Deja Vu All Over Again
I remember on Sept 12 of last year, at the height of the first sub prime scare, the street breathed a sigh of relief when legendary investor Joseph Lewis (above) revealed he had invested $800 million in Bear Stearns. The same thing happened today when Lehman announced it had sold $4 Billion of preferred stock (at a fairly lofty 7.25%) to ease the capital reserve concerns. Today, Joe Lewis looks like a fool who didn’t do his due diligence. Who will the next fool be?
For the market to rise almost 400 points with so much uncertainty is truly reflective of the bipolar mood of this interregnum. Merrill’s macro economist has been right for the last two years.
Rich Bernstein, chief U.S. strategist at Merrill Lynch, characterized the beleaguered financial sector as a “value trap” best avoided by investors for now. In the months ahead, he expects to see more signs that the troubles of Wall Street and the U.S. economy are spreading to emerging markets that represent increasingly important trading partners for America.
“If one assumes that the only problems out there are related to subprime mortgages and domestic real estate, then one would be that the worst is over,” said Mr. Bernstein. “I’m skeptical of that assumption, though. People are underestimating the depth and the scope of the global credit bubble.”