around. Still, the market wanted to go long on it this morning, and our own headline for this article was set to read, something like "Watch Out this Afternoon." It was a trading play mistaken for a bear market turn. So, it was fitting that it was a bear, Bear Stearns, that killed it.
University of Michigan Consumer Sentiment
The preliminary March report showed confidence at 70.5, versus expectation for 69.5. However, I bet if you measured it this morning, it would stumble somewhere south of 60! When is Saint Patties Day, I need a drink already.
Thank you. (disclosure)
