Merrill Lynch (MER) Next In Line
by Houghton and Atkeson 09/12/08
It is amazing the number of important financial institutions that have been hammered this year. The list includes Bear Stearns, Countrywide Financial, Washington Mutual (WM), Fannie Mae (FNM), Freddie Mac (FRE), Lehman Brothers (LEH), American International Group (AIG), Ambac Financial Group (ABK), MBIA Inc. (MBI) and now Merrill Lynch (MER). MER is currently trading at about $17 per share, down 68% year-to-date.
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We reported the downward spiral on Wednesday. And today, options investors are betting in size that MER could hit $10 a share by options expiration Friday (Sept. 18).
A $10 price on MER would signal that additional significant financial issues are at work, as some analysts believe MER has a sum-of-the-parts valuation of as much as $40 per share.
MER employs over 60,000 people, more than two times the number employed by LEH. Where MER stock has gone lately has been where the overall market has gone.
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Looking into June, the market should begin refocusing on upcoming earnings reports for evidence the economy is gaining momentum.
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In the short-term, the government's bond auction is likely to be a key driver of stocks.
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The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.
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