2.25% of danger
With a bankrupt Bear Stearns and numerous rate cuts, half of me is excited to see what's gonna unfold, half of me is dreading it because I am going to graduate to bad economy despite constant reminders from at least 10 companies during Networking 2008 that, "Asia's economy is robust and will not be affected."
Honestly, we are all tied together, I have no idea why they even bother to give us the "Asia will not be affected" argument. It's stupid.
Last night the news reported that China is facing their worst economic state in the last 11 years. UBS is weighing the possibility to split their Weath Management wing and Investment Banking wing, likely to cause a layoff of at least 8,000 workers. Well, they being one of the worst hits so far, writing off at least $18 billion worth of assets, and the market is expecting more.
I remembered Prof. Winston Koh mentioning sub-prime last August. At that time, "Sub-prime" was really just a word because 2 funds under Bear Stearns had collapsed under it. It was deemed a short-term happening that will "go away by Halloween". But Prof Koh had told us back then, watch out for this one. It's going to be an interesting phenomenon to observe. I remember attending many bank talks and practically everyone I spoke to, was confident the robust world economy, with the rise of B.R.I.C, would help us weather it all.
7 months on, it has unfolded to a stage of numerous rate cuts, a bankrupt Bear Stearns to be sold to JP Morgan at dirt cheap rate of $2/share (it was trading at $170/share last year! and $93/share 1.5 mths ago!), huge number of banks facing terrible write-downs and the replacement of almost every other IB's head. And well of course, with America "essentially in recession". Yes, Prof. Koh was right.
Many people are still lost how it came about. How a mess in one part of the homes mortgage business - subprime loans eventually led to freezing of credit markets,sending the stock market gyrating, collapse of Bear Stearns, left the economy on the brink of the worst recession in a generation and forced the Fed to take its boldest action since the Depression in 1929. For a good read on what it is all about, give this a good read. But you probably need to sign up a free user account first.
Call it the fruit of rates reduction during 9-11 to save the weakened economy, call it the normal peak and trough periods of a business cycle. Seems there's much more to unfold for sub prime.
Now James Dimon is arguably the world's most powerful and celebrated banker now, for getting a good bargain out of troubled Bear Stearns. It's weird to even think that he was famously ousted out of CitiGroup a decade ago, leaving his career in tatters.
Well, at least JP Morgan gets to Chase the Bear now. I'm so funny.
Quote from Prof Koh's comments on FB:
"The Fed also cut the discount rate and extended the facility to investment banks - a move last seen only in the Great Depression of 1929. The market is now speculating that Lehman Brothers would be the next to fall. Like Bear Stearns, Lehmans survived the Great Depression. Can it survive the current crisis?"
Oh the excitement of the financial world.
[update] Derivatives Class sitting arrangement: From Left, Xinyee, me, Heyuan, Alvin, Wenzheng. Wenzheng keep pestering Alvin to change seats with him so he can convince Heyuan to buy the impending release of Visa's IPO, which will be biggest in financial history at $44/share, despite the bad timing of it's IPO release. JP Morgan and Goldman Sachs, leading the consortium of underwriting banks, has assured that they have weeded out opportunist investors to ensure that another "BlackStone IPO" incident will not happen.
Fun times fun times.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment