Stock Opinions by Ian R. Campbell

Are you thinking 'between the lines' about the current U.S. Financial Industry Turmoil? I made the following points (among others) in posts I made to last Saturday morning (before the Lehman Brothers demise) and yesterday morning. I am repeating them in this e-mail for your consideration. 1. Each day (and virtually each hour) new negative U.S. based financial events are reported. 2. These events are occurring immediately before the U.S. Presidential election, in circumstances where one would think the current U.S. Government would exercise a 'postponement strategy' until after November 4 if they had any option to do that. 3. Critically important decisions are being taken in very short time spans, which is contrary to the way things should work. 4. "Until U.S. housing prices stabilize and U.S. Consumer confidence grows, I worry 'Canada's favourite neighbour' will simply go from (major financial) problem to problem". I made this comment on Saturday before Alan Greenspan stated this same thing in a Sunday television interview. 5. The U.S. Government, frankly to my surprise, did not support Lehman 6. Bank of America announced Monday it is buying Merrill Lynch, with various prices being publicly stated - one of which suggests a price that is a 70% premium to last Friday's stock price close. This is being done in circumstances where rumor has it Merrill Lynch might otherwise have gone the way of Lehman Brothers. In the 'valuation world' I am familiar with, premium prices are not paid for distressed assets unless there is competitive bidding for them. So why the premium? Transactions often close following detailed due diligence at prices less than first offered. Could this be one of them? 7. The U.S. Federal Reserve apparently announced Monday it will expand access to credit for struggling financial companies - which to me seems indirectly to circumvent Henry Paulson's strong position made last Friday that the U.S. Government would not provide aid to Lehman. 8. 10 'Global Banks' apparently agreed Monday to buttress the U.S. Government's efforts by providing $70 billion in a new 'lending program'. Where does this money come from? Could it be as simple as a pass-through from the U.S. Government in circumstances where aid is given to a specific financial firm without the U.S. Government having to appear to be the benefactor? 9. Early Monday morning the Wall Street Journal reported that American International Group Inc., a major U.S. insurer whose shares dropped 31% last Friday, is seeking a $40 billion bridge loan from the Federal Reserve. The AIG circumstance has deteriorated since then with numerous reports and commentaries being made this morning. 10. It was reported on Monday that China's central bank, 'acting against a background of extreme stress in global financial markets', on Monday cut benchmark lending rates by 0.27% lowering the cost of one-year bank loans to 7.2% (effective September 17), and the 'reserve requirement' for all but China's 5 biggest banks by 1% (effective September 25). This to me is interesting evidence of the immediate 'ripple effect' U.S. financial system issues have, and will continue to have, on the global economy. All of these things, individually and particularly in combination, suggest to me the U.S. Financial System clearly is uncharted waters, and may well be on a collision course with an iceberg that is close at hand. Under any circumstance we are living in interesting times.
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