The Big E!

What, you were expecting a different Big E than Elvin Hayes (number 44 in the white jersey)?

Bear Stearns (BSC) had a rough go on Monday and has had a rough few months. The stock closed at $62.30 down 11% on Monday and is down close to $100 from its high (feel free to go look for yourself as I too would be skeptical of the accuracy of that one were I reading it).

Along the way there have been some hedge fund problems associated with the company, a couple of cash infusion investments (at much higher levels) and the news yesterday was potential liquidity issues which were denied (by the former CEO).

I have no idea if they have liquidity issues or not but the market is certainly open to the possibility isn't it? For a while many have thought that Goldman Sachs (GS) will not have the same sort of trouble yet while BSC is down about 60% from its high, GS is down about 38% from its high (I should note that GS made its high on 10/31/07 while BSC's high came six months earlier).

The point is that Goldman's apparent fundamental good fortune (making some assumptions here) helped for a while (over the summer) but ultimately gave way just like the rest of the sector.

The whole way down the chatter about finding value in the sector, stocks being cheap and the great dividends have meant nothing--which is normal.

As I sort of alluded to yesterday there is an element of enticement with some of the financial stocks. First, very few big companies will fail; maybe there will be one or two. I think the idea of buying a big American bank that survives with a 6-7% yield now will look brilliant in three or four years but the dilemma is what about the next 20% and or the next 6-9 months?

The guys telling us what great values they are don't devote enough to how nasty things could get as the sector bottoms. Barron's cover story this weekend theorized about the future of Fannie or Freddie. If the equity of either one disappears it will cause a lot of damage before doing anything else.

This is really a know thyself moment. You could find the right bank that is fundamentally untouched by any of this and it still could drop 30% from here just in sympathy. Can you handle that? Is it even appropriate for you to try to handle that?

I have no idea where the bottom is but for now there is a lot about this crisis that is nowhere close to having been quantified. We should expect a big failure and no, I don't think New Century or Thornburg are anywhere near big enough to count as big.

I have been and remain underweight the sector.

I switched templates again because this one is very similar (code-wise) to the old one and so is easier for me to deal with.