pelican

The Lehman Situation: Brutally Logical, or Patently Illogical?

Your article is one of only a few I've read that actually looks at LEH's situation rationally. Absolutely, with the Fed backstopping the investment banks there is no counterparty risk. My only guess is that investors, caught up in the hysteria, forget that.

As to your points why LEH is trading below $4, I think its true many do not believe Lehman has correctly priced the value of its assets. But at the same time, they probably cannot tell you what the true value is, so it seems more of a nervous reaction along with the assumption that current book value is much lower. Hard to believe though that with all of LEH's writedowns, many quite aggressive, that the true value is that much askew from reality. In addition, even the rating agencies are not concerned about liquidity; rather, they see this as a problem of confidence, which sort of annoys me because they are basically making things worse. Finally, I think Lehman's 2009 EPS forecast is too high but as little to do with what's going on here. Most of the housing companies will lose money next year, for example, but most aren't selling below $4 a share (although their balance sheets are probably in worse shape).

If more people looked at this logically like your article did, we would not be seeing the level of panic that we are, in my opinion. One article today reported the Koreans were willling to pay $26/share for 25% of the company just last month. But hysteria trumps reason in the short term and so LEH is in a pickle. I think Fuld has handled this situation horribly but its possible that he thought it would be patently illogical for the market to react the way that it has, so he didn't react quickly enough.

And possibly a combination of all three. That’s where the brutal logic of the recent Lehman trading comes into play.

Alternative Buyers for Lehman (and Not Just the Usual Suspects)

Drivel.

Revised Upside Targets for Fannie and Lehman

If SA screens and edits articles in advance, shouldn't they screen for product pushers as well?

Mother of All Short Squeezes?

Great article, Matt. Lots of interesting responses from people too.

Is the SEC 'Rumorgate' Push a Waste of Time?

You sound like an apologist for people who knowingly spread false rumors. Indeed, you almost seem to applaud the whole idea of rumors..."currency of mankind for thousands of years..." and don't seem too concerned about whether the law is being broken. This is not about spreading a rumor you may have heard so please don't try to obfuscate the issue. This is about going after those people who knowingly spread false rumors for the purpose of financial gain. Surely, you must agree that people do that sometimes, right? If you answer is yes, then surely you must agree they should be held accountable.

You wrote: "For the life of me, I can’t imagine how the SEC will be able to prove that an individual knowingly spread a false rumor unless an email trail is discovered where Trader X told Institutional Salesman Y last week...I can't imagine how the SEC can get a conviction." Well, guess what. It's not always about getting a conviction, although that happens from time to time. Like going after insider traders, its often about penalizing the perpetrators financially, often heavily. I just spent maybe 12 seconds doing a quick google search after typing in a few keywords and the first story that came up was this.

dealbook.blogs.nytimes.../

I get the impression you are mocking the SEC but they are doing the right thing by pursuing this. Its too bad you don't agree.

Is Lehman Headed for a Fall?

"Here's the thing - It's not important (except to the SEC) who puts out these rumors or why."

***Has to be the most idiotic statement I've read in some time. Spreading false rumors undermines coinfidence in the system and can be a self-filling prophesy. Stocks prices falling making it harder to raise capital. Maybe GE doesn't get hit as hard by false rumors. But those rumors, perpetuated by unscrupulous traders preying on companies where confidence is much more critical to day-to-day operations, matter to people who work at those companies and may lose their jobs, investors who may lose their money, and in a broader sense the intergrity of the financial system itself. So rumors are not that far off the mark, huh? I remember five/six years ago Tyco traded below $7/share because a rumor surfaced that they were going bankrupt. Post-Enron, somebody thought they could take advantage of the fear prevalent at that time and so the rumor was TYC's businesses really didn't have any revenues. It was ludicrous. Tyco acquired companies like AMP, CIT, etc., unrelated to each other, when they were booking real profits, and yet people got so hysterical at one point that for a while they somehow convinced themselves that Tyco would go belly up. Was there reason to be concerned? Sure. The CEO was stealing from the company. But how do you get from that to a $50 billion company which people back then, for a short while, started to think had no real revenues? Answer: viscous rumors.

LEH has been the target because everyone remembers Bear Stearns. WM and a host of others are is in worse shape than LEH but they aren't targeted like LEH because its not as easy to kill with false rumors. I don't necessarily disagree with your analysis of the fundamental landscape for LEH. But so many such as yourself seem to downplay the seriousness of the impact these rumors have, and there is a tendency to dismiss them too easily. BSC's leverage ratio could have been 35, 55, or 15, it wouldn't have mattered as long as confidence erodes and customers' anxiety levels have risen to the point where they no longer want to do business. If the rumors are strong enough and go unchecked the potential to bring down a GS is there too.

Buying Lehman on Weakness Could Signal Renewed Faith

This was a good article, nice job. I expected yet another LEH bashing diatribe, so prevalent these days, but you wrote it very objectively. As you indicated, who knows what the truth is, and trust is a (the?) big issue. It's really perception vs. reality. Maybe they are closely related in this case, maybe not. When I was much younger I knew I was a good credit risk being the responsible guy I think I am (I have never been late with any kind of payment in my life). But many credit card companies turned me down. They thought my age, limited work experience, lack of credit history meant bad risk. They were wrong but they had their perceptions. As a result, I had to take out a short-term loan and show I could pay it off. Many are pointing to LEH's capital raising as proof they are not honest about prior comments made but I have to wonder if they did so because, amid the talk of them being the next Bear Stearns, etc. and the general increase in concern, they felt they had to try and placate investor fears. In other words, were the capital raisings out of financial necessity or were they basically strong-armed into doing it by a panicky investment public. I don't know. Maybe LEH is hiding something etc. Maybe they should've been ahead of the investment community on deciding to raise capital. Or maybe they felt they had no choice given the decidedly pessimistic mood that's taken over. I remember as Y2K approached many became convinced bad things would happen, perhaps in part due to the media. The reality eventually proved them wrong but they didn't know it at the time and perhaps it seemed plausible. Anyway, its good to read an article that basically says "who the hell knows" when so many out there are quick to draw conclusions.

Keeping Callan and Gregory in the Lehman Tent

Oh brother, now its LEH's fault for the above-mentioned IPOs, etc. not doing well. And if it wasn't LEH who managed the deals, then I suppose it would be GS's or MER's fault. I also suppose LEH - and only LEH - was responsible for the real estate bubble and the widespead greed that knew no bounds. And while we're blaming LEH for stocks that have gone south, let's also blame them for higher oil prices, higher inflation, a slow down in the world economies, etc. because surely these factors had a little something to do with equity valuations. Just like the past week or two, I expect in the coming weeks to see more articles which find LEH to be a easy target for whatever sanctimony the author wants to get off his/her chest.