Bears Running Wild On Financial Stocks
Posted on March 18, 2008 in the Commentary category
.The devastation of Bear Sterns common stock over the weekend has unleashed a bear frenzy unlike anything that we have seen in a long time. Good stocks and bad stocks are about to get tarred and feathered by Wall Street investors, and here is why.
Last week Bear Sterns book value was $80 a share. Book value is the price that investors and auditors say that the company. Over the weekend we realized that Bear Sterns was worth less than its real estate and was actually worth $84 but $2.
So what about the book values of all those other financial stocks? Citicorp has a book value of $22.70, Goldman book value is $101 and Washington Mutual’s is at is at $24.38. after what happened over the weekend do you think that anyone believes these book value numbers anymore? And if you don’t then what do you use to value the stock? If assets can disappear overnight then what do you hang your hat on when valuing one of these financial companies?
Bear Sterns was not a lone sheep here. They might have been one of the more aggressive financial institutions, but they are certainly not the only one with a large amount of worthless paper in their inventory.
The bears will hammer every financial stock in anticipation of finding another Bear Sterns. Investors need to consider that every financial institution is guilty of the same problems that forced the collapse of Bear Sterns until they prove they are safe and solvent.
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