April 1, 2008

• Wall Street Celebrates April Fools Day With Todays Rally

  You gotta love the manic market swings on Wall Street. The market was all gloomy last quarter with all the bad news about Bear Stearns, sub prime problems, and the credit crunch, not to mention ever rising energy and food costs. But come the 1st day of the 2nd quarter and viola, all the problems are long forgotten and it's mega rally time all over again.

  My guess is the rally was 240 points worth of Bulls buying and another 150 point boost by Bears covering their short positions. And this was all on a day when UBS announced yet another 12 BILLION in write downs.

  Don't be a victim of Wall Streets "Fools Rally" and think that all the big problems are now behind us. More likely than not the market will give this rally right back to the Bears in the coming days/weeks.

  Here's a good article suitable for the day:

  _________________________________________________________________

  April fools

  Commentary: Investors should look out for Wall Street's tricks

  David Weidner

  NEW YORK (MarketWatch) -- This is
  no joke. On e-Bay you can buy a new Bear Stearns Cos. golf shoe tote
  bag for $32, a Bear Stearns T-shirt for $20, or a hat for $51. Fleece
  blankets are going for $20, a pewter statue of the investment bank's
  tower on Madison Avenue is $172, and a Bear Stearns teddy bear is
  $24.50.

  My personal favorite: the Bear Stearns "wine stopper set," which was going for $75.

  There were more than 330 Bear Stearns items on the auction site as recently at Monday. Almost all of the
  tchotchkes were going for more than the $10 a share the investment bank
  sold for, and that's even after the price was renegotiated with J.P.
  Morgan Chase & Co.

  That a ball cap is more valuable than a stake in the
  company whose name is stitched above the brim is just the latest
  example of how Wall Street's best and brightest have snookered us.

  April Fool's Day? We've had six months of it on Wall Street, and it's only become worse in recent weeks.

  For instance, we were told it was a single rogue trader who brought $7 billion in losses at Societe Generale. The chief suspect has since been released from custody
  without charges and there's evidence that others were involved in the
  trading scandal.

  Lehman Brothers Holdings Inc. also had us duped. After its executives pledged that
  the firm was on solid footing, Lehman was the target of several bearish
  puts in the options market last week. The rumor was that Lehman was the
  next Bear Stearns.

  Then, Lehman sued a
  Japanese brokerage, which Lehman claims bilked it out of $350 million,
  an amount just less than half of Lehman's fourth-quarter profit. See full story.

  Bear, SocGen and Lehman fooled us once, but we can and should learn
  from our mistakes. Here are a few tricks to look out for in the coming
  months.

  Paulson's plan

  It looks
  harmless enough, but Treasury Secretary Hank Paulson's plan for
  sweeping regulatory reform is little more than talk. Though Paulson
  acknowledged that the plan would take years to implement, it's unlikely
  that enthusiasm for changes will carry over into the next
  administration.

  Paulson also faces some
  obvious hurdles. For instance, his plan to combine the Securities and
  Exchange Commission with the Commodity Futures Trading Commission is
  sure to create a turf battle in Washington. Although the industry might
  welcome a single regulator, the CFTC and SEC report to different
  committees in Congress, and the CFTC probably won't become part of the
  larger SEC without a fight.

  Don't be fooled: Paulson's reforms, love 'em or hate 'em, are unlikely to come to fruition.

  Citi restructuring

  Citigroup Inc. is restructuring by putting its credit-card business into a single unit. Company officials say it's not for sale.

  Don't be fooled: After exhausting the world's sovereign funds to the
  tune of $20 billion, everything at Citigroup is for sale.
  
  

  Redemption

  It seems to be reunion tour time on Wall Street. This time we're
  celebrating the scoundrel's era famous for hot Internet stocks. Frank
  Quattrone, the oft-prosecuted but never convicted former Credit Suisse
  investment banker, has returned as an adviser.

  Quattrone's new firm is
  Qatalyst Group, which will offer mergers and acquisitions advice to the
  technology industry.

  Henry Blodget, the
  disgraced analyst who misled investors when he worked at Merrill Lynch
  & Co., recently received a "buy" rating from BusinessWeek writer
  Roben Farzad who wrote: "I now admire Henry Blodget -- for his
  audacious reincarnation as a tech and media blogger and author. I find
  his work indispensably frank, stuff you see all too rarely from an
  ex-insider."

  Don't be fooled: There are better bankers and analysts to take advice from.
  
  

  Write-downs are over

  Sure, there have been so many write-downs at the banks and other
  financial firms, how could there be more? On March 13, Standard &
  Poor's wondered that question aloud when it issued a report suggesting
  that banks would eventually write down $285 billion in mortgage-related
  securities.

  "The positive news is
  that, in our opinion, the global financial sector appears to have
  already disclosed the majority of valuation write-downs of subprime"
  asset-backed securities, S&P said.

  The stock market rallied after the report came out. The next day Bear
  Stearns was on the brink of collapse, and since then UBS AG is reportedly looking for as much as
  $15 billion in investments to offset $21 billion in expected
  write-downs. There's also concern about the balance sheet at Merrill
  Lynch & Co.

  Don't be fooled: Until banks have gone a year without
  taking big write-downs, it ain't over. In fact, you might want to hang
  on to your Merrill Lynch hats and UBS wine openers.

  They could be your best investment.

  • 11:51 pm
  • 4 Comments