JPM Morgan and Bear Stearns

Graph from Bigcharts.com.

Bear Stearns

Diary of share price movement.

•   04/2008 Bear Stearns company has illustrated classic chaotic behaviour. The rally through into 2006 pushed the share beyond the edge of chaos and into a chaotic atmosphere. Instead of an adjustment, we witness an even more frantic rally in 2007, pushing the share price into a deadly cycle of chaos that could not be sustained. In ecological terms the effect of ovexploitation of resources impacted heavily on the prevailing share price. The almost exponential into 2007 is a classic danger sign of a share price without any controls. As in this case, this is often deadly.
• Amazingly, there is a perceived rescue by the fire sale of Bear Stearns to the banking giant JPMorgan Chase at $2 per share. This merger of one chaotic share into another chaotic share should be watched closely, as it could have lessons of broader implication.

Looking at the performance of JPMorgan and chase, we see another company that is very evidently experiencing extremely unstable and chaotic conditions. The chaos that initiated in 1998 due to an unnatural and unsustainable rally, led to a correction to a realistic share price in late 2002. However some apparent greed took hold with another extravagant rally in 2003, bringing about a chaotic condition that has persisted until the purchase of Bear Stearns.

The question now, is will this purchase remove the conditions causing chaos or contribute to further chaos of the JPM share? This purchase could be a clever move by JPM. The share price capacity is certainly raised by this purchase, giving some relief to the JPM share price at $40. The subprime mortgage collapse of Bear Stearns is based on a resource that will not dissipate. It is not like some natural catastrophe where the essential resource is depleted. This was therefore a clever  strategic purchase. The relative sizes of JPMorgan and Bear Stearns will determine the final share price, but a worst case scanario is that the share price remains at $45. If the share price increases steeply in the next 12 months, I would sell at $60 and buy at $50 in the next two years.