Good News for Lehman Brothers? I Don't Think So

I've long had my doubts about the intellectual capabilities of most equity traders.  Yesterday's late market action only reinforces those concerns.

My question is: If the late-breaking Wall Street Journal report highlighted below was such good news for Lehman Brothers (LEH) - and, apparently, the overall equity market, which spiked higher into the close - why did the investment bank's stock close down 41.8%?

(Here's a little graph I put together, courtesy of Bloomberg, which sums up what happened during the session):

click to enlarge

Maybe it's because those who actually took time to read the story noted its many caveats? For example, the fact that

Potential buyers remain wary about plugging holes in Lehman's balance sheet, and are increasingly looking to the U.S. goverrnment to help backstop future losses.

In other words, as long as the government guarantees that prospective buyers will come out ahead, we could see a deal.

Ahhh. Now I get it.

You can read the WSJ report, entitled "Lehman Brothers in Sales Talks; B of A Seen As a Potential Suitor," here.

(P.S.: Not long after the market closed on Thursday, Lehman's shares fell another $0.23 to $3.99. Oops.)

Comments

[venividivici:]

A demented casino mentality has infected the whole market but that's hardly surprising given the way Wall Street operates. Reports out this morning say that Paulson will not even consider putting any public money at risk in a buyout of Lehman. They have had more than enough help already. Let's hope that sanity will prevail and this turns out to be true.

2008 Sep 12 10:35 AM

[msgtb:]

I don't understand why the SEC is only investigation negative stories causing stocks to go down. But no positive stories causing a stock to go up. LEH how many time duh. Oh, I forgot this isn't a free market any more.

2008 Sep 14 01:51 AM