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Bridge Street Journal, Vol. 3.9: WB Loses Lots Fast, and a Good MRK Prediction

By Bridge Street on Fri, 2007-11-09 09:03
  • Wachovia's 8K filing with the SEC today makes it the latest bank to suffer adverse consequences from the sad state of affairs in the debt market.  In that filing, it noted that it is writing down the value of some of its debt instruments (residential mortgage backed securities in this case) by $1.3B.  Banks writing down bad instruments that they shouldn't have owned in the first place is old news.  The amount is not startling, either.  What is worth noting, however, is the speed with which these markets are turning.  An 8K is a "current report" that companies file when material events occur outside of the periodical reporting documents (10Q for quarterly, 10K for annual).  The key line in the filing says, "following our October 2007 announcement of third quarter 2007 results of operations and our financial outlook for the remainder of 2007, certain financial markets experienced further deterioration."  In other words, the markets shifted such that our portfolio is worth $1.3B less than it was a month ago.  This is a valuable lesson/ warning for anyone trying to time a market.  When they turn, they often turn fast, and you can lose a fortune quickly.
  • Yahoo! Finance reports that Merck is taking a $4.85B charge to settle about 26,000 outstanding lawsuits.  One thing the article does not mention is the statute of limitations and when it would have run (a statute of limitations sets the amount of time you have to file a lawsuit - once the date is passed, you can no longer file).  I mention this because I remember listening to a legal expert who predicted that Merck would fight the lawsuits one at a time until the statute of limitations ran, and then it would knock out as many as possible with a big settlement.  Assuming the SoL has run, this expert was exactly correct in his legal analysis.  Very impressive predicting - I wish I remember who said it and could provide a link, but it was at least a few years ago.