Friday, February 20, 2009

Panic Stage of a Bear Market is Here/CBR, ARIA/ Wells Fargo Trust Preferred/

Today is a panic day.  One of two things is going to happen.  The world will slip into a worldwide depression and there is nothing to be done about it except to soften the impact or we are simply entering the final panic stage of a bear market which will ultimately lead to a bottom and a recovery in the market.  I am not prescient. It is too early to know where we headed and it is certainly out of the government's control.  The market will end up where it wants to go.  In case this is approaching the alternative where a bottom is near, I will probably place within an hour some orders below the market to try to catch the fall in a few bonds and preferred stocks which are tanking as bad or worse than commons stocks from the same issuer.  I already placed a limit order in a retirement account to buy an Aegon preferred issue.  


Ciber, a 50 share position, was apparently obliged to do a stock offering of 8 million shares at $2.75 due to tightening credit conditions. CIBER Announces Pricing of Common Stock Offering: Financial News - Yahoo! Finance


Ariad (ARIA) also announced a placement of shares at $1.69. ARIAD Announces $24.3 Million Registered Direct Financing: Financial News - Yahoo! Finance
This is not good since the placement also included warrants to buy shares at $2.15. 

I would not classify the recent price action in the common shares of Citigroup and Bank of America as irrational.  I do view the overall meltdown over the past few days of the common shares of Wells Fargo and U S Bank, along with their trust preferred issues, to be more symptomatic of  panic pricing.    

In fact, I am inclined to think that we are now in the panic stage of a bear market where fear trumps all rational thought processes.  But the fear is not divorced from reality.

The pervasive fear among individuals will often cause a precipitous drop in the prices of Trust Certificates that are owned primarily by individual investors.  In the past, this has presented opportunities to buy what is in effect a bond at a discount price.  While I am prohibited from buying common stocks now under my trading model, I am allowed to buy bonds and preferred stock.  I also raised recently a nice sum from selling bond ETFs and individual bonds to be reinvested into individual bonds as opportunities arise, which is starting to happen now. 

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