Lehman: Nobody Knows Anything

Do you want to know what on earth is going on with Lehman Brothers, and with the whole financial sector more generally? Here's some advice: Go outside. Take a walk. Get some fresh air. Because nobody knows anything.

Today could quite possibly be the most rumorlicious in Wall Street history. Goldman's buying Lehman! No it isn't! The Fed's going to cut rates between meetings! Maybe a private-equity shop can help! Interestingly, Lehman stock has not been particularly volatile today, trading in a band between $4 and $5 all day. (OK, that's volatile on a percentage basis, but not on an absolute basis.) And the credit default swaps, too, seem to be keeping some grip on reality.

The fact is that anything could happen at this point, and the situation is very much up in the air. Lehman, with the help of the Fed, will probably muddle through today and tomorrow; I suspect that it won't exist in its present form come Monday morning. But the range of possible outcomes for shareholders and bondholders is enormous, and anybody playing in Lehman securities right now is a gambler, not an investor.

If you think you know something, you're wrong. Even Dick Fuld doesn't know what's going to happen: Hell, he doesn't even know if he's going to have a job come Monday morning. Speculation and rumor can be fun, but they don't really achieve anything. So go back to your day job, safe in the knowledge that the game will have played itself out within a week, tops.

Comments

[who:]

whatever happens, it can't be worst then this...only way is up!? mkt cap of $3 billions - very tempting for the Koreans! Any other foreign bank that could sufficiently carry the toxic acids.

2008 Sep 11 02:40 PM

[Jason Rines...:]

Dick Fuld told an outright lie here with his open letter to Warren Buffet. These CEO's are sham artists and extraordinarily self-absorbed. I have said it many times here, it comes down to Washington economic policy for the future which has been neglectful between 2001-2005 and outright insane 2006-2008. Come end of Q1, I believe the details of CDS, CDO's banking health in general will be far more clear as will the direction of our economic policy from Congress. This article is right, it is a strange time. It could all work out and just be a bad bear market that lingers for a few years or the entire US economic system could completely crash. Very strange and interesting times indeed. But rest easy friends, even if it is worse case, the US has ample food, roads and communications to rebuild. I always hope for the best but prepare for the worst. When prepared, you can stop worrying and instead put time into market research and fact finding rather then speculating.

2008 Sep 11 02:52 PM

[ng:]

Thx Felix. It is soooo tempting to jump into this trade, but I have been burned by these ultra crazy situations before. So I am following your advise.

2008 Sep 11 03:10 PM

[AtlLender:]

Felix, you are right on. Only, I thought it would have happened last weekend. Obviously, Paulson and the Fed were too occupied with Fannie/Freddie. Come Monday, Lehman will be no more. I suspect largely due to their subsidary, Aurora, with all the Alt-A weighing like a millstone around their neck.
Good call, it would be gambling now, not investing.

2008 Sep 11 03:19 PM

[Brutto:]

One thing is for sure: Fuld has had it. For the last six months he has thrown away every opportunity to recapitalise LEH in the hope something better would come along later. And LEH could have possibly kept limping along if it weren't for the rating agencies now threatening a downgrade: that will be the nail in the coffin.

The Fed's problem is to find another "credible" stooge to stand in for what JP Morgan did when taking over Bear Stearns and to front a rescue with a Fed backstop. Giving a Fed guarantee to a foreign buyer just wouldn't look so good...

Goldman Sachs would have loved to do this if it weren't for the fact that they worry about being dragged down: there are enough questions about their own exposure, particularly as they have been messing about with commodities trading for the past quarter.

Time will tell...In the meantime Fuld is lucky not to be lynched by Lehman staff, who own a third of the stock.

2008 Sep 11 03:25 PM

[SW Richmond:]

"Good call, it would be gambling now, not investing."

As it turns out, it's been gambling and not investing since the advent of central banking and the managed economy.

2008 Sep 11 04:42 PM

[montag:]

Wasnt the open letter to Warren a joke?

2008 Sep 11 05:17 PM