Lehman Brothers: Blame It On the Shorts

The latest buzz is that the shorts conspired to drive down the stock of Lehman Brothers (LEH). A story in today’s Wall Street Journal today says the company has met with the SEC trying to track down rumors of its imminent (before Monday'’s $3 billion preferred share sale) demise.

Of course, a few weeks ago you cold have replaced the name Lehman with Bear Stearns. As I wrote in my latest column on MarketWatch and in the Journal:

Accusations flew across Wall Street accusing hedge funds of shorting Bear stock and then conspiring to drive it down by pulling their accounts. This may ultimately turn out to be true, but it doesn’t disguise the fact that Bear was the riskiest player in a risky industry during a very risky time. Successful short-sellers figured this out before everyone else.

Lehman may not have been the riskiest, but away from conspiracy theories, its fundamentals were clearly fair game for short-sellers, especially in an environment like this. Could there have been a conspiracy among shorts? Sure – the same way there might have been a conspiracy among longs when critics of financial stocks were being dismissed as crackpots as the current crisis was evolving. (Not that anybody would cry conspiracy when stocks are rising.)

In the end, the banks are responsible for their own troubles. It'’s hard for these banks to blame anybody but themselves for taking a risk by levering a balance sheet with what are now believe to be risky assets. It’s no different than a hedge fund that bets wrong, with one difference: The funds can’t go back to their investors and cry, “conspiracy.”

Comments

[texalope]

So does this mean its OKAY to start rumors, withdraw money, plant stories with journalists, and any other tactics shorts deem to use?

[drmalaka]

Enough with these cry babies blaming the shorts. These stocks are down becuase the companies made bad decisions and are now having extremely difficult financial times.

There are more unfounded rumors to the long side now than anything else. How many ABK bailout rumors sent the market up 200 points? How many rumors of additional capital raises for banks have sent the market up?

Talk is just talk, over the long term fundamentals will rule. Make your bets accordinly and stop complaining about people who trade short term based on meaningless news.

[phinsuntanning]

Fiscal Year 2007: Capital/Assets

Bear Stearns 3,0%
Morgan Stanley 3,0%
Merril Lynch 3,1%
Lehman 3,3%
Goldman Sachs 4,5%
Citigroup 5,2%
JP Morgan 7,9%
Wells Fargo 8,3%
Bank of America 8,6%
Wachovia 10,2%
good reasons for short sellers

[SHB]

Is there REALLY a difference between shorts starting rumours and analyst's issuing buy recommendations?

[GKM]

Herb, I hope you read your comments as you've got to take Jim (the Wealth Destroyer) Cramer to task about his latest BS rant. I knew the guy was a buffoon but he is taking it to new levels currently with his tirades about the elimination of the up-tick rule.

It is amazing that, on a day where the Dow is up 391 pts, he still doesn't get it. Shouldn't there be a down tick rule on days like today? C is going through the roof (instead of through the floor), shouldn't those poor longs who want to get in (or the poor shorts who want to cover) before it runs away from them have the benefit of the down tick rule? This would only allow people to buy when the last tick was a down.

By extension, so that we ensure the longs aren't selling their positions, let's take out selling all together. This way even the longs can't drive down the market. Prices will only ever stay the same or go up! Isn't this a great idea?

What a freaking moron! Herb - you've got to do us a favor and call him on the floor for this idiocy. [rant off]

Btw, I knew to go short natural gas since Cramer was going long. That trade's worked out nicely. I guess I should thank Cramer for something - being wrong all the time.

[GKM]

Btw, the only things I'm short right now (in the interests of full disclosure) are gold stocks, oil and nat gas so I'm not making this request to call out Cramer because I'm short anything that went up today. I guess you could also say I'm short Cramer but I disclosed that above.

[Ming]

I second SHB. "Bullish recommendations" (ie manipulations) outweigh "bear recommendations" by a very large margin.