There Is a Blue-Light Special on Brokerage Firms

Lehman is in bankruptcy. Merrill Lynch is sold to Bank of America for $44 billion. Bear Stearns sold to JPMorgan Chase for $2.2 billion, after originally agreeing to be bought for approximately $500 million.

There is a fire sale on Wall Street firms, and it is all because of one nasty little word: greed. Bear Stearns had gotten so greedy that it had leveraged its own assets to the moon. Estimates have been put at $11 billion in equity supporting almost $400 billion in assets. This gave Bear Stearns an unbelievable leverage ratio of 36 to one.

So what should you do with financial stocks? If you own them, sell them. If you don’t own any, don’t buy any.

The financial debacle isn’t over. The SEC and the Fed keep brokering deals to keep the financial system from crashing, but they are doing it by applying band-aids to deep, gaping wounds. They are having one troubled company buy another troubled company. As comedian Dennis Miller said about Kmart’s blue-light specials, “Two of [crap] is more [crap].”

The financial landscape has been changed forever, and there are more changes to come.

[Ed. Note: Keep your money safe during these shaky times by making smart investment choices. Companies with strong fundamentals are best equipped to withstand major market changes. But don’t be afraid of fluctuations in the market. These movements can offer you the perfect opportunity to profit.]

Inspired by his high school economics teacher, Rick Pendergraft fell in love with the markets at an early age. He entered his first investing competition at 17, and opened his first brokerage account before he finished college. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide. After a ten year career in banking, Rick decided to pursue trading full-time. To get his foot in the door, he started out in the sales department at Schaeffer's Investment Research. It was not long before his talent was recognized and he was invited to apprentice under Bernie Schaeffer, one of the top options traders in the world. Rick thrived in his new position and twice received the award for "Top Trader."Rick has developed a loyal following of readers who are grateful for his timely warnings and profitable advice. He is widely recognized as a market expert and has been frequently quoted by Reuters, BusinessWeek, Forbes, USA Today, the New York Times, and the Washington Post. Rick's primary focus is on identifying short and intermediate term rising and falling trends in the major market sectors. His analysis is based on technical factors along with indicators of market sentimentRick lives near Delray Beach, FL with his wife and three children.