MS and JPM and GS may experience some more tough times as rates for the longer duration t-bills go higher. This stems from widely dispersed derivatives in unknown places. It is not clear which entities have exposure to rising rates, but any investment banks with bets on either side can suffer problems either due to counterparty risk (for gains) or outright losses (from bad bets). Since the investment banks arleady are struggling to build up equity vs. assets which are opaque, it is reasonable to conclude that until MS fully opens up its books (which is unlikely) or the crisis is over, the stock will suffer as t-bill derivatives expose themselves to scrutiny (become a problem). A cautious investor would do well to stay away from large investment banks, or insurance companies which may hold the derivative bets in the wrong direction.
$26.52 (05/14/09)
