MON. SEP. 29- The New King Of Banking

Sometimes, a deal can be really really good. On paper, this certainly seems to be the case with JP Morgan (JPM). For $1.9 billion, they received access to all of the deposits at Washington Mutual. As of June 30, the bank had deposits of almost $200billion; amidst a quiet bank run, about 10% of this was withdrawn in the last two weeks bringing the bank below its key capital requirement ratios. Yet, for a measly sum, JPM acquired the access to all of this capital and simply wrote off all of the bad debt. This of course is phenomenal for JPM should the banking system work out as they now have deposits to loan out, a mortgage business via Countrywide, and a brokerage arm via Bear Stearns. However, it also did something else- it staved off a Great Depression. We are well aware how that it sounds, but stick with us. The FDIC has less than $50 billion in funds. Washington Mutual has tremendous amounts of bad debt. So, if depositors went to get their money out, the loans much more than offset the deposits. And suddenly the FDIC has no money (although the government would merely turn on the printing presses to fix that one in all likelihood). And then people rush to Washington Mutual. And then the media gets involved. And then people go to other banks to take their money out. And suddenly, there is no banking system. That is how close we were to the precipice on Thursday night and it is also why for the first time in its history, JP Morgan announced a major deal on a Thursday rather than a Monday. As it is, there is a major credit lock-up; dry bulk ships cannot leave ports right now because they cannot receive funding to go as they have no access to their credit lines. So, if everything turns out OK, JPM will be the go-to bank and if not, you know, it just won’t matter. As for day trading, realize the good and bad dichotomy will continue and intensify as the system is cleaned out no matter how this deal turns out.

Overnight, markets were hit very hard throughout the world with Hong Kong down 4% and markets throughout Europe down 3% across the board. The perception is that Europe and Asia are not joining the fight with the U.S. plus ‘the deal’ is not going to solve much of anything in its compromised state. Thus, stocks will open sharply lower state-side. With no monies forthcoming imminently from the government coffers and a Jewish holiday tomorrow, it could be a very scary day today.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified



Good-

C, WFC- trying to take over WB…would be good for company if they get same sort of deal JPM got with WM.

MNI- avoided a default notice by refinancing; stock should be higher else short thru unch

RZ- strong all day Friday

IDEV- up on strong good news..would love an A-B_A2 pattern near Friday’s high at which point it is a buy thru that 3.80 high

CCOW- exploded on a short squeeze late Friday afternoon

BAC,WFC- had huge buy imbalances on close; if they open unchanged, they are actually sharply lower from 3:59PM on Friday and would buy a weak open if market rallies
Bad-

WB-discussing a deal of some sort with C…if deal goes through, will probably be take-under and if deal does not go through, bank needs capital so not good either

AGU- crushed after downgrade; looking for bounce with other stocks in industry else short thru Friday’s low of 63.30

SVNT- poor drug news; looking to short thru Friday’s 15.66 low

GNW, FED- among others, these got destroyed on Friday…cannot short them so they are worth watching and even an A-B_A2 to upside if they open higher and hold unchanged

TRA- down in sympathy with AGU in similar downgrade

SDA- chicken producer ravaged on Friday; looking for a short thru 9 on a down A-B_A2 pattern if it sets up

MON SEP 29 BEF

CALM ? ? ? ?

SCS .22/866M .25/886M .89/3.44B .97/3.46B

WAG .45/14.69B .51/15.35B 2.18/59.12B 2.45/64.74B

MON SEP 29 AFT

CMGI ?/270M ?/297M ?/1.11B ?/1.21B


Good luck today.

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