Microsoft (MSFT) announced today it has abandoned its effort to acquire Yahoo (YHOO), after Yahoo said it wanted Microsoft to pay $37 a share, $4 above Microsoft’s latest offer.
Microsoft made the offer on February 1. I wrote then that “acquisition deals announced for the first time during Mercury retrograde usually don’t materialize.” This is why I recommended Yahoo shareholders at the time “should take the money and run.”
A food crisis has developed in certain parts of world, part of the fallout from the US financial crisis that panicked the Federal Reserve to lower interest rates too far. We’ve went from a run on the bank (Northern Rock), an investment bank (Bear Stearns), to a run on the rice.
As I predicted last summer, the transit of Saturn in Virgo to mid-2010 is causing limited supplies (Saturn) of food staples (Virgo). Mars in Cancer has elevated food prices such as rice to record highs that violence has broke out in countries such as Haiti and Bangladesh. Jupiter in Capricorn reflects governments such as the Philippines buying rice in an effort to keep prices lower for their citizens. Several nations (China, Cambodia, Egypt, India, and Vietnam), have imposed export restrictions on rice and other staples. While the governments (Capricorn) have benign intentions (Jupiter), it has had the opposite effect. With Pluto in Capricorn, world leaders know from history the consequences of governments who did nothing while their citizens suffered and starved.
The situation has gotten worse with Venus in Aries from April 6 - 30. Venus rules asset values. In Aries, a sign ruled by Mars, it has strengthened the influence of Mars in Cancer’s elevation of food prices and concern over food supplies. Cancer rules food along with what makes us feel secure. If you don’t have anything to eat or even the perception there might not be enough to eat, panic ensues. Since Cancer is ruled by the Moon, this is a primal emotional response.
With Venus and Mars challenging Jupiter yesterday and today respectively, US rice futures closed yesterday at a record $24.82 per hundredweight. (The US is the world’s fourth largest exporter of rice.) The global benchmark, Thai 100% B grade white rice, hit above $1,000 a ton today on continued buying pressure from number one importer the Philippines.
The media have had a field day talking about limits on rice and other food staples at Costco (COST) and Sam’s Club (WMT). In some parts of the US, people are stockpiling basmati and jasmine rice. According to today’s Wall Street Journal, Costco has rice limits in selected stores. There is a limit on flour and soybean oil purchases (four 35 lb. containers – attention weight lifters!) at its Queens, New York store. Sam’s Club has limits of four 20 lb bags of rice per visit. Why the average family needs to buy 80lbs of rice is beyond me! I buy a 2 lb bag of brown rice every two weeks to feed two adults two to three servings per week.
While it’s always a smart idea to maintain a well stocked kitchen, this is obviously hoarding. America with its Sun (self-identity), Mercury (thoughts), Venus (desires/values), and Jupiter (abundance) in Cancer, is a nation of hoarders. The pack rat problem is further exasperated by the fact that the US is a Jupiter-ruled nation. Warehouse clubs such as Costco and Sam’s Club brilliantly feed into the national psyche that “bigger is better.” If food and other grocery goods are available in huge sizes sold in a warehouse environment, it must be a bargain. When you calculate the cost of membership, the (usually) extra gas cost to drive to their location, the fact you must buy in bulk, and your weighted down vehicle further erodes fuel efficiency, I fail to see the savings. To me, the best shopping strategy is to buy non perishable items from sale to sale, and look at the per ounce cost of an item in various sizes as the biggest size is not necessarily the cheapest.
Related Post: “The Commodities Craze”
Pfizer (PFE) shareholders can only take solace that the company’s annual forward dividend yields just over 6%, and the company sits on a mountain of cash. This is the good news.
First quarter profit dropped 18% to $2.78 billion, or 41 cents a share. Pfizer reiterated full year guidance between $1.73 and $1.88 a share, but expects revenue to be flat until 2009. The company cited generic competition as the largest factor contributing to their earnings decline.
During the earnings call, CEO Jeff Kindler continued to emphasize Pfizer’s long term strategy of cutting expenses and developing oncology drugs. Sales of its drug Sutent (to treat advanced kidney cancer as well as a certain type of gastrointestinal cancer), rose 86% to $190 million. Sales of Pfizer’s heavily advertised fibromyalgia (chronic pain/muscle tenderness) drug Lyrica were up 47% to $582 million. Anti-inflammatory Celebrex sales increased 2% to $611 million.
Sales of smoking cessation drug Chantix were up 71% to $277 million, but well below analysts expectations due to news the drug can cause suicidal behavior. Suicidal behavior as an adverse effect will occur in medications for addictive behaviors, depression/mental illness, and sleep disorders because all of these issues fall under the planetary energy of Neptune. Suicidal behavior is a negative manifestation of this planetary energy’s desire to escape from the harsh realities of life.
That’s the good news. Patent expirations of hypertension drug Norvasc (down 52% to $513 million) and Zyrtec (down 75% to $117 million) for allergies, contributed to lower earnings. Analysts on the call were mostly focused on sales of statin blockbuster Lipitor, down 7% to $3.14 billion.
Pfizer admitted they need to “find a way not to be dependent on a huge blockbuster.” Analysts were disappointed that Pfizer didn’t benefit from the Vytorin fallout. The company said the “pressure of managed care” was pushing patients to simvastatin (generic Zocor). Pfizer is hopeful that when patients visit their doctor for lipid testing, their numbers will prompt physicians to have their patients “get to goal with Lipitor.” Lipitor loses patent protection in the not too distant future.
When asked about the statin market going forward, Pfizer said it is “difficult to predict now what growth will be.” The pharmaceutical industry is feeling the winds of change concerning cholesterol as the solution to prevent heart disease. Additionally, three upcoming Congressional hearings will examine the industry’s marketing practices.
Big pharma can grow through licensing agreements with biotechnology companies, or it can outright acquire them. From a health perspective, Pluto in Capricorn (2008-2024) will witness chronic aches and pains affecting the skin, bones, joints and their surrounding muscles, reach epidemic proportions. Drugs should be developed that focus on keeping patients physically comfortable so they can remain active.
The caveat for the industry is that drugs will need to achieve this by returning to their original purpose: taken on an as-needed basis or for a specific period of time. The side effects of taking “lifestyle” drugs (such as statins) on a long term basis, both from a health and financial perspective, are too great for society to bear. The business model of long term drug use which evolved over the last twenty years, is no longer sustainable.
In the Merrill Lynch (MER) earnings call going on now:
"For those of you who like to blog, we do not plan to raise additional capital."
Once again the pharmaceutical industry has demonstrated it has more in common with Hollywood than healthcare.
First Pfizer (PFE) used a stunt double in their now discontinued Lipitor commercials featuring Dr. Robert Jarvik. Now Merck (MRK) has taken a cue from celebrities who employ ghostwriters to author their books.
Two articles appearing in today’s issue of JAMA (Journal of the American Medical Association) show Merck’s deceptive practices concerning its anti-inflammatory drug Vioxx that it pulled off the market in 2004. Merck faces a pending legal settlement of $4.85 billion to compensate 47,000 plaintiffs involved in the class action lawsuit.
It was through the plaintiffs’ lawyers combing through piles of documentation that they discovered instances where Merck’s consultants or employees in their marketing department would write studies showing Vioxx in a favorable light, and then recruit academic researchers to attach their name to it. The first JAMA article describes Merck’s ghostwriting concerning Rofecoxib (Vioxx). Reading the article’s introduction shows that Merck is not the first to ghostwrite research papers. In one instance, a draft of a Vioxx study Merck had Scientific Therapeutics Information (described as a specialist in the development of scientific literature), prepare a manuscript that was awaiting the name of a well known researcher to “author” it. Merck compensated researchers with “honoraria” for agreeing to serve as authors. These payments ranged from $750 to $2500. Merck paid Health Science Communications, a health marketing communications company, $23,841.00 to provide a 20-page review manuscript for a cardiology conference. Merck also contracted the company to prepare review manuscripts for nephrology and primary care audiences.
The second JAMA article describes how Merck misrepresented clinical trial numbers reported to the FDA. Merck wanted to promote Vioxx for use in slowing the progression of Alzheimer’s disease. In fact, the results of two Merck-sponsored trials showed that Alzheimer’s patients taking Vioxx were three times more likely to die vs. patients on placebos. Studies showing Vioxx causing increased deaths from heart attack and stroke prompted Merck to pull Vioxx off the market.
Dr. Catherine DeAngelis, JAMA’s Editor-in-Chief, outlines in her editorial steps that medical publications need to take to ensure all the authors involved in medical studies are disclosed, their contributions to the study, and any compensation received.
As time goes on, we are witnessing more and more of these so-called “lifestyle” drugs, medications taken for an issue that may or may not ever occur, as a “preventative.” Whether it’s hormone replacement therapy, statins, restless leg, attention deficit disorder, purple pills, etc., one thing has become crystal clear. The longer a person takes one of these types of drugs, the greater the chance that medication will cause adverse side effects - sometimes creating the very disease the drug was supposed to help prevent.
Related Post: “Merck & Schering-Plough: More Nails in Vytorin’s Coffin”
Stearns (BSC), that is. There’s no question that Lehman Brothers (LEH) is playing games with the market and the Federal Reserve is swallowing it. Literally.
Yesterday an SEC filing revealed that Lehman liquidated two money market and one “enhanced” cash fund, absorbing $1.8 billion onto its balance sheet. Lehman took $300 million in writedowns from the funds during its fiscal first quarter. Despite the level of detail Lehman’s CFO Erin Callan presented on their March 18 first quarter earnings call, the liquidation and writedown of the three funds were not specifically mentioned. (This is how Bear’s unraveling began.)
Today’s Wall Street Journal reports that Lehman is now using financial engineering on the Fed. Lehman created a new investment vehicle called “Freedom”. Basically, the fund gives Lehman the freedom to unload their junk at the Fed’s recently opened Primary Dealer Credit Facility for investment banks.
“Freedom” is a CLO (collateralized loan obligation) that bundled up over 60 of Lehman’s loans, with the risk divided into two groups of securities. The higher rated tranches will be used as collateral for loans from the Fed. Some of the loans in the bundle include debt issued to finance the private equity acquisitions of First Data and TXU.
According to the Journal, Lehman claims the junk dropped off at the New York Fed’s doorstep “was meant as a test of what the Fed would accept.” Other Wall Street firms are interested in getting in the game. The Fed is not commenting on Lehman’s collateral or the loan Lehman received.
It is clear that the Treasury and the Federal Reserve used Bear Stearns as their public relations offering to the god of moral hazard. The Fed is allowing Wall Street to continue its financial engineering, and the American taxpayer may end up footing the bill in the future. Investment banks taking their riskiest debt to the Fed is not something the government wants to widely broadcast.
The eye of the storm was missing from the Senate Banking Committee hearing yesterday, but his presence was strongly felt. People who know him refer to him as “Hurricane Hank” – an apt name for the man who told Bear Stearns they had 48 hours to be acquired before Asian markets opened on March 17. CEO Alan Schwartz testified another buyer besides JPMorgan was interested in buying Bear, but was unable to perform due diligence in such a short amount of time.
In the drama of Bear Stearns, it is the fire triplicity that commands center stage in the form of Treasury Secretary Hank Paulson (Aries), New York Federal Reserve Bank President Timothy Geithner (Leo), and Federal Reserve Chairman Ben Bernanke (Sagittarius). Fire energy is enthusiastic and always ready to spring into action. However, each of the fire signs express their energy in slightly different ways.
As the first sign of the zodiac, Aries energy needs to accomplish things quickly and aggressively, before moving on to something else. When Bear Stearns (BSC) liquidity dropped $10 billion in 24 hours due to a “run” on the investment bank, the government quickly got involved. Undersecretary of the Treasury Robert Steel testified yesterday that Paulson “was in constant communication in trying to be helpful to Bernanke and Geithner.” Steel said it was Paulson who told CEO Jamie Dimon his view that JPMorgan should offer a low price for Bear, as he “wanted moral hazard to be protected as much as possible when federal money is involved.” In the White House morality play, the sacrifice of Bear Stearns was a symbolic gesture to show America that the Administration only favors corporate interests 99.9% of the time. As the former head of Goldman Sachs, Paulson has proposed a “Blueprint” for regulatory reform where the Fed allows investment banks to bring their collateral to the discount window in times of trouble, but cannot regulate them during the good times. American taxpayers may end up footing the bill on Bear and possibly other financials, yet the Administration is against Congressman Barney Frank’s plan to trade real mortgage writedowns by lenders for government guarantees.
Bernanke, Geithner, and Steel (Paulson had went to China) kept making their sales pitch to Committee members that making a $25 billion loan to Bear as well as taking on $29 billion of its collateral after JPMorgan acquires it, was necessary to prevent a broad-based financial collapse that would have spread from Wall St. to Main St.
With the Sun, Mercury, and Uranus lined up in Leo, Geithner expressed his points forcefully and mostly in numeric fashion. A bit arrogant at times yesterday, it was clear that he was the real leader of the Fed in this deal. (Several times during Wednesday’s Joint Economic Committee hearing when asked questions about the Bear deal, Bernanke replied “ask Geithner”.) It was Geithner who hired investment advisory firm BlackRock (BLK) to help the Fed review Bear’s assets. BlackRock will manage Bear’s collateral at the Fed for a sum “to be worked out later”, according to Geithner.
Leo rules the stock market as it relates to all forms of speculation. Geithner said it was his personal view that Bear was “not a sound institution” to go directly to the discount window that the Fed opened to investment banks after Bear collapsed. But optimistic Bernanke kept emphasizing that “a god bit” of Bear’s collateral at the Fed is “very highly rated” and the “risk is not remotely close to $30 billion. “BlackRock gives us reasonable comfort that we will recover principal and interest. We have the luxury of up to 10 years to sell. If we’re fortunate, we’ll turn a profit.”
Being ruled Jupiter, the planet of growth and expansion, when Bernanke panics, he floods the market with massive amounts of liquidity. He projects a rosier forecast for the second half of 2008 (when Pluto will retrograde back into Sagittarius). When asked yesterday if he was concerned about inflation, Bernanke replied: “Inflation has been too high – 3.5% instead of 2%. The primary reason is prices of globally traded commodities.”
What the Chairman won’t admit to is that his drastic lowering of interest rates are a contributing factor in causing the commodity bubble. Bernanke fails to do the math that lower interest rates = higher food and energy costs. Lower rates don’t result in easier to obtain consumer loans as lenders have tightened their rules. Lower rates discourage saving and encourage financial alchemy. Financial companies are trying to clean up their balance sheets, but Bernanke and Paulson are pushing them to raise more capital for expansion.
The Bear Stearns saga began for Jamie Dimon while he was celebrating his birthday. With his Mercury in Pisces challenging Saturn in Sagittarius, Dimon is respected on Wall St. for making smart acquisitions at advantageous prices. He told the Committee that he wasn’t willing to assume the full risk for Bear without the Fed taking on most of it, and that the price he was willing to pay for Bear was “not based on the value of the company, but protecting the value of JPMorgan.” Transiting Saturn is challenging Dimon’s Mercury/Saturn showing the government pressure to do buy Bear, and Dimon revising the deal one week later.
Dimon told CNBC after the hearing that “I never forecast the future because no one really knows”, but Bear shareholders approving the deal is a “foregone conclusion.” I guess so when it was revealed last night that JPM bought 11.5 million BSC shares on the open market and expects to buy more until it owns as much as 49.5% of Bear Stearns.
Like Northern Rock in the UK, the early transit of Pluto in Capricorn is manifesting as the government exerting its power over private enterprises in trouble, yet refusing to reform the issues that brought us to financial crisis in the first place.
Related Posts: “Bear Stearns’ Easter Basket” and “The Fed Under Fire”
Hank Paulson: March 28, 1946 time unknown Palm Beach, Florida
Timothy Geithner: August 18, 1961 time unknown New York City
Ben Bernanke: December 13, 1953 time unknown Augusta, Georgia
Jamie Dimon: March 13, 1956 time unknown New York City
Senate leaders agreed on a $15 billion bipartisan plan yesterday that does more to aid home builders than home owners.
The most expensive housing provision is a tax relief measure that would cost $6.1 billion over 10 years. Under current tax rules the “carry back” provision allows builders and other companies to apply current losses to taxes paid two years ago. Yesterday’s bill would extend the carry back provision to four years, allowing companies to offset the taxes they paid during their most profitable years.
After this provision was dropped from February’s economic stimulus package, the political action committee of the National Association of Home Builders stopped donating to Congressional candidates. (According to The Wall Street Journal, the Association denies its decision to drop donations is related to specific legislation.)
Builders claim that without the provision extension, they will have to continue selling land at a deep discount, which will further erode overall housing values and create more foreclosures. But builders and banks don’t like to talk about all the money they made during the boom years. These companies should have saved the profits they made during the good times instead of engaging in continuous stock buybacks along with big bonuses that continue to enrich their top executives to this day. The American people, already overburdened from high taxes and the ravages of inflation, should not be forced to provide financial aid to some of the very companies that enabled this crisis to occur in the first place.
The home builder stocks continue to rise on the basis that Congress and the Federal Reserve will take proactive steps to keep housing values propped up. I will begin looking for cheap out of the money long term Puts to purchase, a strategy that was successful the first time the builders stocks fell.
“Lowering cholesterol doesn’t mean you prevent heart attack, stroke, and death. People don’t die of cholesterol, they die of these events. We have to know whether drugs actually reduce the things we really care about, which is heart attack, stroke, and other complications of heart disease.” - Dr. Steven Nissen, Chief of Cardiology at The Cleveland Clinic to CNBC’s Mike Huckman
Yesterday shares of Merck (MRK) dropped $6.56 to $37.95, and Schering-Plough (SGP) fell $5.06 to $14.41, after a panel of cardiologists at the American College of Cardiology conference said the companies jointly marketed cholesterol drug Vytorin should only be prescribed as "a last resort."
Vytorin is a combination of Schering’s Zetia and Merck’s Zocor. (Zocor is available in generic form as simvastatin.) The two companies tout that Vytorin lowers cholesterol and triglycerides, while de-emphasizing that plaque increased in many patients taking Vytorin in the companies Enhance study. Joint venture sales for Vytorin were $5.2 billion in 2007. Lehman (LEH) estimates scripts are down 20% between the January 14, 2008 release of the Enhance study information and Sunday’s cardiology conference.
And the hurdles to keep Vytorin financially profitable are growing. Yesterday Senator Grassley, the ranking Republican of the Senate Finance Committee, released a letter citing email messages between Dr. Kastelein, a cardiologist the companies hired to be the lead investigator of the Vytorin Enhance trial. The emails show that Dr. Kastelein felt the delay in the companies presenting the study’s results were “to hide something.” As Senator Grassley points out in his letter, the federal government has spent “hundreds of millions of dollars” for Vytorin which costs $100+ per month vs. a generic statin. (Let alone the healthcare cost if plaque-filled arteries from taking Vytorin create cardiac events!) Or, as Harlan Krumholz, the Yale cardiologist and cardiology conference panel leader told Bloomberg: “It could also be that Zetia is just an expensive placebo and its principal harm is it drains precious resources from our healthcare system.” The House Energy & Commerce Committee and the New York Attorney General are also investigating the companies’ questionable practices regarding Vytorin.
Deepak Khanna, general manager for Vytorin told The Wall Street Journal that "’Our sales force and medical-affairs group have been well prepared about what this study is and how to talk about it.’ The companies plan to aggressively take their case to managed-care plans and pharmacy-benefit managers who make decisions affecting the use of prescription drugs.” Merck and Schering are also discussing when to restart Vytorin advertising.
Schering derives almost 60% of its profits from Vytorin and Zetia. This was a key driver in S&P yesterday placing Schering’s long term ratings on credit watch. Their other big sellers are Nasonex (nasal allergies) and Remicade (for inflammatory disorders affecting the immune system, such as rheumatoid and psoriatic arthritis, Chron’s disease and ulcerative colitis). Schering doesn’t plan on doing an acquisition as the company is still paying for its $16 billion purchase of Organon Biosciences. Schering’s only positive is that it will be awhile before many of its major products face patent expiration.
S&P left Merck’s rating unchanged due to its more diverse pipeline. However, numbers can be deceiving. Yesterday Merck suspended further patient enrollment in its 900 participant study of Cordaptive, a cholesterol drug awaiting FDA approval. Merck is using the same method to measure patient response that it used in the Vytorin Enhance trial.
As I said in “The Drug Numbers Game”, “More negative information and/or investigation may surface on Vytorin in February and March which will probably culminate in October/November 2008.” Adverse transits from Saturn (limitations/regulation), Uranus (shocks/surprises), and Pluto (massive loss), affect Schering’s stock chart, especially this month, and June/July 2008.
Despite the ad revenues, there have been media stories criticizing cholesterol as a big pharma marketing phenomenon. Business Week put Cholesterol on the Cover, and a February 12 Wall Street Journal story looked at the growing medical evidence that your brain needs cholesterol.
Medical trends tend to operate in extremes. As the evidence continues to grow that lowering cholesterol not only fails to prevent cardiac events, but also may be contributing to the rise in memory disorders, “what’s your number?” will refer to your IQ instead of cholesterol. Uranus (revolution) moves from its current transit of Pisces (drugs) to Aries (the mind), opposes Saturn (old ways) and squares Pluto (transformation) in July 2010. Scientists may finally have physical proof to explain the placebo effect, that the mind is able to physically affect the body.
Related Posts: Lipitor’s Limits and Pfizer’s Artificial Ad
Today’s Wall Street Journal features an above the fold cover story called “Stocks Tarnished By ‘Lost Decade’” By E.S. Browning. The Journal article defines a “lost decade” as a period lasting over 10 years when stocks end up back where they started from.
The stock market is currently in a lost decade that began in 1999, as the S&P500 is trading “below the 1362.80 level it hit in April 1999.” Citing Morningstar, Browning writes: “When dividends and inflation are factored into returns, the S&P 500 has risen an average of just 1.3% a year over the past ten years, well below the historical norm.” Examining the bar graph in the article supports that: “Over the past nine years, the S&P500 is the worst-performing of nine different investment vehicles, including commodities, gold, foreign stocks, and Treasury bonds (adjusted for inflation).”
The lost decade is essentially the bust that follows a boom cycle. The article’s accompanying chart outlines two prior lost decades: 1929-1942 and 1966-1982. These periods, along with the current period, have one thing in common: Saturn’s opposition to the outer planets.
The planetary energy of Saturn relates to economic contraction. It rules business and government structures. Pluto rules debt and massive financial gain and loss. The overall cycle begins when Saturn conjoins with Pluto, starting a business boom of massive financial speculation that peaks around the time the two planets are in opposition to each other. From the opposition to the next time the two planets are conjoined represents a period of stock market stagnation. The market may reach new highs, only to fall further than before. In most cases, this part of the Saturn/Pluto cycle results in increasing government deficits, taxes, and inflation. Business and government structures must be reformed or new ones established as the result of unsustainable growth and risk taking.
Within the waning economic cycle of Saturn opposite Pluto, Saturn usually also opposes Uranus and Neptune. Uranus energies create shocks, extreme volatility, upheavals, and a push/pull between what is new and emerging vs. the status quo. Neptune rules credit. The planet of illusion creates and dissolves asset bubbles.
Here is a planetary analysis of the three lost decades the Journal cites:
Lost Decade #1: 1929 - 1942
Lost Decade #2: 1966 – 1982
Lost Decade #3: 1999-2008
The next time Saturn begins a new cycle with Pluto is January 12, 2020. That’s not to say the lost decade will continue until then, as there are many other planetary energies that affect market cycles besides what is outlined here. However, I think the earliest the stock market will reach rock bottom is during the summer of 2010. This is when Jupiter (big moves), Saturn, Uranus, and Pluto are aspecting each other in signs that usher in rapidly unfolding events resulting in massive financial and global transformation.
It seems that the parties involved in JPMorgan’s (JPM) takeover of Bear Stearns (BSC) like to work on the deal on holidays, Sundays, and when the Moon is Void-of-Course.*
Here’s the bear facts about the “amended” deal between JPM and BSC. If The Wall Street Journal timeline is accurate, Bear’s Board of Directors couldn’t possibly have fully read the deal before agreeing to it, since CNBC announced it was approved just after the market opened this morning.
JPM raised its offer to BSC shareholders from $2 to $10 a share. (BSC shareholders will exchange 0.21753 shares of BSC stock for JPM stock.) I’m sure investor Joe Lewis, who owns 12 million shares at an average price of $104 ($1.26 billion), is overjoyed at JPM’s generous new offer.
Bear will offer 95 million newly issued shares of its common stock (39.5% of shares outstanding) for JPM to purchase at $10 a share. New York Stock Exchange rules normally require shareholder approval of shares that are convertible into more than 20% of a company’s shares. However, JPM got the NYSE to grant an exception under their rule that a delay would “seriously jeopardize the financial viability of the listed company.” The closing of the share sale is expected to be completed by April 8, 2008. These shares should not be issued with voting rights. JPM is basically buying votes FOR FREE! Once the deal goes through, Bear’s coffers become the property of JPM.
Bear’s Board of Directors is on board to approve the merger. Bear CEO Alan Schwartz said: “The share issuance to JPM was a necessary condition to obtain the full set of amended terms, which in turn, were essential to maintaining BSC’s financial stability.” But Alan, you and the other Bear executives emphatically told the world as late as the 12:30 PM March 14 conference call that with the Fed’s 28 day loan, everything would be fine. One wonders what Bear’s board was secretly promised to buy their vote. Perhaps taking $10/share is worth it to be indemnified against shareholder lawsuits.
In a statement released this morning, the New York Federal Reserve said that upon the closing of the merger it will provide $29 billion in term financing to facilitate JPM’s acquisition of Bear at the Fed’s discount rate (2.5%). Investment management firm BlackRock (BLK) will manage the portfolio. If Bear’s $30 billion valued assets (as of 3/14/08) lose value, JPM will bear the first $1 billion of losses. Any realized gains in the portfolio will accrue to the New York Fed.
The Fed statement also said that “This action is being taken by the Federal Reserve, with the support of the Treasury Department, to bolster market liquidity and promote orderly market functioning.” In the past week it has become quite clear that both the Fed and the Treasury knew on March 14 that the temporary loan was a ruse to keep the market calm so a scheme could be prepared over the weekend. Or as Treasury secretary Paulson said, “before Asia opened” on March 17.
Last week several media outlets were sounding very metaphysical in describing Bear’s situation. From Bear’s “near death experience” (Financial Times) to Bear’s “karma” (Wall Street Journal), it was all very plutonian – relating to Pluto, the planet ruling death and resurrection (reincarnation). With Pluto in Capricorn, the sign of the government and high finance, you would expect all kinds of secret shenanigans to take place to manipulate a sad situation into someone else’s gain.
This winding road leads to the Treasury secretary’s doorstep. Paulson wants to burnish Bear’s karma in front of the world, as Bear was the only investment bank who refused to bail out hedge fund Long Term Capital Management in 1998. The karma of Paulson, the White House, and the Fed is entwined in hypocrisy when other investment banks have lending facilities previously only available to the major banks, but are exempt from their rules. Now that the Fed has stretched their financial jurisdiction beyond its limits, “moral hazard” has come full swing back to its source.
*When the Moon (our emotional barometer) does not form any relationship to a planet before entering a new zodiacal sign. This time period is best suited for anything where NO ACTION OR OUTCOME is desired, as actions taken during the VOC period may not turn out as planned.
Related Posts: “JPMorgan’s Bogus Bear Deal” and “Bear Stearns: The Bare Facts”
Yesterday’s mega rally was described as “survivor’s euphoria” by Bill O’Donnell, a strategist at UBS. As stated in my Vernal Equinox post, “stock market volatility gyrates from hope and euphoria to massive panic, with sentiment highly influenced by rumors and ‘happy talk’ from the Federal Reserve and the Bush administration.” With the Moon in Virgo today, let’s dissect some of the key drivers of yesterday’s market.
In my Weekly Forecast for March 18, I predicted that the market was “likely to be down on reports of further write downs projected or to be taken.” My forecast was based on the alignment of Mercury and Mars. This represents news that investors sharply react to. Due to Mars retrograding in Cancer, this aspect previously occurred on November 19, 2007. Markets were sharply down that day after a Goldman Sachs (GS) report forecast the financials face $48 billion in write downs by the end of 2008. Citigroup (C) forecast a $22 billion write off split between $11 billion in the fourth quarter of 2007, and the other half taken in 2008. The difference then was Mercury (news) was in Scorpio, the sign of debt/lending. Mercury is now in Pisces. Mercury in this sign brings news of rumors, deceit, hope, and euphoria – whether real or imagined. One factor I covered up by stupidly sticking a post-it note on top of my chart, was Mercury harmonizing with the USA Jupiter in Cancer yesterday. Unless overruled by other factors, this usually creates an up market, as Jupiter creates big moves resulting from overblown reactions to market happenings.
The indices opened strong, with the DJIA up 200 points in the first three minutes of trading, after investment banks Goldman Sachs and Lehman Brothers (LEH) released first quarter earnings. Goldman lost $2 billion on mortgages and credit products, but beat expectations in commodities and asset management. It was the first decline in year over year earnings for GS in 11 quarters. GS closed up $24.57 to $175.59. Lehman announced a 57% profit drop on fixed income losses. LEH closed up $14.74 to $46.49, a record one day gain. The “survivor’s euphoria” refers to the fact that on March 16 the Federal Reserve now allows primary dealers to bring “a broad range of investment- grade debt securities” to the discount window at the Fed’s 2.50% discount rate. (If the Fed had taken this action before last Friday’s market open, the fate of primary dealer Bear Stearns might have taken a different course.) Lehman’s CFO Erin Callan described the Fed’s action as “a great opportunity to do more client business.” The market ignored her comment during the earnings call that Lehman “doesn’t anticipate market conditions to improve anytime soon.”
At 2:15 PM, the FOMC released its statement on interest rates. Indices began to weaken after the Fed announced a 75 basis point cut in fed funds to 2.25%, when many expected a full percentage point decrease. The market also didn’t like additional inflation concerns inserted into the statement, along with the fact that two members voted against the largest interest rate cut by the Committee since 1994.
I think the market began to realize that the Fed inserted the inflation remarks as an effort to revive the ailing dollar. Comforting phrases such as “downside risks to growth remain” and “the Committee will act in a timely matter as needed” was still there, indicating the helicopter engines are still running and ready for liftoff.
Yesterday’s stock market entry additionally forecast “Improving conditions around 2:30 PM.” This was because the Moon in Leo was going to exactly oppose Neptune at 2:39 PM. Lunar aspects start influencing the market a bit before they are exact. At 2:38 PM, the indices began rapidly climbing higher after President Bush said during a speech in Jacksonville that “they'll (Bernanke and Paulson) continue to closely monitor the markets and the financial sector. And the point I want to make to you is, if there needs to be further action we'll take it, in a way that does not damage the long-term health of our economy.”
As CNBC’s Bob Pisani commented after the market closed, a lot of the rally was due to short covering as well. Bear Stearns (which closed at $5.91) was a “watershed” moment for the market, which Treasury secretary Paulson used as the catalyst to inspire the market to rally on the belief that the big problems in the financial markets are over. For now.
Financial Times: “’Survivor’s euphoria’ may be only short lived”
Bloomberg: “’Big Rally’ for Stocks to Continue, Jim Rogers Says” (don’t let the title fool you)
Wall Street Journal: Editorial: “Inflation Dissent”
USA: July 4, 1776 5:10 PM LMT Philadelphia, Pennsylvania
I just finished listening to JPMorgan’s (JPM) conference call where the bank announced that it is acquiring Bear Stearns (BSC) for “$2.00 per share.” In a press release on JPM’s website as well as on the call, JPM “will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock.” JPM stated that “The Federal Reserve, the Office of the Comptroller of the Currency (OCC) and other federal agencies have given all necessary approvals.”
JPM got a bit testy during the Q&A session of the call when questioned that shareholders must approve the deal. JPM emphatically stated that they have “every expectation that BSC shareholders will approve,” and that they would “be surprised” if BSC shareholders didn’t. And in the unlikely event that shareholders don’t approve on the first vote, JPM will continue voting rounds for up to a period of 12 months.
When questioned by a Merrill Lynch (MER) analyst how Bear went from a book value around $84/share to an offer of $2, JPM cited it was “their duty to protect their shareholders” with a “cushion.” Excuse me, but it is the Federal Reserve at this point that is providing a FREE CUSHION of up to $30 billion in the form of a special nonrecourse lending facility. JPM is taking on ZERO risk here, so then JPM focuses on the estimated $5-6 billion cost to complete the transaction (which they want to do in 90 days).
When asked by the MER analyst about Bear’s books, JPM said Bear has a “very, very good strong business.” JPM was “pleasantly surprised to see that it was a very well run good risk operation.” JPM mentioned several times that the deal “makes a lot of strategic sense” and is “compelling.” A Credit Suisse (CS) analyst asked if Bear owned their prime midtown Manhattan building, which JPM confirmed they did. (The building is estimated to be worth $1.2 billion.)
And JPM wants Wall Street to know that “having taken Bear out of the problem category, and the strong action of the Fed, we expect the market to behave quite differently on Monday than last Thursday and Friday.”
In my Weekly Forecast for tomorrow I stated how the opposition of Mercury and Saturn would create fear and false information and rumors, despite how “authoritative” the information being conveyed sounds. This is a bogus deal conjured up to buy time to soothe the markets. Go to
Yahoo! Finance and check out the list of top holders for Bear Stearns. Morgan Stanley (MS) owns 5.37%, Legg Mason 4.84%, Barclays 3.60%. In short, a lot of major hedgies and mutual funds have got a piece of Bear.
An individual investor on the call asked JPM how this deal benefits shareholders versus Bear going into liquidation. JPM said he would “have to ask Bear that question.” (Translation: the Fed doesn’t want that to happen; it fears a panic situation would ensue.) Executives from Bear showed their lack of enthusiasm and embarrassment by not participating in the call. JPM is stating that Bear’s Board of Directors approved the transaction. It would seem to me that Bear is just buying time to get their act together or get a foreign suitor “Bear-ing” Euros.
Related Post: “Bear Stearns: The Bare Facts”
UPDATE! The following was added at 10:02 PM on 3/16/08: In my haste to get this post out, I forgot to mention that the early evening press release along with JPM's 8:03 PM conference call, all occurred when the Moon in Cancer was VOC (Void-of-Course). This means that at a minimum, the saga of Bear Stearns will take a different course than JPM and the Fed have planned. As Weekly Forecast readers know, it can also mean that nothing will come of it.
I have always admired Oprah Winfrey, primarily for her business success that is the direct result of her powerful charismatic personality. I share Oprah’s love of books and spirituality. Last night, Oprah began a webinar (online seminar) for Eckhart Tolle’s book, “A New Earth: Awakening to Your Life's Purpose.” For the next ten weeks for 90 minutes beginning at 9:00 PM (Eastern Time), Oprah and Eckhart will discuss “A New Earth” with the web audience.
The webinar was sponsored by Chevrolet (GM), Post-It Flags (MMM), and Skype (EBAY). The companies’ logos appeared around the frame of the video. It reminded me of PBS sponsorship where the companies are announced, and maybe have a very brief commercial, but it’s not annoying. With the Moon Void-of-Course all day yesterday, I was skeptical that even Oprah would not be able to pull off the event without a hitch.
Readers of my Weekly Forecast know that the Moon is our emotional barometer. When the Moon ceases to form any relationships (aspects) to another planet before changing signs, it is said to be Void-of-Course (VOC). Events have a tendency not to go as planned when the Moon is VOC. The stream began interrupting about 17 minutes into the webinar, and within three minutes became unwatchable. In a press release this morning, Harpo Productions said that “more than 500,000 people simultaneously logged on to watch Oprah Winfrey and Eckhart Tolle live, resulting in 242 Gbps of information moving through the Internet.”
Besides having enough power to handle such a large amount of web traffic, it is important to schedule events for the most opportune time. The Moon was VOC in Capricorn, a sign ruled by Saturn. Saturn represents boundaries and limits, constraining Oprah’s computing power in reaching her vast audience. The event may have had a smoother outcome if it had been scheduled for today (March 4) with the Moon in Aquarius. Aquarius is a sign ruled by Uranus, the great awakener. Aquarius/Uranus rules electronics and technology, such as the internet, as well as people connecting as a group. The planetary aspects this week are ideal for understanding and incorporating a shift in consciousness, as Mercury (the message), Venus (values), and Neptune (beliefs), are aligning in progressive Aquarius.
The moment you begin an action creates its overall energy pattern. On March 10, the Moon will be in Taurus, so the webinar should run smoother. The Taurus Moon then will work well with the Chapter 2 discussion on “identification with things.” As an earth sign, Taurus rules the physical senses and earthly form.
Oprah is creating a paradigm shift in two ways. With her Sun, Mercury, and Venus in Aquarius, she is bringing a new message and a new medium of transmitting that message to the masses. Oprah can reach her audience without being constrained by the cable industry. This has the potential to change the whole dynamics of the broadcast industry if content developers are able to reach audiences directly without having to relinquish any advertising revenue to the cable industry. “A New Earth” indeed.
Oprah Winfrey: January 29, 1954 4:30 AM CST Kosciusko, Mississippi
Related Post: “Using Star Language to Connect AT&T’s Call to a Hollywood/Silicon Valley Venture”
