Thursday, September 11, 2008

Lehman downgraded by the street

Goldman cuts their target to $7 from $22, and Shearson cuts it's rating on LEH also. Dick Fuld is a big fan of red meat. These target cuts are Wall Street's way of putting some "red meat" on Lehman. Let the sharks circle!

Yesterday Lehman said it would form a new company to spin off it's real estate to it's shareholders, ostensibly because that company wouldn't have to mark the securities to market.

So "SpinCo" is just a level 3 asset pool, that Lehman has to put $7 billion of cash in, and finance the rest. And supposedly, the only real estate that they can sell, the $4 billion piece residential piece to Blackrock, should be completed in the next few weeks.

Moody's said Lehman was suffering from a "crisis of confidence." Nobody just wants to say that with their balance sheet, Lehman is broke. Look at this story in the WSJ:

On some trading desks, talking about Lehman is forbidden as hedge-fund managers and other traders fear getting subpoenas from the Securities and Exchange Commission for spreading rumors, as has happened after Bear Stearns's fire sale. "There's a chill around talking about it," said one trader, who asked not to be identified.

Crisis of confidence? Lehman suffers from a crisis of visibility. And the only thing that the street can see at Lehman is a "black hole" that just sucks out all the false sense of reality that Wall Street needs.

By prolonging Lehman's death, they just prolong the agony. Put them out to pasture, and let China, talk up a stimulus plan, and a plan for their stock market. The Shanghai composite is at
2078. China officials have already talked up 2,000 as the floor.

Let the shorts see who is real and who is bluffing.

Because we already know that answer!

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