Visa stings, BSC turns out to be a good call...

AAPL	139.53	+6.26	(4.70%)
GOOG	460.56	+27.01	(6.23%)
BRK.B	4,341.00	-6.88	(-0.16%)
V	59.73	-4.62	(-7.18%)
BSC	11.28	+5.32	(89.24%)
Value:	7,031.64	-135.31	(-1.92%)

Some confusing numbers up above, due to Google knowing I was only holding BSC for the day and neglecting to report any of my profits on it because it's technically no longer in my portfolio. At the very least, you can see that the market had a strong day in general with Google leading the charge up $27.01. Apple was healthy as well at $6.26/4.70%. But Visa met with some nasty downtrending with someone apparently selling heavy into the rallies that would've otherwise drove it up.

As a result, I've gotten dangerous close to my 15% trailing stop. And as a result of that, I think I'm going to switch it to just a flat stop at $57 to buy myself some cushion (about 50 cents worth) tomorrow. I'm predicting it bounces heavy tomorrow—a lot of people want this for a long term buy and were waiting for it to drop below $60 before buying in. Now will be their time and hopefully I can exit the position around $70 or $75, or at least establish a nice and healthy trailing stop there.

I won't let it drop below $55 at the VERY least though, and I'm going to set the stop loss at $57 right now. It'll suck to lose just about as much as I made today on BSC, but that's how things work. (It's more or less just frustrating because I think a bounceback is imminent, but waiting and wishing doesn't make it so.) (Okay, I lied. $56.75.)

Symbol	Action	Qty		Order Type	Order Price	Duration
V	SELL	35		STOP	$56.75	GTC

Bear Stearns bump & the exhiliration of day trading: Buy at open, sell at resistance, make 27.7% profit!

Action	Qty	Symbol	Price	Total			Trade Date	Time Completed
SELL	74	BSC	$12.64	$935.34			3/24/2008	10:24:52 AM
SELL	130	BSC	$12.6674	$1,639.74			3/24/2008	10:24:52 AM
BUY	204	BSC	$9.85	$2,016.40			3/24/2008	9:57:54 AM

To summarize, in for $2,016.40, out at $2,575.38 for a shared profit of $558.98 or $279.49 (27.7%) for my brother and I, each. Woot.

I couldn't get in to pre-market trading levels; by the time I woke up at 6:20a (9:20 EST), it was trading at ~$9.91. (And my money transfer hadn't completed yet.) Was forced to enter in at $10.70 because that's where the ask was, so I placed my order for 204 shares at market. Trading was halted on BSC for the first 27 minutes, which completely freaked me out, since I placed my market order at exactly 9:30:00 and just saw it hang.

I know I said I wouldn't buy above $8.50, but I knew there would be covering shorts and other excitement. I didn't expect the halt and that scared me a bit, but then they lifted it and my trade went through at $9.85. I watched it start to bounce and news came through that the deal with JPM seemed solid at $10/share. Good, I made at least 15 cents a share in almost any event. At the very least, we weren't going to see another offer come through at less than that value, or at less than my $9.85.

Then something interesting started happening: the stock upticked like crazy. I'm guessing a combination of covering shorts, an even slightly (or immensely) bigger deal coming or some insanity pushed the stock all the way up to the $13 range. I saw it start to dip and bounce off of a resistance point of about $13, so I exited the position at market, which was fulfilled in two blocks: 74 @ 12.64 and 130 @ 12.667. (It *briefly* spiked to $13.85, which means that if you had gotten in at pre-market around $6.40... well, damn.)

All in all a good showing of $279.49 on $1,008.20 invested, *after* commissions.

I'm going to pull my $1,000 back out since it was from my savings and not part of my active trading cash. I'll ask my brother what he wants to do with his. Good times. I can see how this is addictive. Now, if an offer comes through for $25/share or some such, it'd have been crazy to still be in so I won't feel bad. There are far too many "what ifs" in this game to beat yourself up over it for more than just a few minutes. It's trading around $12.05 now (8:14/11:14a) but I'm happy where I exited.

Jumping on the Bear Stearns (BSC) bandwagon: Market volatility ahoy!

It's being reported that JP Morgan (JPM) is beefing up their offer for Bear Stearns to closer to $10/share—not a huge surprise considering the massive backlash from BSC shareholders at the thought of a $2/share offer. (The wisdom at the time being, I suppose, any offer is a decent offer. Indeed, an offer worth less than the very building you're occupying is not a decent offer under any circumstances. The shareholders realized this and weren't about to let JPM pillage in such a greedy, "let us rescue/rape you" manner.)

With that, I'm expecting a huge bump in BSC tomorrow. As such, I'm throwing $1,250 of my money and $1,000 of my brother's money into the pot at open, provided it doesn't gap up and over $10. In fact, I don't think I'll enter the position if it opens at anything greater than $8.50/share. (Note: my brother is in stock market class and has been following the BSC situation closely. I have also let him know that there is a VERY real risk he loses all of his investment, completely. He understands that and is willing to take the risk. The parents have given their blessing to him as well.)

Entering the position at more than $10/share would be a big error in my particular circumstance. While many are speculating that another offer may come through, or that JPM may strike closer to the $12-$25 range, I'm not looking to play that game. A lot of people who bought in at $4 are going to be happy that they've held on; their bets have paid off that a $2 offer wouldn't stand. Now we'll see another round of people looking for the same stroke of luck.

As the situation surrounding Bear becomes more clear and their liabilities and liquidity come to light, a more accurate value will emerge. Again, $12-$25 has been rumored by Barrons and CNBC. If that's the case, the stock could easily leap right over $10/share. Or it could spike to $9 and hover there while everyone figures out what's going on with this revised "deal."

This is all an elaborate guessing game. Clearly, the company is worth more than $2/share if their building alone is worth more than that. What everyone's gambling on is what is it *really* worth, to JPM or another suitor?

Game plan, if at all possible: Buy at open at market (assuming that's under $8.50), sell if it breaks $10 at all or crashes beneath what I entered at. (A 20% gain would of course be fantastic; buying at $8.50 means $10.20 hits the 20% threshold.)

Very real possibility: Pre-market trading and gapped demand will drive the open price up right around to $10. It will jump up a very small amount, but could also settle back in the $9 range. If that happens, we'll stay out of it altogether I think.

The Fed cuts interest rates, Goldman Sachs & Lehman aren't bleeding so bad, everyone's happy!

AAPL	132.82	+6.09	(4.81%)
GOOG	439.16	+19.29	(4.59%)
BRK.B	4,305.50	+60.50	(1.43%)
Value:	4,877.48	85.88	(1.76%)

On news that Goldman Sachs and Lehman Brothers aren't eating it quite as hard as everyone (themselves included) expected, and the Fed cutting yet another chunk out of the intra-rate, there was much rejoicing today as the Dow climbed 420 points.

Lehman Brothers (LEH) climbed 13.76 to close at 45.51 for a 43.34% gain on the day. Damn. Bear Stearns had some help with more short covers and rumors of a higher deal. More talk about how "orderly bankruptcy" would net shareholders more than the paltry steal-at-twice-the-price $2/share ($250M *total*) JPM offer kept hopes for another offer up and optimistic. (The shareholders have to approve the JPM deal and 30%+ of BSC shares are owned by VERY FUCKING PISSED OFF BSC employees. Others aren't so sure.

(Fun side story: My brother Steve is playing a stock market simulator for his stock market class in high school. I told him last night that BSC was going to rally today while holding on for a deal. His simulator doesn't let him place orders under $5/share to prevent massive swings on highly volatile penny stocks, etc. So, since BSC closed at $4.81, he places a limit order at $5, thinking as soon as it passed by $5, his $25k play money order would be executed and he could ride the wave. Except that after-hours pushed the open to $5.50, the limit never triggered and he didn't get in til $6-or-so, losing on the day. BSC peaked at $8.50 and would've made a hefty sum for the wise. The question is if you're going in, do you hold your position long for hope of a better deal, or exit at the quick 45% profit? BSC closed $5.91, up $1.10/22.87%; not bad for a day's work either way.)

A lesson in short selling stocks & more fun with Bear Stearns...

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GOOG	419.87	-18.05	(-4.12%)
BRK.B	4,245.00	-73.05	(-1.69%)
Value:	4,791.60	-90.98	(-1.90%)

If I was a bit more active and a lot more forward thinking, there would've been a bundle of money to be made shorting Bear Stearns on Friday. At any point during the day.

(A quick intro on shorting: Shorting or "short selling" a stock is what empowers speculators to make money on a downward moving stock. Essentially, you borrow a share at the current market price and sell it to a buyer. You then promise to produce the share at a later time, ideally once the price has lowered. You're contractually obligated, however, to produce the share whether the price goes up or down.

Example: I sell you a share of Bear Stearns for $50. I don't actually own the share; I'm just "borrowing it" for the moment at that price to sell it. I'm contractually obligated now to pay for the share at some point or another, to cover the short. So, if the price drops to, say, $35, I can cover the short (fulfill my obligation to provide the actual share I already sold you) for $15 less than I sold it for. I sold you a share for $50 that I paid $35 for, but I had to wait for its price to go down to make any money on it.

There are plenty of issues with selling short. Least of all is that, instead of a typical long position in the market, in which you can ONLY lose what you put into it (excepting purchases on margin, where you borrow broker money) and your potential earnings are unlimited—the stock can continue to go up forever. In a short, I can sell you a share at $10. If the price of the stock rises to $100, I still need to cover that sale, except that I have to do so at the market price of $100. I'm out $90. Worse still, I can only earn a MAXIMUM of 100% of the stock's value, and that's only if it bottoms out completely to 0. I can't earn any more than that.

So I have exactly the opposite risk profile: potentially unlimited risk with limited earnings. (In actuality, the broker would issue a margin call once the price raised past a certain point to ensure that you covered the short before it reached a point you could no longer cover.)

That being said, I could've made a bundle selling short BSC. There was chatter of it bouncing back to life on Monday, with BSC moving their earnings call forward, but then the news broke that JPMorgan Chase was buying them for $2/share. From $30, the deal forced an open at $2/share.

So why did it end up closer to $4? People covering shorts, but only a small portion. A lot of people are viewing it as a cheap lottery ticket at this point. There's talk of another suitor coming along with a better offer. Consider: If you buy a 1,000 shares at $3, and another firm offers $10/share instead of the $2/share not yet approved by shareholders, you've made $7,000 effectively. Brilliant.

Why would shareholders or even the corporate governance of BSC reject the deal? The bailout facility set up on Friday covers them for 28 days. It's backed by the Fed. The 43 story building that they occupy on Madison Avenue in Manhattan is worth more than the $250M JPM offered to pay for the entire company AND all their assets. Effectively, this makes bankruptcy/complete liquidation a more attractive option for the shareholders. (If you can get more than $250M for the building alone, mark-to-market, then liquidating can provide more value for your shareholders if debt obligations are met properly.)

Either way, the market is taking a nasty hit. Hopefully things correct a bit tomorrow and hopefully the Fed let's failure fail when it's due.

Bracing for a rocky day...

JPMorgan Chase announced today that they'd in fact be buying Bear Stearns. No, not for the $15-$20 a share earlier speculated. They're paying $2 a share.

Now there has been a lot of ire raised by the Fed's bailout of the "brass-knuckles" investment bank. They've played the risky hand and they've lost, hard. Should they be bailed out? Should any large investment bank?

The question is one of externalities. The Fed financed the bailout because they fear gravely that a full-blown collapse of BSC will lead to a bank run elsewhere. Others will overreact (or, perhaps, react accordingly) and pull their money from similarly over-leveraged, high-risk, subprime-touching, perhaps-starting-to-experience-liquidity-issues investment funds.

Bank runs are never good. Banks don't ever have the liquid assets necessary to pay out all of their accounts, a nifty concept called Fractional-reserve banking. When
everyone tries to pull out their money at once because they fear the bank has or might become insolvent, the bank can no longer pay out all of the requests and becomes insolvent. This is the basis of the FDIC, which insures on a federal, government-backed level that your deposits are safe in FDIC-insured accounts. Even if your bank bottoms out its liquidity and nears insolvency, the FDIC has your back. The confidence this provides can help avoid bank runs entirely. The problem is, investment banking accounts like those at BSC aren't FDIC-insured. (With good reason.) So in effect, the Fed is backing up the funds in order to keep BSC solvent and operational long enough to get things in order.

The other side of the coin is that without the risk of epic failure, a bank's investment managers will act more in the interest of themselves and attempt much higher risk behavior. If you've ever played a "play money" stock market or poker game, you know that there are people willing to throw all of their money towards something nonsensical, just for the hell of it. Maybe it'll pan out, and it doesn't cost anything. This is an exaggerated scenario, but without real risk and true negative reinforcement, fund managers may subconsciously or worse, consciously, consider the Fed a safety net to protect them while they try far riskier activities than they've considered before.

Now, if the failure of Bear Stearns truly were about to cause a run on several other similar-profiled but not-as-illiquid funds/banks, then the Fed did the right thing. I'm just not sure that would happen. This didn't come out of the blue. BSC announced massive liquidity issues days after having lied about their "liquidity cushion" at the highest level. The other firms haven't, though the "cushion" reassurance did come from an SEC officer, which concerns many more than a little. Still, I'm typically in favor of letting the market dole out its punishment. This was a body blow that BSC earned themselves. They were smug and indignant with Long Term Capital Management experienced a bank run and completely collapsed in 1998, saying that the Fed should have nothing to do with it and that they'd offer no help whatsoever. Well, their risky chickens have come into roost and damn if they're not more than a little diseased.

Tomorrow may be a very rocky day. Or the JPMC deal could be a shot in the arm for many who see that the BSC problem is no longer a federal one and that it will be dealt with soon. Watch the Dow, JPM and BSC tomorrow. (And enjoy another Fed rate cut, sure to impact your savings account rate soon.) I'm expecting the former more than the latter.

A lesson in subprime lending & the epic fail of Bear Stearns...

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GOOG	437.92	-5.09	(-1.15%)
BRK.B	4,318.05	-15.95	(-0.37%)
Value:	4,882.58	-22.37	(-0.46%)

So as everyone's now discovering, it appears that when you loan money at extravagant and upwardsly-mobile rates to individuals who have proven they're not so good with the "paying bills" thing (that is, "subprime" borrowers), it turns out they don't pay their bills.

Now this is a pain in the ass with cars and credit cards and shit. It turns out, it's a HUGE problem when people just stop paying for the houses they're living in. That's right: let's take nearly the riskiest group of borrowers and give them rates that adjust UPWARDS (while their income stays static) and hope they can continue to pay their bills.

This started to be a big problem especially when house prices started to tank after many refinanced in order to continue on and enjoy the equity they had built up.

Now, I'm all about letting the market handle itself. It's a bit of a meltdown, but the lenders have no one to blame but themselves. They had all the data available. They knew what they could wring out of these people and they pushed too far and appear shocked, SHOCKED, I say when the actuary tables didn't quite bear out.

So we're stuck with epic fails like Countrywide, Nothern Rock, Citigroup and today, Bear Stearns. The investment bank has had plenty of comeuppance since June of last year when they were forced to pledge a $3.2B bail-out loan to one of their funds heavily invested in collateralized debt obligations.

Because these bad boys are held on a mark-to-market basis, (which essentially means that they're only ever worth what you can get for them, not what you paid for them; as a side note, a fancy way to commit accounting fraud if there is not day-to-day market available to peg the price at) the funds turn out to have a hard time paying down the loans, since no one's buying the damn houses. Kind of an oversimplification, to say the least, but at the end of the day, Bear Stearns hit the panic button and got themselves another buy out from the Fed and JP Morgan Chase.

And the market ate it, slipping back under 12,000, to the pre-the-fed-will-inject-$200B-rejoice levels from the end of last week. Way to CTRL-Z the fuck out of that one, Bear Stearns. Bear indeed.

The Bear Stearns Companies Inc. (Public, NYSE:BSC) - Discuss BSC

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Oh, this is all by way of saying that the market slipped heartily and thus did my meager holdings. No moral of the story; I'm getting sick of hearing about subprime fails.