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Count on the Fed for This Stock

8 April 2008 - Markets - Editor

Can we take the de Bono way further? We are stimulated by the thinking methods of this celebrated author. See our earlier publication on Water Logic for financial planning: The Stock Market Torch in Economic Darkness

Provocative Operation is another classic method of Lateral Thinking that de Bono advocates. We have tried this method on the Investment Services Industry. So what if large banks have overstated their assets? Northern Rock and Bear Stearns prove two things. One is that it is OK for large financial institutions to default. Secondly, no fire sale can work without a purchaser.

Suspend logical investment thinking for a moment. Suppose you buy stock full of bad news. You can rent it to stock traders who want to sell it short. The stock remains your property. You stand to make enormous gains when the business cycle picks up again.

This outrageous type of financial planning has led us to Merrill Lynch & Company Incorporated (NYSE: MER). The stock has greeted spring 2008 at just about half its 52-week price peak. The majority of the stock is owned by powerful institutions. The list of stock owners includes top MER competitors. It is exactly the kind of management the Fed would call to bail out any stock in deep trouble. It is also a company that Washington will protect with guarantees of $30 billion and perhaps more.

MER is a global stock. It need not be overly concerned with a US recession. It is not an appropriate stock for a novice to make a quick buck. Top stock analysts predict a poor earnings outlook for any corporation involved in the credit business. A bond insurer has taken MER to court over mortgage valuation. The bottom for this stock is not clearly visible at this point. However, it should eventually double over the current stock price, and go beyond as well.

It appears that concrete intelligence does not always work for top stock picks.

 


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