Unbelievable how quickly something like this could happen to such a large financial institution. News is that JP Morgan will buy Bear Stearns at a much lower price than the $30 it closed at on Friday, and if the deal falls through, Bear will file for bankruptcy immediately. How will the market react tomorrow?
Another issue I think we need to be careful with is this: Last Friday's CPI number was flat. Although the market appeared happy to hear the news, it is in fact a very dangerous reading. What is worse for the economy than inflation? Deflation. Whether or not future readings will confirm the possibility remains to be seen. However, as mentioned earlier - corporate profits = CPI- PPI. With commodities prices surging, and demand falling, the corporate world could be in for a shock, as margins are squeezed.
Will be exciting to see how the market acts tomorrow as usual.
UPDATE
JP Morgan buys Bear Stearns for $2 per share. This reflects the incredibly uncertain nature of our financial system at this time. It's hard to believe BSC traded at over 68 dollars just 3 days ago, and is now locked in at $2.
This also reflects how incredibly fragile and reliant upon cash the banking system is. "Cash is King" has never meant so much. Sometimes we forget that all banks have a FINITE amount of cash, regardless of how much money the fed is willing to print. I continue to stress caution with respect to your own bank accounts. Washington Mutual continues to be on my watchlist for the next catastrophe.
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