Bear Stearns?

This is taking some brain power. Who is buying the stock and why? Deal is done at $2. Now at $7.00. The April $10 and $12.50 calls are sky high.

Some thoughts.

First of all from a practical standpoint it looks very difficult for another deal to get done outside of JP Morgan. No matter what happens the building, maybe the most valuable asset at Bear Stearns goes to JP Morgan. My understanding that is done, non reversible. Maybe it could get tied up in court and somehow get revoked but that is a long shot.

Okay so maybe you could argue that without the building Bear is worth more than $2 but who could possibly buy it? What other major U.S. bank could take it over? The $30 billion backstop is only promised to JP Morgan. Maybe the Fed would consider giving it to someone else but who could do it? A non U.S. Bank could, but the FED won't offer it to them. A private equity firm may be interested but they also would not get a backstop.

Then you have the whole Joseph Lewis factor. Remember he is the wealthy currency trader who put a billion dollars in Bear several months ago above $100 a share. He said yesterday the JP Morgan offer was "derisory." Interesting piece below.

http://www.smartmoney.com/bn/ON/?story=ON-20080318-000188-0548

That guarantee remains in place until the acquisition closes and Bear is subsumed into J.P. Morgan's operations. However, if Bear shareholders reject the deal, they have to vote on it several more times over the next 12 months. During that time, the guarantee from J.P. Morgan remains in place, executives from the bank indicated Sunday.

Okay so you have some option value in the stock. Here is a thought. There is a whole thing of loss aversion. Joe Lewis has a fortune greater than $5 billion. He could easily buy the whole company himself. He could be buying up the stock even irrationally. Or maybe make a coordinated effort with other shareholders or the employees.

The great hope for Bear in my opinion is that this did indeed mark the bottom. The gives the year call option alot of value as things normalize and reject JP Morgan. I firmly do not believe that. This could be very interesting going forward.

Get comfortable in your sofa, pop some popcorn, and get ready for soap opera of a lifetime.