Watching the Lehman Fireworks 17 comments
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I'm thinking it was maybe a good thing that I was off the grid for most of today; it meant I haven't been able to get caught up in all the Lehman Brothers (LEH) hysteria. Of course, there's lots of speculation about what may or may not be going on -- but substantially all of it seems to be driven by the share price, rather than the other way around. The stock closed at $7.79 a share, down 45% on the day.
Can a move of that magnitude be explained by the fact that Lehman isn't being sold to the Korea Development Bank? That would imply that a sale had been fully priced in until today, which seems improbable to me. Most of the price action is a much simpler story: a vicious cycle in which a falling share price makes Lehman look untenable as a going concern, which causes people to sell, which drives the shares down even further.
Bravely, Lex is taking the contrarian stance.
There is little reason to believe Lehman is destined to go the way of Bear Stearns - even though the cost of insuring against default on Tuesday jumped by over 100bps. The bank has raised almost $12bn in new capital this year, more than its current market capitalisation. It retains value through its prominence in fixed income. Most importantly, unlike Bear, it already has the authorities standing behind it, through its access to the Federal Reserve's funding window.
Dealbreaker's John Carney tells me he heard that the selling in Lehman was driven by Barclays (BCS) and Alliance Bernstein (AC) selling shares in bulk, maybe after they lost a huge amount of money on Frannie (FNM)(FRE). Whether or not that's true, this market is certainly nervous and volatile enough to sell off dramatically in the face of a couple of monster sales. Volume was over ten times average today -- high enough that it would be pretty much impossible to account for without major institutional sales.
I feel as though this is the point at which I should put forward a nice little theory of my own: It's too late, the game's up, Lehman's going to zero. Or: Today was the panic-selling bottom, Lehman's a screaming buy. The fate of the bank will be determined in the next 48 hours: At that point it will be obvious whether it can survive or not.
But frankly I haven't got a clue what's going on, what it all means, or where Lehman might be headed. And most of the pundits? Are in exactly the same boat. All we can really do with any honesty is sit back and watch the fireworks, along with everyone else.
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This article has 17 comments:
There were indeed rumors. Investors communicate through channels other than web pages, and in this case, it was not possible to link to the source - a closed-circuit traders group.
We removed the post because we felt that without the ability to link to a source people could read, it was of limited value.
Having said that, we do at times post information we feel is important to investors, even when there are no publicly available sources to link to. Often the information later hits the public web, at which point we make an effort to go back and link to it.
I imagine readers find some use in knowing what rumors are circulating in the vast and busy rumor mills of Wall Street. As always, they should be taken for what they are - rumors - not fact.
I have been writing about Lehman Brothers for a while. It was pretty obvious in June that this investment bank was doomed.
By the way, there is a direct connection between an organization or its president getting top awards for being really fantastic and going bankrupt in less than 2 years. Lehman is quite typical in this regard.
Everyone knows that when a company is about to be bought out, all involved are tight lipped, right? This third grade "look at me!!" scheme was seen for what it was. Lehman had a pork chop tied around its neck and was desperate.
Bove was the first unprofessional money manager who tried to sucker people into bidding Lehman's stock up. He should be found guilty of malpractice, fined, and sentenced to hard labor.
For that matter, every PROFESSIONAL money manager who has shown poor judgment should be sued for malpractice.
Clark Jenkins
FishGoneBad.com
But in this case Seeking Alpha was totally irresponsible. There have been numerous unfounded rumors that all sorts of entities are about to throw capital at Lehman. But if a short seller says something negative about that is probably true, he is investigated by the SEC.
Several hundred million shares of LEH traded yesterday. For you to print a rumor late in the day that they got an offer for 11 dollars when they stock was at 8 you damn well better have a source.
Did you note the TLT notched a triple top? stick with that TBT position.
As a totally unrelated remark, by the way, I think the Fannie/Freddy bailout was the most ill-conceived, badly timed, short sighted government decision short of the Japanese attack on Pearl Harbor. The banks, already in dire straits, did not need a $36 billion hit on the preferreds and stockholders and investors, already reeling and having daily losses from this irrational market, did not need to lose, in some cases, their life savings in an institution that they trusted....the government giveth security, the government taketh it away. A pox on you Paulson and your ilk.
The products that gave such big profits no one wants now.
They diluted equity greatly.
Now they are selling some crown jewels.
And the compensation for all those egotists!!!!!!!
How many people at LEH make $1,000,000+ a year????????
It all adds up to sales down, costs up.
I forgot to ask: Do they do anything important for the American people?
This is irritating. Some Enron execs said stuff about nasty short sellers and what happens? duh...