Thursday, September 11, 2008

Psst..I heard Lehman found a buyer: its Santa Clause!

Hello Everyone!

Did everyone hear the news in the last five minutes of trading? Lehman found a buyer! Yeah right, and I just got $5 under my pillow from the tooth fairy .

How many"buyers" has Lehman gone through in the last 3 days? If Lehman had a dollar for every buyer it found they wouldn't have to go bankrupt! The fact that Goldman Sachs wants nothing to do with Lehman tells you everything you need to know. They have strongly denied any interest in Lehman. Goldman are the smartest guys on the street. If doesn't tell you Lehman is a big pile of dog doo than nothing will.

Folks, mark my words, the market is going to get tired of these rumors. How many times have we gone down this road? How many buyers of stocks have been burned by rumors of false hope? How many times do the pigmen expect investors to keep coming back and buy based on rumors that are total BS?

Let the Fed just announce the Lehman bailout already. You know its coming. Its the new American Way. The government says the counterparty risk is just too great for them to fail. I say let them burn, but god forbid a broker on Wall St. is allowed to fail.

This whole house of cards is going to eventually cave and I say the sooner the better. The government is in total denial over having to deal with it. Take a look at their latest proposal:

"Sept. 11 (Bloomberg) -- U.S. Senate Banking Committee members urged Fannie Mae and Freddie Mac, the mortgage companies placed under federal control this week, to freeze foreclosures on loans in their portfolios for at least 90 days.

``This action would provide immediate relief to many homeowners'' and let the companies ``turn these non-performing loans into performing assets to minimize losses,'' Senators Charles Schumer, Robert Menendez and other panel Democrats said today in a letter to the companies and the Federal Housing Finance Agency, which is overseeing them under the government conservatorship. The companies also should ease their policies on modifying mortgages, the senators wrote.

``Schumer really has to start thinking about what's in the best interest of the majority of taxpayers and I'm not sure that freezing foreclosures is in the best interest of the majority of taxpayers,'' said Joshua Rosner, an analyst with independent research firm Graham Fisher & Co. in New York. ``It would just prolong the agony.''


My Take:

Joshua nails it in that last paragraph. This does nothing but delay the inevitable. This mentality in DC is only making things worse.

Our financial crisis is on the verge of imploding if we don't stop the bailouts. The Fed is running out of money fast and this ship we call the economy is popping leaks right and left. They cannot plug every leak! The banks are really starting to look vulnerable.

WAMU looks like its about toast. The credit spreads on Washington Mutual are now at 40%. This basically means the credit markets now view WAMU as roadkill. The spreads are up sharply from just last week. To put this in perspective, spreads on a healthy company are under 1%. This is why the stock now sits at two dollars. Is Merrill next? They sure traded like it today.

Bottom Line:

I expect more intervention by the Fed if Lehman can't find a buyer. This could take the market higher. It makes no sense but that's been the pattern.

Keep an eye on financials. One big problem they have right now is the preferred shares that they use to raise capital. One of the unintended consequences by the Fed bailout was the negative effect of bank preferred stock. When Paulson basically wiped out the preferred of the GSE's, the market lost confidence in all preferred shares.

Why?

Because Wall St. says to themselves: If the Fed can come in and wipe out the GSE's preferred with an audit, who is to say they won't do it to other banks that are viewed to be insolvent?

As a result, the preferred stocks of many banks have taken a beating. This makes it more difficult for banks to raise capital which further tightens the knoose.

Things seem to be worsening folks! We could see a bounce on more Fed intervention.

Ignore the lunacy of it. I see no way out of this financial mess.

5 comments:

Subprime Showtime said...

You know, tomorrow morning it's going to be a tough decision between buying 10 shares of Lehman or a Frappuccino. I'm still undecided.

My post on Lehman today got 250 hits in 1 hour. I'm actually expecting to get a cease and desist from their legal department, but maybe they have more important things to worry about.

If the Fed bails this one out, I'm leaving the country.

Jeff said...

Subrprime

Buy the Frapp. at least you know what you got!

Congrats on the hits. Mine are up too but I don't care.

I enjoy my audience! If it grows thats great.

I enjoy sharing ideas, and I have met some brilliant peeps(including yourself) on here so I am happy with whatever happens.

I hope things continue to grow!

Anonymous said...

From Reuters: "Paulson adamant there will be no government money used in resolution of Lehman situation." Yeah right! It is unbelievable that this guy can lie and lie and nobody calls him on it.

Jeff said...

anon

I know I was surprised at that. I am starting to wonder if the government is finally coming to their senses. I doubt it when all is said and done.

We will see!

Nic said...

They don't have any choice