What can $2 buy you today?

JPMorgan Chase has announced over the weekend that it will purchase Bear Stearns, a historic financial institution dating back to the 1920’s that was once the leader in economic news and stability in the American economy. Friday, Bear Stearns’ stock closed on Wall Street at $30 a share. This weekend, JPMorgan Chase closed on a deal to purchase the company at $236 million. With a quick crunch of the calculator, that gets us to about $2 a share! Hopefully none of you bought stock in Bear Stearns on Friday! Or even worse, I REALLY hope none of you bought stock on Monday when they opened trading for the week at almost $70 a share!

Nonetheless, we should all take caution from this major buyout. The subprime credit market, and all its players, have been taking hit after hit recently, spinning the rest of the economy into a sell off and heading us into a recession due to increased uncertainty and fear of the future. With the Fed meeting again Tuesday, many expect they will again cut interest rates in yet another attempt to beg consumers to spend. The timing can’t be more perfect. Today should bring quite a sell off in the market in the morning (as already seen in the overseas market), and a flattening out by mid-day while investors keep their holdings in hopes of a rate cut and increased consumer spending. A rate cut would encourage more refinancing for the subprime buyers, which will help the current subprime lenders and mortgage holders get those bad debts off of their books. It would also bring more profits to the lenders that will be accepting the new loans. Rate cuts will also give some confidence to prospective real estate buyers to help push them into shopping and spurring the upcoming spring real estate market.

**Update: Of course, as I type this, I just received news that the Fed’s did in fact cut the discount rate, 3 days early, to prevent a sell of over the Bear Stearns news. Look for a minor sell off due to the further slide of the dollar, however the likelihood of increased consumer spending should offset this.

As you can see by simply reading this article, the market and economy is extremely volatile and can change at a moments notice. This fear and uncertainty has brought the issue of the economy to the forefront of the 2008 Presidential Election. The candidates all have pretty different ideas of how they would like to help ease your mind and wallet:

Obama would like to increasing government spending into the economy to boost consumer confidence, though he has yet to lay out any details of exactly how he will do this. Hillary would like to put a moratorium on foreclosures and continue to freeze subprime adjustable interest rates, which would help homeowners facing rate adjustments stay in their homes for a little longer so the government can think about what to do. McCain is pushing for the Bush tax cuts to remain in place to avoid a tax hike that would further hinder consuming spending. Finally, Ron Paul feels that this downturn in the economy is long over-due, and is a correction from the “easy credit” and “easy spending” days of the past that will ultimately strengthen the economy in the long run and bring more financial correctness and stability once again to our currency and global status.

Regardless of what side of the political spectrum you’re on, the future of the economy is no doubt a major issue for you. Keep an eye out on the market for the next few weeks as 1st quarter earnings and year end 2007 reports filter into the news…$2 may just go farther than you think these days!