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Bear Sterns Sold For $2 a Share? Fed Drops Interest Rate…

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It looks like JP Morgan is going to buy Bear Sterns for $235 Million dollars. I put the question mark above because I can't it would drop that much - Bear Sterns closed on Friday at $30 a share. It seems that JP Morgan is getting Bear Sterns at more than 90% off. Even more amazing the stock's 52 week high is over $159. That means if you invested a million dollars in the company last May, you'd have around $12,500 today.

This is another great reason why it's important to diversify. I'm sure there are people who were heavily invested in Bear Sterns and not properly diversified. These people would have watched a lifetime of investing disappear in less than a year.

In other related news, the Federal Reserve dropped the interest rate a quarter point - quite a rarity on the weekend. From the report, "The 'discount' rate cut announced Sunday applies only to the short-term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers."

If the Bear Sterns news came out a couple of weeks from now, I would have pegged it for an April's Fool Day prank.

Last updated on August 1, 2011.

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10 Responses to “Bear Sterns Sold For $2 a Share? Fed Drops Interest Rate…”

  1. The FED is getting a little ridiculous. I understand why they did it but come on, the market correcting itself like this is a normal occurrence. They seem like they are doing it more as a response to people’s fears and doubts about the economy. It’s funny because for so many people the only “bad news” that makes them think the economy is in trouble is when they pay more at the pump and when the media keeps screaming how much the market is down.

  2. Four Pillars says:

    I feel sorry for anyone who bought it on Friday…


  3. escapee says:

    I think this is pretty alarming. What is more alarming is the steps that the Fed is taking- the printing of yet more money (on top of the 200 billion from last week) and the further devaluing of the dollar. Where does it end? my guess is that the Bear Stearns “loan” isn’t the last of these “loans” we’re going to see.

  4. Ryuko says:

    Re: Writer’s Coin – I can’t say the economy’s actually doign well. When are we going to learn that unsustainable means YOURE GOING TO LOSE YOUR MONEY!! Market down or not, my groceries are up 35%, and unfortunately, an additional 35% or so every week in gas over this time last year isn’t making things any easier. Damn those greedy bastards!!

  5. The real problem will arise if inflation rises a lot with those current low interest rates and the slowing of the economy.
    Anyways, i agree that people should be diversified. Imagine the employees that had more than 10-15% of their portfolios in company stock… Schwab research has found that most people hold 15-20 % of their portfolios in one single stock!

  6. I beg to differ. This is not a reason why it’s important to diversify. This is rather a reason why shareholders must be diligent about the equity they own. Diversified holders of BSC took a hit as well. They just took less of a hit. Equity is not savings – it is investment.

  7. Lazy Man says:

    I don’t think everyone, even those that worked at the company had research that led them to believe that the stock would go from $160 to $2 in less than a year. If they did, then they should have shorted the stock and retired.

  8. Brip Blap says:

    You know who was really undiversified in Bear Stearns? Bear Strearns employees. This is just the tip of the iceberg. Lehman’s on the brink, and Citi’s about 3 weeks away from a split-up. Merrill’s shaky and there’s a possibility Morgan Stanley will have further losses.

    The Fed can prop up Bear Stearns – who was a “minor major” player – but what’s going to happen when Merrill collapses? I’m not sure even the Fed could prop up the system then. We may be in for a rough decade ahead…

  9. Lazy Man says:

    I picture the guy at the circus with a bunch of spinning plates on sticks – except the Fed isn’t as talented and never had to deal with more than one or two spinning plates.

  10. Ryuko says:

    I guess this is the appropriate place to say this… Diversification is kind of the Lazy Man’s loss-prevention tactic (no offense). Nothing replaces good diligence. Unfortunately, it’s very confusing and hard to learn, but once you do know what you’re doing, even people with only an hour or two a month can make the right decisions for long-term growth. As far as diversity goes, though, my favorite index fund is still down more than 10% since October, and it comprises of thousands of companies, the largest of which is just over 1% of the total fund – so much for diversification :p.

    This brings out one more big problem, thanks to Globalization and our position as World Supreme Leader. Since the whole world economy relies in selling stuff to the US (or selling stuff to people who sell stuff to us), when we stop buying, economies worldwide suffer. It’ll be interesting to see which, if any, nation can step up and begin to replace us. Maybe Japan for a little while. Personally, I see China coming up fast on the horizon to reclaim their place (off and on throughout history) as the world superpower. Sure it’ll be decades from now, but it’s happening. Companies are already beginning to outsource away from many of the traditional Chinese manufacturing power cities because the employee salaries are too high. This may be the weaning they need to help develop higher-tech industry.
    Of course, maybe someone will come out with a car I can plug in at night that gets quick, efficient solar/wind/hydrogen power and sell it for $15k in the next 5 years and that’ll just solve most of our problems.

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