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Monday, June 30, 2008

Bernanke's Hail Mary Pass!

Maybe the Fed should watch NFL Network tonight as they are televising the 1992 game between the Packers and the Bengals of September 20, 1992 when Brett Favre came off the bench to lead the Pack to a 23-22 victory!
http://www.greenbaypressgazette.com/ic/favre/articles/favre_24008631.shtml


So what is Bernanke's Hail Mary pass? He doesn't have one! But Trichet may give him a pass by not increasing rates Thursday for the ECB.

That's his pass!

Wachovia ends pick a pay payments

Wachovia has now gotten religion on mortgages, and now, no more negative amortization loans, and now no more fees for those stuck in them.

Wachovia, who has $70 billion of mortgages in pick a pay programs in California, assumes that home prices will fall from Q1 2008 to the end of 2009 about 5%. They also assumed that home prices had dropped 8% off their peak in California.

Last I looked, California is down 30%+ across the board. So how does Wachovia only assume the houses that they have mortgages on will only drop 15%?

Because they own the mortgages!

Now Wachovia came out with new standards today for loans in CA, FL and other areas that have been hard hit in housing. LTV of 60% and a 700+ FICO scores.

So Wachovia won't make a loan unless you put close to half down, but the loans they've already made are money good?

Don't look for Charlotte, North Carolina to be the banking capital of the South!

Morgan Stanley Upgrades Lehman after the close

Why did Morgan Stanley get religion with Lehman? Why did Merrill Lynch get religion with Lehman the last time they got in trouble, only to get agnostic a few days later?

Last I checked, it rained 40 days and 40 nights during the flood. And Lehman has 40 days from their earnings on June 16th before they have to come clean with their 10Q. Rumours coming out today were that Lehman's Fuld was going to come clean before the Fourth of July.

Then the only ones celebrating would be the shorts!

So look for more lies and obfuscation from Lehman, and more upgrades from brokerage firms, betting that the hedge funds were leaning on their shorts, and the mutual fund managers were dumping these stocks so they wouldn't be in their portfolios at the quarter end.

So Wall Street is now playing the bounce. It must be with the house's money or the implicit backstopping of the "alphabet soup" Fed.

Otherwise who would recommend a stock that you don't know what they own?

WSJ: Economy at "tipping point."

The global economy may be close to a "tipping point" that could see it enter a slowdown so severe that it transforms the current period of rising inflation into a period of falling prices, the Bank for International Settlements said Monday.

In its annual report, the central bank for central banks said the impact of rising food and energy prices on consumers' incomes, combined with heavy household debts and a pullback in bank lending, may lead to a slowdown in global growth that "could prove to be much greater and longer-lasting than would be required to keep inflation under control."

"Over time, this could potentially even lead to deflation," it said.

For central bankers from around the world gathered in Basel for the BIS annual meeting Sunday and Monday, the report made for chastening reading. Not only does it highlight the difficulty of the dilemma facing central banks confronted with slowing growth at a time when inflationary pressures are rising, it also lays much of the blame for their predicament at the feet of the central banks themselves.
http://online.wsj.com/article/SB121482012286515509.html?mod=hps_us_whats_news

Saturday, June 28, 2008

Citi never "sleeps"

And neither do it's shareholders as Citigroup is facing another $9 billion of writedowns this quarter.

Maybe Citi should get some sleep!

Merrill's Bloomberg stake

Thain from Merrill says their 20% stake in Bloomberg is worth $6 billion. Bloomberg says he'll pay $3 billion for the stake. So Thain says he'll now raise capital by selling Merrill's stake in Blackrock instead.

And then, Mother Merrill can keep their $3 billion stake in Bloomberg penciled in at $6 billion. It was only a few weeks ago, that Thain wanted to use it's stake in Bloomberg as equity capital, a suggestion that was promptly dismissed.

And even a couple days ago, Thain was saying the stake is worth $5-6 billion.
http://online.wsj.com/article/SB121453486987809815.html?mod=googlenews_wsj

So Merrill will sell their over-priced Blackrock stock instead.

Friday, June 27, 2008

New Governor approved for the Fed

The Senate confirmed banker Elizabeth Duke for a seat on the Federal Reserve on Friday, but declined to act on two other long-stalled nominees to the central bank.
http://uk.reuters.com/article/ousiv/idUKWBT00930120080627

Ms. Duke is the chief operating officer of Portsmouth, Virginia-based TowneBank, which has $2.6 billion in assets.

She majored in drama at the University of North Carolina at Chapel Hill and has an MBA from Old Dominion University.

I guess that's the qualification!

Barclays: Market to bust

US central bank accused of unleashing an inflation shock that will rock financial markets, reports Ambrose Evans-Pritchard

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility," said Mr Bond..

The Fed's stimulus is being transmitted to the 45-odd countries linked to the dollar around world. The result is surging commodity prices. Global inflation has jumped from 3.2pc to 5pc over the last year.

Mr Bond said the emerging world is now on the cusp of a serious crisis. "Inflation is out of control in Asia. Vietnam has already blown up. The policy response is to shoot the messenger, like the developed central banks in the late 1960s and 1970s," he said.

"They will have to slam on the brakes. There is going to be a deep global recession over the next three years as policy-makers try to get inflation back in the box."

He said investors had taken their eye off the slow-motion disaster engulfing the US bond insurers or "monolines". Together these firms guarantee $170bn of structured credit and $1,000bn of US municipal bonds.

The two leaders - MBIA and Ambac - have already been downgraded as the rating agencies belatedly turn stringent. The risk is further downgrades could set off a fresh wave of bank troubles. "The creditworthiness of many US financial institutions will decline in coming months," he said.

The bank warned that engineering and auto firms we're likely to face a crunch as steel and oil costs surge. "Their business models will have to be substantially altered if they are going to survive," said Mr McAdie.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/27/cnbarclays127.xml

Boobs and Botox hit by the recession

The first thing to go in the last recession was the country club membership. This time around, it's Botox, boob jobs and teeth whitening.

The cosmetic surgery industry, once one of the fastest-growing businesses in the nation, is beginning to show its own set of wrinkles as the housing crisis, coupled with high gas and food prices, drains people's bank accounts, according to analysts.

Mentor Corp., one of the biggest makers of silicon and saline breast implants, has seen its stock sag more than 35 percent in the last six months.

After reaching more than 60 percent in the second and third quarters of last year, the growth rate of silicon breast augmentation procedures has dropped to negative levels in the current quarter and may not return to positive territory for some time, according to an analysis by Cowen & Co.

"Mentor has been hurt by slowing patient demand due to economic weakness," said Cowen analyst Eli Kammerman in a recent note.

"We have a low level of confidence in an anticipated rebound in augmentation procedure demand in the [fiscal fourth quarter] with procedures rising by 4 percent year-over-year after successive year-over-year declines."

Plastic surgeons from Florida to California, two hotspots for breast enhancements and Botox treatments, said they have recently seen customer demand sink and believe the trend could continue for at least another year.
http://www.nypost.com/seven/06272008/business/a_sagging_market_117476.htm

Thursday, June 26, 2008

Harley's new Ad: Fear Sucks; Just Screw It

http://www.harley-davidson.com/wcm/content/pages/2008_campaigns/screw_it/screw_it.jsp?locale=en_US&hbx_camp_id=hdredirect&urlvar=screwit

JPM looking to buy?

At least according to the NY post:

JPMorgan Chase is itching to pull the trigger on one more big bank purchase, even after it bagged Bear Stearns in a Federal Reserve-assisted buyout a month ago.

The New York banking giant has compiled a wish list of coveted institutions, both struggling and strong, according to people familiar with the matter.

Of top interest are Washington Mutual and SunTrust, both of which have already received close looks, according to sources. The list also includes, in order of appeal, PNC Bank, Wachovia Bank and US Bancorp, sources said.

JPMorgan is among a select number of financial institutions seeking to identify potential merger candidates. Others mulling tie-ups are Wells Fargo, PNC Bank and US Bancorp.

http://www.nypost.com/seven/06262008/business/call_it_jpmore_gan_117244.htm

Tuesday, June 24, 2008

BofA's internal review of the housing bill

It's right here. Click on it, and then print it out before you lay out your next short on the financials.
http://www2.nationalreview.com/dest/2008/06/20/bofa.pdf

You'll see why the Tampa Tribune had this to say about it:

WASHINGTON (Map, News) - "We call it the 'Bank of America bill on steroids.'" A House staffer told me that, demanding anonymity, but speaking on behalf of aides to GOP members of the House Financial Services Committee.

He was talking about the bill whose Senate version has been brought to the floor this week by Sen. Chris Dodd, D-CN, and Sen. Richard Shelby, R-AL. Dodd-Shelby would let mortgage lenders off the hook for bad loans, shifting the burden ultimately to taxpayers. Dodd has received approximately $70,000 in campaign contributions from Bank of America in the last year-and-a-half.

Dodd-Shelby hit the Senate floor this week amid controversy over sweetheart loan deals Dodd and other powerful politicians received from Countrywide Financial, the lender with the most exposure to subprime mortgages at risk of default.

Some journalists and Republican lawmakers are asking if Countrywide bought a bailout bill with its VIP loans to Dodd, who is chairman of the Senate Banking Committee. But when asking cui bono? about Dodd's bill, we need to look to Bank of America.

Bank of America agreed in January to buy Countrywide, and the deal is near completion. House and Senate staffers opposing the measure say Bank of America operatives wrote that chamber's version of the bailout.

One Senate staffer was told by a lobbyist, "the bailout section is exactly what Bank of America and Countrywide wanted." The Senate staffer added "its obvious they got what they asked for."

Countrywide Financial is the poster-child of the subprime mortgage crisis. The lender's immense exposure to potential defaults is why the company's stock fell from $45 in early 2007 to just above $5 a year later.

That's also why Bank of America was able to buy Countrywide for around $7 per share. Countrywide's exposure to default is why Bank of America would benefit so acutely from a subprime mortgage bailout like Dodd-Shelby.

http://www.examiner.com/a-1449448~Bank_of_America_PAC_money_behind_Dodd_s_Countrywide_loan.html

Some pundits like Cramer were gesticulating last week that CFC would take BAC down. BofA's PAC contributions seemed to have paid off in spades.

And the systemic risk on Wall Street and banking, gets passed off to the taxpayer!

Buy the banks as the hedge funds unwind

As I see it, the most bang for your buck in the financials is with Wachovia Bank (WB 17.86), and SunTrust (STI 37.40). The best large cap plays are Wells Fargo (WFC 25.20) and Bank of America (BAC 26.62). STI, and WB are below tangible book, and BAC is a couple bucks above it, assuming the $11 billion of goodwill in their purchase of LaSalle bank stands, and then discarding the entire $66 billion of their previous goodwill down the drain. At these prices, you gotta buy these banks, not sell them. The're already trying to discount the hereafter, and the stocks aren't even dead yet!

And if you want to play ETF's, here's a high octane pairs trade for you: Buy the Ultra Financials (UYG 22.90) and short the Ultra-short Financial (SKF at 137.65). That will give you a 4 to 1 upside leveraged bet!

And then think like a hedge fund. Redemptions are hitting for the June quarter. The big trade that worked was to be short the financials, and to be long ag. With the reversals in BG, AGU and MOS the last couple of days, and the pullback in POT and IPI, it looks like some are starting to unwind these bets. Monsanto (MON 135.79) was down 6 today, and it reports numbers tomorrow. If you see a sell on the news, it's an extra green light for the financials. That could be a key tell for the acceleration of this unwind.

Everyone already thinks Bernanke is out of bullets. Today on "bubblevision" they were asking if "the Fed was even relevant!"

I'm leaving that argument alone, but it just means that market players have already picked their sides.

So it's time for Mr. Market to pick their pockets.

So they'll move the money and they'll move it quick!

Bernanke & Co. on tap

Remember what gentle Ben said a couple weeks ago?

Despite the unwelcome rise in the unemployment rate that was reported last week, the recent incoming data, taken as a whole, have affected the outlook for economic activity and employment only modestly. Indeed, although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.
http://www.federalreserve.gov/newsevents/speech/bernanke20080609a.htm

"Appears to have diminished" will soon be in Bernanke's lexicon along with "sub-prime seems to be contained."

Friday, June 20, 2008

Paulson to Banks: Raise more Capital!

Secretary Paulson's latest speech:

For some time I have encouraged financial institutions to raise capital. Even in this difficult environment, U.S. financial institutions have begun the process by raising billions of dollars in new capital. I expect this process to continue and broaden, which is essential to the ability of these institutions to continue to support the broader economy...
http://www.ustreas.gov/press/releases/hp1040.htm

Now that the 52 week low list is decorated with Investment banks, regional banks, and the money center banks, I suppose someone would ask the question: Why are banks raising capital, at these prices, at such dilution to shareholders instead of when the prices of the stocks were much higher? Well the answer is simple.

1) They now have too raise capital.
2) The banks were too busy buying back stock at the highs!

Let's go from the largest to the least:

Six weeks ago, Citibank raised $4.5 billion selling 178 million shares at 25.27. Now yesterday, they saw something in the tea leaves that was different from the end of April. More and larger writedowns. Lehman just raised capital a couple weeks ago. How long before they see more problems? Well you now have their script!

But let's look at how Citigroup spent their money buying back stock:

In Q1 of 2006, they bought back 52 million shares at 46;
in Q2 they bought back 44 million shares at 49;
in Q3 they bought back 42 million shares at 49;
in Q4 they bought back 32 million shares at 52;
and in Q1 2007 they bought back 20 million shares at 54.

So Citigroup spent $10 billion buying back 200 million shares at 50. A year later, they sell 178 million shares at 25.27. Nice trade!

Fifth Third Bancorp (FITB 10.31) just did a billion dollar convertible raise. So they are effectively selling 86 million shares with a 8.5% coupon at a price of 11.75. Did FITB do any buybacks in 2007? They sure did. During 2007, FITB purchased 27 million shares of their stock in the open market for $1.1 billion. So last year they bought back a billion plus worth of shares above 40; this year, they sell a billion worth of shares at 11. Nice trade!

If I go further down the totem pole, we see that Bank United (BKUNA 1.68) is raising $400 million in a stock sale, when their market cap of the stock is $60 million. So they'll sell 240 million shares at 600% dilution to current shareholders, another stock raise before it goes to zero. Did BKUNA do a stock buyback in 2007? They sure did! They bought back $44 million worth of shares at 20. Now they raise money selling stock under 2! Nice trade!

Now banks are raising capital because they have too, and because they've already blown thru their capital buying stock at much higher prices. And only in America, do we now have a Secretary of the Treasury, giving a speech where he now wants greater powers for the Federal Reserve, who now suggests that the banks raise more capital!

Wednesday, June 18, 2008

Evergreen Solar: $600 million order

The big houses hate this stock, but they've hated Canadian Solar also, and that number has tacked on 12 points in three days. At the end of May, both Citigroup and Merrill Lynch had downgraded ESLR stock to sell, even after getting contracts for a billion dollars.
http://aaronandmoses.blogspot.com/2008/05/eslr-battlefied.html

After the close, ESLR announced two new contracts valued at $600 million, and the stock traded up a dollar and a half in after hour trading.
http://biz.yahoo.com/bw/080618/20080618006311.html?.v=1

With 24 million shares short, $135 oil, and stock players hungry for another solar play, it looks like the shorts may face a squeeze. And judging by the action in CSIQ, it probably will be vicious.

And the prop desks at Citi and Merrill will lose a few million more for their firms, when they try and bring in their shorts.

So what else is new!

Lehman sells $5B of assets to hedge fund it invested in!

WTF? The story on Bloomberg:

Lehman's Rieder Took $5 Billion of Assets With Him to New Fund

By Yalman Onaran

June 18 (Bloomberg) -- Lehman Brothers Holdings Inc. invested in former trader Rick Rieder's new hedge fund and sold it about $5 billion of assets, positioning the investment bank to profit from the stakes while shrinking its own balance sheet.

Lehman, the fourth-biggest U.S. securities firm, is a minority investor in the fund, R3 Capital Partners, said Rieder who declined to say how much capital he has raised from his former employer or outside investors. Lehman spokeswoman Kerrie Cohen declined to comment.

``These are assets we feel very comfortable with,'' Rieder, 46, said in an interview today. ``They have terrific potential for great returns. Just like other shareholders, Lehman will benefit from the returns we'll make going forward.''

Rieder, a 21-year Lehman veteran, most recently ran Global Principal Strategies, investing in credit arbitrage, aviation finance and private equity, and left the firm last month to start R3. Lehman sold $147 billion of assets in the three months ending May as it hunkered down to weather the credit crisis.

Rieder said 75 percent of the assets his fund bought were corporate bonds and loans. There are also some distressed debt and aviation assets in the mix, two other areas he focused on while at Lehman. While it was easier to start with the assets he had managed as a trader at Lehman, he plans to expand along the same asset classes, Rieder said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0gOSkI9SNE0&refer=home

Here was the story and the rumors.
http://aaronandmoses.blogspot.com/2008/06/lehmans-latest.html

It looks like it was true! Are you kidding me? This is a just a way for Lehman to have an off-balance sheet SIV.

What a crock of manure!

A Trifecta of Handwringing

Royal Bank of Scotland warns the world that the S&P can have a 10 handle by September. Morgan Stanley warns us that the ECB and the Fed are on a collision course, and that the consequences are dire. And Bloomberg reports that John Paulson says that we are headed for $1.3 trillion of writedowns:

Paulson & Co. Head Says Credit Writedowns May Hit $1.3 Trillion

By Poppy Trowbridge and Tom Cahill

June 18 (Bloomberg) -- John Paulson, founder of hedge fund Paulson & Co., said global writedowns and losses from the credit crisis may reach $1.3 trillion, exceeding the International Monetary Fund's $945 billion estimate.

``We're only about a third of the way through the writedowns,'' Paulson said, speaking at a hedge fund conference in Monaco today. ``There are a lot of problems out there and it will continue to be felt through the year. We don't see any signs of stabilizing.''

Paulson, 52, whose company Paulson & Co. manages about $33 billion, returned 12 percent in his Advantage Plus Fund through May, according to investors. Last year, Paulson's Credit Opportunities Fund climbed almost sixfold. He has been betting on an increase in corporate defaults and a slowdown in the U.S. economy as home prices and consumer-spending to decline.

http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=ABK:US&sid=aqnHlADd0vUU

And now we have more rumours on Lehman batting clean-up!

Tuesday, June 17, 2008

Lehman's latest...

Here was the latest Lehman spin. It starts with an old Bloomberg lead:

March 20 (Bloomberg) -- David Sherr, a former Lehman Brothers Holdings Inc. executive, is opening a New York-based hedge fund to trade today's most toxic investments: mortgage bonds and asset-backed securities.

Sherr, a 21-year Lehman veteran who most recently ran the firm's securitization group, is starting One William Street Capital Management LP after Peloton Partners LLP and Sailfish Capital Partners LLC collapsed because of losses in the credit markets. With the Standard & Poor's 500 Index down 11.6 percent in 2008, Treasury yields at five-year lows and Wall Street firms cutting more than 15,000 jobs, it's a good time for managers with a clean slate to raise money, according to industry executives...

Sherr, 44, expects to start by June with more than $1 billion, including backing from his former employer, said people with knowledge of his plans, who declined to be identified because fundraising hasn't been completed.

http://www.bloomberg.com/apps/news?pid=20601087&sid=au.befYjYaHk&refer=home

And here:

R3 Capital Partners, header by Rick Rieder of Lehman Brothers, will invest in fixed income securities.
http://hedgefundblog.jobsearchdigest.com/117/this-week-in-hedge-funds-4/

He's Vice Chairman of the Treasury Borrowing Advisory Committee Members.
http://www.ustreas.gov/offices/domestic-finance/debt-management/adv-com/members/

If we look over at DTC, we see that on May 8, R3 was up and running, with Lehman.
http://www.dtcc.com/downloads/legal/imp_notices/2008/dtc/com/3433-08.pdf

Supposedly the rumour today was that Lehman was offloading assets here. Only problem with the rumour is, the funds aren't big enough, and who would want to burn their reputation on a new fund with Lehman's dreck? It probably got some legs, when Goldman announced that they hadn't reduced any of their Alt-A mortgages in Level 3. If Goldman couldn't unload any; how was Lehman able too? So the above whispers spread. So look for financials, to bounce tomorrow, with Morgan Stanley putting some lipstick on their quarter in the pre-market.

Disregarding rumors, we know that Goldman Sachs announced they pared down their Level 3 assets by over $20 billion. Lehman, which had such "visibility in their "marks" because of all the transactions they did" still is left with almost $40 billion in Level 3 assets. Which begs the question: If you had such visibility on the marks, why didn't the Level 3 assets go down?

Here's what Fuld had to say:

"We had the benefit of much greater price visibility due to the number of assets that were sold especially in the commercial and residential mortgage area that were the result of our deleveraging and the strong trading volumes in the cash, and then certain derivative markets that gave us important additional valuation information."

You start with $40 billion in level 3, and you sell $3 billion, that get's you to $37 billion. You write down the $37 billion by $2 billion, and now you have $35 billion. Now transfer in another $3.5 billion of Level 2 assets, of which you don't like their pricing into Level 3, and you have Lehman's quarter.

I guess visibility is only measured when it's convenient. And Goldman's visibility in the market's direction is apparently a lot better then Lehman's. But don't shine the light on Lehman's balance sheet just yet!

Wait until the next capital raise!

Oil analysts: Move the markets with your calls

Now that the hedge funds are hiring out Wall Street oil analysts at double their previous pay scale, we see more and more wild calls on oil prices on Wall Street. The best way to get a job with a hedge fund, is to be able to move markets with your calls.

Looks to me that some of these oil analysts are putting feelers out to the hedge funds for a job with their wild calls. Here's the Bloomberg article:

Morgan Stanley, Citi Lose Oil Analysts as Hedge Funds Hire

June 17 (Bloomberg) -- Wall Street is losing its top oil analysts as securities firms suffer record losses and hedge funds offer the promise of higher pay.

Morgan Stanley's Douglas Terreson and Citigroup Inc.'s Doug Leggate, ranked first and second by Institutional Investor on coverage of the biggest oil companies, left their positions, the banks said. Geoff Kieburtz, the No. 3 analyst for oilfield contractors, is leaving Citigroup. Robert Morris, the top-ranked analyst for independent oil companies such as Anadarko Petroleum Corp., left Bank of America earlier this year.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aFruso3mxvjU&refer=home

Monday, June 16, 2008

Fed to market: Rate hikes-not yet

"Financial markets are in danger of getting carried away with their expectations for Federal Reserve interest rate increases, some senior Fed officials believe.

They do not dispute that the next move in US interest rates is very likely to be up. But they feel the market may be pricing in too much tightening too soon.

Since March there has been a sharp rise in bond yields and expected interest rates, which gathered pace in recent days amid tough talk on inflation by Ben Bernanke, chairman.

Just over a week ago, markets expected just one rate hike of a quarter percentage point before the end of the year. Now they expect three and possibly four.

The more dovish senior officials are not altogether unhappy about the move up in expected interest rates. They think that some increase is appropriate, given the decline in the “tail risk” of a severe recession and stronger-than-anticipated consumer spending.

They hope that the market-driven tightening will help contain inflation expectations, under pressure from record oil prices. But they feel that the swing in market rate expectations may now have gone too far.

There is a difference between the Fed signalling that it will respond aggressively if challenged by rising inflation expectations, and signalling that it intends to tighten policy quite quickly and aggressively even if expectations do not rise further. Fed officials are agreed on the first proposition; they are not agreed on the second.

Some senior policymakers think it is still too soon to be sure that the risks to inflation now exceed the risks to growth.

These officials have not tried to challenge market expectations largely because they think incoming information will clarify whether the Fed should start moving rates up quite quickly."
http://www.ft.com/cms/s/0/76b44f8a-3be5-11dd-9cb2-0000779fd2ac.html

Bank bottom-fishers

"Investors who backed US financial companies’ drive to raise much-needed capital are sitting on nearly $10bn in paper losses amid a continued slump in the sector’s shares, a Financial Times analysis shows...

Investors who bought the $65bn-plus in common and convertible shares issued by large US financial institutions since last October have seen their total investments fall by more than $9.7bn – a negative return of about 15 per cent – according to an FT analysis of Dealogic data.

Those who took part in the $1.2bn recapitalisation of the bond insurer Ambac last March are nursing paper losses of more than 70 per cent. And fund managers who backed a $1.2bn capital raising by fellow monoline insurer MBIA have seen their investment shrink by 60 per cent.

Shareholders in Citigroup who thought that the sharp fall in the stock made last month’s $4bn share issuance a buying opportunity face a 24 per cent loss.

Of the 20-plus fund raisings by US banks and insurers since the onset of the crisis, only two – by the student loan provider Sallie Mae and the regional lender Sovereign Bancorp – show a small positive return."
http://www.ft.com/cms/s/0/95d4d66e-3b04-11dd-b1a1-0000779fd2ac.html

What about Level 3?

The banks are supposed to be especially good at valuing all the lumps of loans and assets they own. That is why many a Wall Street bonus is based on estimates of hard-to-value dealings in arcane assets. The very mortgage bonds that are now being written down, in fact, led to hefty bonuses for bank employees before the good times ended.
http://www.nytimes.com/2008/06/16/business/16earnings.html?ref=business

Sunday, June 15, 2008

AIG: Sullivan to resign

The board of American International Group Inc. is meeting today to accept the possible resignation of Chief Executive Martin Sullivan, according to a person familiar with the matter.
A resignation isn't a done deal but is considered highly likely, this person said.
http://online.wsj.com/article/SB121354350917275447.html?mod=hps_us_whats_news

He can golf with Chuck Prince, former CEO of Citigroup, Stan O'Neal, former CEO of Merrill Lynch, and Dick Fuld, soon to be former CEO of Lehman Brothers.

Unless you believe that Blackstone is going to buy Lehman! Oh that's right Blackstone, the party that paid $36 billion to buy Equity Office properties from Sam Zell.

The lesson Lehman should of learned from Sam Zell is that you sell when you can, not when you have to.

And the only buyers are those who need a backstop from the Fed.

Saturday, June 14, 2008

Lehman's weekend

Bear Stearns had this to say in their 10Q regarding the JPM merger.

"Human error in times of extreme difficulty and turmoil, such as the Company recently experienced and continues to experience, can occur. Moreover, control and process breakdowns may be more frequent when a company is operating under duress and its employees become distracted by crisis management and the uncertainty surrounding the viability of the enterprise. These events and potential impacts may have had and may have an adverse impact on the efficacy of our disclosure controls and procedures and our internal controls over financial reporting."
http://www.sec.gov/Archives/edgar/data/777001/000091412108000345/be12550652-10q.txt

Bear moved $7 billion of mortgages into level 3, and $700 million of swaps, and had $37 billion in Level 3 assets, and the Feds had to take them over.

Today, CNBC reported that Lehman was reportedly in talks to sell themselves:

The weekend meetings are unusual, say people close to the firm. The executives summoned to headquarters include everyone from Stephen Lessing, the head of Lehman private client group to Scott Freidheim, the firm's co-chief administrative officer. It is unclear if the meetings are related to a possible deal, or just preparation for the Monday's official earnings announcement, possibly the most important earnings release for Lehman in recent years.

A spokeswoman for Lehman had no comment. Contacted at his office on Saturday morning, Freidheim had no comment as well.

Wall Street executives say Lehman's current problems have taken a tremendous toll on CEO Fuld, known as the "gorilla" on Wall Street because of his tough management style that has saved Lehman from crisis in the past.

Fuld has resisted selling Lehman to bigger players in the past, and in doing, has built one of the most successful securities firm, which before the recent crisis was a darling of Wall Street.

However, many Wall Street executive believe the current fiscal crisis hitting Lehman is different that past troubles because of the size of the bad loans on the firm's balance sheet, and because Wall Street firms will likely face eroding profit margins for at least the next year.

Like most firms on Wall Street, Lehman has been cutting back on how much risk it will taking in trading and other businesses, in an attempt to prevent the firm from imploding as Bear Stearns did three months ago. While taking less risk may soothe investors concerns that the firm may lose even more money, it also means that Lehman will produce lower profits in the future.

The lower profit margins combined with the possibility of further writedowns of losses could force Fuld to sell the firm. At the very least, people close to Lehman expect Fuld to make some announcement about Lehman's future on Monday when it releases earnings.

http://www.cnbc.com/id/25161379

Everyone tells us that Lehman is not Bear. CFO Callan (who didn't put on any of these trades!) and COO Gregory were canned Thursday. I guess Erin won't have to get back to the analysts Monday, as she had promised when Lehman gave their preliminary numbers this week. I guess a takeover/under doesn't qualify as a strategic partner. Erin on the call:

But it will be consistent with our objectives and certainly balance sheet is not something we need at this point from a strategic partner.

On the leveraged finance Erin said this:

Apologies, we really wanted to give the specific number but as I’ve given the approximation of the balance sheet numbers at this point, we actually pulled back on that and we will definitely give those numbers next Monday.

Commercial real estate mezzanine:

I didn’t comment but just as a guide and again, I’ll get into this in more detail next week, roughly 80% is senior and 20% is mezz.

The percentage markdown in residential mortgages:

I don’t have the original total in front of me, so I can come back to you on that, what that specifically translates in to.

How much was Alt-A reduced?

Yes, I will give that next week Mike. I don’t have the breakout yet on the balance sheet between Alt-A and some of the other asset classes within resis. So, we will give that in full next Monday.

If Lehman's sale prices were lower than the marks UBS took:

Well, we never tell you specific marks nor do we tell you marks across asset classes but I can certainly give you a sense of whether there has been deterioration in prices from that point in time.

With $40 plus billion in Level 3 assets, at least a merger agreement will put these questions on the back burner!

Spreckin ze Deutsche?

Thursday, June 12, 2008

Bought Lehman's Capital Raise? Walk away!

It's a business decision. Just like homeowners walking away from their house that they are underwater. Now we'll find out if a Material Adverse Clause applies when you are raising capital for an Investment Bank.

In buyouts, the private equity shops cited MAC's if they blew their nose out of the wrong nostril.

When the CFO and COO are forced out, that's material.

What will happen here to the buyers of Lehman's paper? We'll soon see.

I'll bet the MAC turns on Lehman's stock price!

But traders should cover their Lehman shorts.

Morgan Stanley: Buy Financials, Sell Energy

Last week, Morgan Stanley said oil was going to $150 by the 4th of July. Now their macro call is to sell energy, and to buy the financials.

The catalyst? Everyone is looking at the details of the financials balance sheet and not their earnings. But the balance sheet data won't be released until weeks after the earnings are reported next week.

Without this hard information, you can now rally the financials into their earnings, as the people short won't be able to pick out what's real and what is bogus.

They'll have to just trust management.

Here's today's WSJ "Heard on the Street Column."

Ever since the credit crisis began, investors have been hungering for as much detailed financial information as they can get about the strength of Wall Street's biggest investment banks.

That especially will be the case next week when Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. release earnings for the fiscal second quarters ended in May. Lehman already has announced that it expects to post a $2.8 billion loss, and investment-bank shares, along with other financial stocks, have taken a pounding in recent days.

But investors won't really get the data they need next week. That is because the earnings releases from investment houses don't include balance sheets, which now trump income statements in terms of importance for investors in financial stocks. That information won't be available for several more weeks.

Since investors have lost confidence in markets generally and in financial stocks specifically, this should change. For a start, the firms need to provide fuller information about their finances, namely a full balance sheet, even if it causes them to take a bit longer in getting information out to investors.

"I don't see how you're doing the markets right by delivering iffy information sooner rather than by requiring better information all at the same time," says Jack Ciesielski, editor of the Analyst's Accounting Observer newsletter.

Indeed, a recent report from a committee advising the Securities and Exchange Commission on financial-reporting issues called for corporate and investor groups to consider "recommending that companies include in their earnings releases the income-statement, balance-sheet and cash-flow tables."

As things stand now, investors get only the financial red meat they seek when the banks file their actual quarterly results with the SEC -- weeks after the earnings releases.
As long as banks file these results within 40 days of the quarter's close, they are abiding by SEC rules.

By that time, though, analysts' one chance to publicly question executives on the quarterly conference call has passed and markets have moved on to forecasting the next quarter.

The firms say that a balance sheet takes more time to nail down than an income statement. While there is some truth to that, these are also firms that claim to have the world's best technology and risk-management systems.

In light of that, it is tough to see how the firms can claim to be able to know exactly how much of their capital they put at risk on a daily basis, yet can't come up with a balance sheet for weeks.

As things stand, the firms create an information gap for investors. This has already become a point of contention at Lehman, where questions have arisen over a $1.1 billion difference between values the firm ascribed to hard-to-price assets in its call connected to its first-quarter earnings release and actual quarterly SEC filing.

During an investor call Monday, Lehman's chief financial officer, Erin Callan, noted that values for such hard-to-value assets can change between the close of a quarter and the time the firm files its results with the SEC. That may be true. But such swings still undermine investor confidence.

In hard times, investors need hard information. If they don't get it, investors will rightly continue to look skeptically at the firms' finances
, and share prices.
http://online.wsj.com/article/SB121324001289467201.html

Wednesday, June 11, 2008

Einhorn on Lehman

http://www.tilsonfunds.com/Einhorn-4-08.pdf

The asset selling scramble lesson


Time to test the "Bernanke" put

Remember last March when Lehman tumbled down to 20 before reversing up to the mid 40's? What stemmed the selling was the SEC investigating rumours about Lehman's health.
http://aaronandmoses.blogspot.com/2008/03/feds-next-bullet-investigate-rumours.html

Then you had Citigroup upgrade the shares:

After being on the sidelines for a couple of years, we see the current valuation as an extremely attractive entry point into Lehman shares. Furthermore, the recent profitable quarter in a tough environment, the coordinated actions taken by the Fed & Treasury to provide meaningful liquidity, and Lehman’s management team’s excellent track record of creating value and managing risk all serve as excellent downside protection.
http://aaronandmoses.blogspot.com/2008/03/citigroup-upgrades-lehman.html

And then you had the Fed investigating the Lehman rumors.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/18/cnlehman118.xml

Back then, Lehman's VIE (Variable Interest Entities) of which they had $7 billion in, were thought to be worth .27 cents on the dollar, for an off-balance sheet item.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aFTh5VXP9m0U&refer=news

We know that $1.44 billion of this was a Level 2 asset, with a discount rate exceeding 18%.

Now Citigroup's VIE have blown up everywhere:

Citigroup Inc. created a $2.5 billion mortgage-backed security called Bonifacius Ltd. in August as capital markets seized up and panic swept Wall Street.

The issue took the name of a general, called by historian Edward Gibbon the ``last of the Romans,'' who fought and died for a fading empire. The bonds were created from subprime home loans as demand evaporated. Within six months, Bonifacius collapsed as homeowners fell behind on their payments in record numbers...

Variable interest entities, or VIEs, are a post-Enron version of special-purpose vehicles, the term for the investments Citigroup created that led to the demise of the energy-trading company. The lack of disclosure about VIEs is adding to concern among investors after financial institutions reported $382.6 billion of writedowns and losses from subprime-contaminated debt since the start of 2007...

The securities behind Bonifacius consist of 288 prime and subprime mortgage bonds, other CDOs and Alt/A debt, which is based on mortgages that straddle prime and subprime.

Bonifacius, which means ``good fate'' in Latin, is divided into nine pieces. The largest, which was originally rated AAA, has since been cut to Baa3 at Moody's and to BBB- by S&P, the lowest levels of investment grade.

Banks are betting that markets will improve enough to allow the securities to be sold at a higher price, according to Stanley Sporkin, a former federal judge who helped write the federal 1977 Foreign Corrupt Practices Act when he was the head of the enforcement division at the SEC.

http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=a42143EyVai8

From John Thain's comments (see post below) we know pricing in CDO land is terrible, decreasing even more with the monoline downgrades.

So Citigroup, which set up Enron's Special Purpose Entities (SPE's) to fool investors, has billions that we don't know what they are worth, parked in these vehicles, of which Lehman has at least $7 billion. And next week, we'll find out a little bit more about it.

Remember how Citigroup's upgrade helped save Lehman last time? Today Merrill Lynch reversed course on it's Lehman upgrade last week. Who will upgrade Lehman now?
http://blogs.wsj.com/marketbeat/2008/06/11/four-at-four-merrills-double-reverse/

Today, we had some sloppy prices in sales of commercial real estate in Manhattan. That would make you ask the question-What is Lehman's piece in Archstone-Smith worth now?

Bear Stearns had septuagenarian billionaire Joe Lewis vouching for Bear, and buying another million shares a couple days before Bear hit the hands of the Fed.

This week, we had ex Pru-Bache head, sexagenarian George Ball, who's been involved in a twist or two, telling us that Dick Fuld was probably being extremely conservative with Lehman's marks. This was Monday morning on CNBC in the pre-market when the stock was in the 30's. At the close, Monday, someone bought 8.8 million shares at 29.48 to prop up the stock from the mid 28 level to help make the 28 price on the stock offering look good. And after Monday's close, we had another billionaire, octogenarian Hank Greenberg, ex head of AIG, touting CV Star's investment in Lehman at 28.

Two days later it's at 23.70.

Maybe the market really wants to see how strong the Bernanke "put" really is.

Will quinquagenarian Bernake of the Federal Reserve, answer that call?

Merrill and Bloomberg

Merrill said they would consider selling Bloomberg, since the regulators wouldn't consider it's Bloomberg stake as capital.

Merrill has made good progress in whittling down through sales or writedowns two of the three principal pools of assets - loans for leveraged buyouts and commercial real estate - that have hobbled its operations since the start of the credit crisis last summer, Thain said. However, its aggressive writedowns of billions of dollars of subprime-mortgage-stuffed collateralized debt obligations still troubles it.

"That market has continued to deteriorate," Thain said, noting that no buyers want to buy the securities even at deep discounts. He also cited further problems with troubled monoline insurers - firms such as MBIA that wrote insurance against some of its debt positions - in spite of having set aside almost $5 billion of reserves in the first quarter on concern that it wouldn't collect on the positions.
http://custom.marketwatch.com/custom/tdameritrade-com/html-story.asp?guid={38b3abdb-b1ac-4ab9-82b5-14ca14c2061e}

Now Lehman's Erin Callan told investors that she knew what prices their assets were worth because of their price discovery mechanism of selling various pieces to various customers.

Looks like we have various opinions from various brokerage firms.

Maybe that's why Merrill analyst Guy Mozkowski lowered his rating on Lehman today.

Wouldn't be the first time that a blonde lied to a room full of guys!

Merrill Analyst on Lehman----Whoops!

June 11 (Bloomberg) -- Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, dropped for the fourth consecutive day as a Merrill Lynch & Co. analyst cut his rating to ``neutral'' from ``buy.''

The ``scale of the second-quarter loss and capital-raise indicate lower return on equity potential and lower confidence, especially given Lehman's remaining exposure,'' Merrill analyst Guy Moszkowski wrote in a note today. He reduced his price target to $28 a share from $36.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a8i6vhYkblfo&refer=home

Last week his opinion was different. Merrill Lynch analyst Guz Mozkowski said last week "Lehman shares have meaningfully undershot fair value in the last few days on speculation and concerns that are not justified...''
http://aaronandmoses.blogspot.com/2008/06/lehman-to-raise-6-billion.html

Now that the stock has dropped 25%, apparently the concerns are now justified.

The monolines next shoe drops

Merrill Lynch won a $3.1 billion dollar judgement against XL Capital:

US District Court judge ruled on Tuesday that Security Capital Assurance Ltd’s XL Capital Assurance unit will have to stand by $3.1bn of guarantees on collateralized debt obligations, in dispute with Merrill Lynch.

Judge Jed Rakoff in a summary judgment ruled that Merrill Lynch International had not repudiated its obligations under seven credit default swaps it entered with XCLA, and that XLCA’s attempt to terminate those swaps was invalid.

http://www.ft.com/cms/s/0/545f056e-37a4-11dd-aabb-0000779fd2ac.html

Anyone want to bet that Merrill Lynch will put XL Capital debt into Level 3? The banks have further exposure to these monolines; here it's estimated to be $10 billion.

Meredith Whitney, analyst at Oppenheimer, said in a report this week that UBS had the largest exposure to monolines of $6.3bn, Citigroup came second with $4.8bn and Merrill Lynch followed with $3bn.
http://www.ft.com/cms/s/0/8051c0c4-3715-11dd-bc1c-0000779fd2ac,dwp_uuid=b6abe56e-d0c2-11dc-953a-0000779fd2ac.html

Meredith is speaking today. Watch for more bearish news:
http://www.fis.dowjones.com/products/wsjdealsanddealmakers/program.html

Here's the problem. Everyone knows these CDO's are junk. So the firms mark down the CDO's, but they mark up their hedge against them because of the AAA rating of the monolines.

But that's just Wall Street's scam. If the rating was worth anything, why are the CDO's trading as if they don't have a rating? So mark up your hedge to offset the loss.

As Merrill, found out, these guarantees from companies with hat size stocks prices aren't worth much.

Now we saw headlines that the banks overseas were going to have to take tens of billions of more write downs.

And just coincidentally, these banks across the pond were big buyers of this insured paper.

Tuesday, June 10, 2008

Lehman's Level III stories...

Erin Callan, CFO during the conference call:

For Level 3 assets, just to make a comment, I can’t give you any specific amounts at this time as it is too early in the closing process of our books. While the valuation of all our assets is complete, our positions must now be evaluated, and that includes thousands of positions, to determine the level of price transparency and observability on May 30, in order to appropriately classify them for our 10-Q disclosure.

William Tanona – Goldman Sachs

And then obviously you’ve commented briefly on the Level 3 assets, but given the commentary that you had provided and the level of liquidations that you have done and the number of sales that were done is it safe to assume that your Level 3 assets are going to be down materially here in the quarter?

Erin Callan

Bill, that’s not safe to assume. Certainly there has been a significant portion that went out the door in the sales out of Level 3, but there is a number of other asset class reclassifications that I am expecting can happen this quarter.

So Lehman raises $12 billion this year, and takes losses of $4 billion for the quarter, yet their Level III assets don't go down?

Lehman had $40 billion of Level III assets last quarter, of which $10 billion was transferred in May 31 of last year before the proverbial fan was hit. What are those assets worth now, if they couldn't even value them when things were so materially better?

Lehman had $62 billion of assets in Level 1, $200 billion in Level 2, and $42 billion in Level 3, at the end of their last quarter. Lehman says they sold net $60 billion of assets, and if they took a $3 billion haircut on their sales, then their Level 2 assets are actually worth $20 billion less than they say. What are their Level 3 assets then worth?

Here's the math. If I want to raise $60 billion, Lehman can sell $30 billion of Level 1 assets with no haircut, and then $33 billion of level 2, of which they get $30 billion for. There is your $3 billion loss. Thus they took a 10% haircut on their level 2 assets.

Lehman will confuse you by saying mark-to-market losses, dynamic hedging, and visibility, but Lehman doesn't have any visibility on their assets; only that Erin Callan thinks that the assets are worth more than what the market says:

...reducing our gross assets by approximately $130 billion and our net assets by approximately $60 billion with a large part of the reduction, as I will talk about in detail, coming from less liquid asset categories and also providing significant price visibility for marking the remainder of our inventory....

This quarter we sold over $7 billion of commercial mortgage positions across different parts of the capital structure to over 170 different client accounts and primarily in the form of whole loans...
http://seekingalpha.com/article/80813-lehman-brothers-business-update-call-transcript?source=feed&page=1

So haircut the $170 billion of Level 2 assets by 10%, and the $42 billion of Level 3 assets by 20%, and Lehman common ends with no equity value.

Which answers the question why they didn't come clean with Wall Street in the beginning. They couldn't.

The final questioner of Erin Callan during the conference call was Doug Sipkin of Wachovia:

Douglas Sipkin – Wachovia

I know back when you did the first offering, you had indicated that you could have raised double, triple what you did. So I am just a little curious, why you didn’t take advantage of that at a better price? Especially, knowing that you were embarking on an initiative to shrink the balance sheet and likely would be absorbing some losses along the way?

He must not of liked Erin's answers. This morning, he downgraded LEH citing the larger capital raise, poorly marked assets, and lack of confidence.
www.theflyonthewall.com

Lehman's Fuld dumps stock at the highs

Lehmna's Dick Fuld, who is raising $6 billion today at $28, sold stock at much higher prices. In November, he sold almost $13 million of stock at $63, and in June of last year, before the financial crisis hit Lehman, he sold 800,000 shares at $77 netting over $60 million.
http://biz.yahoo.com/t/76/6046.html

To bad he didn't do the same for his company.

Yesterday, their CFO Erin Callan, did the conference call for the institutions regarding Lehman's capital raise.

She owns all of 4,352 shares.

Monday, June 9, 2008

Cramer: Why be a banking pinata?

Here's the new rule of thumb I am using: If an institution needs capital, sell it. Let the dumb institutional and mutual fund chumps do the buying. I can't find a single one of these infusion situations that doesn't need more infusions. Why be a banking piƱata?

Beats the heck out of me.

http://www.thestreet.com/p/rmoney/jimcramerblog/10420356.html

Lehman to raise $6 billion

Lehman is now raising the capital, that they said they didn't need, for the losses they said they didn't have.

Merrill Lynch analyst Guz Mozkowski said last week "Lehman shares have meaningfully undershot fair value in the last few days on speculation and concerns that are not justified,'' and Deutsche Bank upgraded Lehman.

Now you know who some of their counterparties are!

Lehman's "Cherry" orchard

http://www.lehmansorchard.com/cherryupick.html

Lehman loses billions

They say they lost a "net" of $2.8 billion, and that shortseller, David Einhorn was cherry picking:

"Mr. Einhorn cherry-picks certain specific items from our quarterly filing and takes them out of context … which suits him because of his short position in our stock."
http://www.fool.com/investing/dividends-income/2008/05/27/lehman-cant-shake-the-shorts.aspx

According to Einhorn, the cherries are now watermelons.

Sunday, June 8, 2008

More CDO problems for AIG?

After writing off $20 billion on their swaps, it now looks like some of the CDO's that AIG aren't quite what they thought. In the WSJ:

"Next on Crunch's Hit Parade: Corporate Synthetic CDOs?

Banks and insurance companies, such as American International Group and French insurance giant Axa, snapped up highly rated pieces, which typically offered a better return than similarly rated corporate bonds. Hedge funds often bought the riskier pieces, attracted by even higher returns.

Now, though, the CDOs aren't looking as good as they once did. That is in part because the banks that created them, in order to achieve more attractive returns, often filled them with companies that had among the lowest of investment-grade ratings, meaning they were among the riskiest of high-quality borrowers...

To be sure, whatever troubles synthetic CDOs face in the months ahead probably won't be as bad as those seen with CDOs linked to mortgage debt, analysts and investors say. Most companies' finances remain relatively healthy. Also, corporate CDOs are simpler beasts with a longer track record, having survived a downturn early this decade.

To some extent, the current prices of synthetic CDOs already account for significant difficulties to come. One index that tracks the cost of default insurance, the Markit CDX index, suggests investors are expecting about one in 13 investment-grade companies to default over the next five years, according to Ashish Shah, global head of credit strategy at Lehman Brothers in New York. That is more than has been seen over a five-year period since the 1980s, he says.

Still, analysts see ample reason for concern. For one, many economists are expecting the current downturn in the U.S. to be worse than the relatively mild recessions of the past couple decades. Beyond that, says Brian Yelvington, a strategist at independent research firm CreditSights in New York, the original credit ratings on many deals were far too rosy. So even if defaults don't break records, many CDOs could still face downgrades."
http://online.wsj.com/article/SB121297157319055927.html?mod=hps_us_whats_news

WSJ: ABX indexes overstate losses

"FRANKFURT -- A key measure of estimating the value of subprime mortgage-backed securities may be overstating potential losses of triple-A securities by more than 60%, according to the Bank for International Settlements, which puts its own estimate of such losses at $73 billion.

The BIS, often called the central bankers' central bank, has few formal banking duties but is a hub for economic and monetary research as well as for global policy makers. Its most recent quarterly report adds to growing criticism of a key measure of the subprime-mortgage market called the ABX.

Launched more than two years ago by Markit Group Ltd., the ABX is an index that tracks the value of securities backed by subprime loans. ABX is based on credit-default swaps: actively traded instruments that insure against default on the securities.

The index often is used by banks and other organizations as a proxy for the value of mortgage-backed securities. Echoing other concerns, the BIS says the ABX prices may be unreliable because the indexes only cover a small percentage of the market.

Some observers also contend that ABX prices have been driven lower largely by bearish traders.

The BIS also says the ABX indexes may misrepresent the structure of the securities they claim to reflect. The specific triple-A securities referenced by the index, in the case of a default, would be paid only after all other triple-A obligations had been met. Recalculating with new data for triple-A securities that would get paid faster, the BIS says the ABX overestimates triple-A losses by 62%.

The BIS says the value of subprime mortgage-backed securities outstanding issued from 2004-07 is about $600 billion. At the end of May, the report says, ABX prices suggested a value of about 59 cents on the dollar for such securities, indicating losses of about $250 billion, almost half of which -- $119 billion -- would come from triple-A securities.

Under the BIS's new calculations, losses on triple-A securities total only $73 billion. That would bring the total subprime-mortgage-related losses down some 18%, to $205 billion."
http://online.wsj.com/article/SB121295844265255355.html?mod=hps_us_whats_news

Finally the press is coming around. But then, the story was here a couple of months before the street picked up on it.
http://aaronandmoses.blogspot.com/2008/04/markitcom-markdown.html

The Flip It Perspective

Cody Willard had a good piece on Fox:

"What exactly is the job of the hundreds of thousands of people employed at the investment banks here in the US? Their job is to help the rest of us manage the nuances and issues that are inherent in any economy. Their job is to help people make sure they never get brazenly levered up when times are great and that they never have to desperately scramble to sell off any assets of any value whatsoever when times are bad.

I wish it were only ironic that these investment banks were brazenly levered up when times were great and now are desperately scrambling to sell off any assets of any value whatsoever when times are bad. Instead, after pocketing hundreds of billions in profits for their shareholders and employees, they now use their Illuminati connections at the Fed and Capitol Hill to sneak your money into their pockets to assist their desperate scrambling to stay alive now that times are bad and they neglected to save for the rainy day.

Let the investment banks and anybody else who took bad risks at the top burn. Let ‘em lose their shirt like they certainly deserve too.

I mean, the very idea that saving these banks with tax dollars, thereby putting all their private losses during the bad times onto the taxpayer even though the taxpayer didn’t get to partake in the private gains during the good times is somehow good for the taxpayer IS INSULTING. Having your money stolen and given to irresponsible idiot bankers who were on the other side of your smart trades ain’t good for you or for the market place or for the economy.

It’s pretty simple, really. Everybody keeps trying to convince me that if Bear and Lehman and anyone else actually go bankrupt that the bad times will really get bad. What kind of sense does that make? Saving the idiots on the wrong side of the trade only serves to make the bad times last longer and get worse, no? Flip it!!!

Finally, anybody else notice the striking parallels of business idiocy at the investment banks and at the car companies? Ford bought SUV companies for billions when gas was cheap and SUVs were hot. Now it sells Land Rover and Jaguar for 1/3 of what it paid for it. GM’s all “proud” to announce that they’re basically getting out of the SUV business and focusing on smaller cars…yup, right now AFTER oil’s up 1200% in the last few years while GM was focusing on SUVs.

Of course, we subsidize those idiot car sellers in this country with billions of your tax dollars and subsidies and breaks and other loop hole tricks.

Airline industry? Always consolidating in the bad times using billions of your tax dollars and then going nuts overexpanding in the good times.

I’d just note that companies like Intel and Apple have done a little bit better job handling their respective cycles…Intel jacked up investment on R&D in 2002 and 2003 when the tech-economy was in depression. Didn’t use billions of your tax dollars to do it, either. (And they’re not asking for billions in new subsidies or breaks right now either.)

The upshot? If you think any of these corporations are actually more deserving of your take home pay than you are…if you really think that it’s better for the economy and for you and your children in the long run that Bear’s shareholders and lenders get $30 billion of your money for no other reason than they had gambled too much and then got dealt a bad hand…if you really think Ford and GM are efficiently using your tax dollars to create better, more reliable, safer and cleaner cars than otherwise would hit the market place over the next couple decades…if you really think that Lehman and the other investment banks endless chicanery is better for the capital markets than to let the capital markets eat the losing gamblers and liars, thereby allowing new, smarter, more efficient and effective entrepreneurs create new investment banks…

Well, if you really believe all that, then I encourage you to fight to keep the status quo. Don’t just condone these actions. Vote Republican and/or Democrat so that you can actually participate in these scams. Start a fund of funds to lever up in SUVs and CDOs to get that extra 30 bps in return steady every month…oh wait, that scam’s over already. Write your representatives telling them to create more subsidies and tax credits and rate cuts and exchange windows for any investment bank that’s suffering in these hard times. Because, really, those Bear Stearns shareholders and lenders are so much more deserving of your money than you are."
http://cody.blogs.foxbusiness.com/2008/06/04/flip-it-saving-the-ibanks-makes-the-bad-times-worse-and-last-longer/

Saturday, June 7, 2008

Barrons: 3G iPhone delay

PSST. DID YOU HEAR THE WORST-KEPT SECRET in silicon Valley? Apple Chief Executive Steve Jobs is expected to unveil the next-generation iPhone this week at the company's Worldwide Developer Conference in San Francisco.

The Apple "fanboys" -- enthusiasts who clog the Internet with unbridled praise for everything the company says and does -- have been chattering for months about this day, as if it were the Second Coming. In fact, anticipation of the third-generation, or 3G, iPhone has driven up Apple shares (ticker: AAPL), which have been trading in the high 180s, nearly 60% since February.

Having 3G capability would allow Apple's innovative smartphone to do many of the nifty things it is designed to do because it will take advantage of the upgraded networks of its carriers, such as AT&T (T) in the U.S. Third-generation networks have more bandwidth, and are faster and more robust. I'm sure the phone will be hugely popular, especially as software developers start to roll out enticing applications, such as games and location-driven services.

But what the fanboys won't tell you -- as won't many unabashed boosters in the press -- is that the iPhone's production rollout is behind schedule. That's what a number of tech hedge-fund managers are saying, attributing their information to investigative research outfits that talk with engineers and supply-chain managers at the contract manufacturer and component suppliers in Asia. These sources say that Apple has slashed its internal expectations for iPhone unit sales by up to 16%. They report that Apple had planned to ship 12 million 3G units by the end of the third quarter, but now expects to ship about 10 million to 10.5 million by the fourth quarter, owing to production delays.

IN A RESPONSE TYPICAL AMID SUCH rumors, people have been stating that Apple has shipped hundreds of thousands of 3G iPhones, which are supposedly sitting on warehouse shelves. But hedge-fund sources say that Foxconn International Holdings (2038.Hong Kong), the contract manufacturer that assembles the devices, has shipped only several thousand. The blogosphere and Wall Street have been running with the widely disseminated rumor that production began in May. Apple hasn't publicly commented on this. (It declined to discuss the reports with Barron's.)

Foxconn and component makers won't crank up mass production until the middle of this month, although researchers say that they had been pressured by Apple to start doing so a few weeks ago. The reasons for the delays are unclear, but the most logical presumption is that Apple was too optimistic about how fast supplier Infineon Technologies (IFX) would introduce a new chipset for the phone. Infineon reduced its forecast for shipments this year, and analysts suspect that it's Apple-related.

For the record, Apple has said only that it expects to ship 10 million phone units -- period -- in 2008. It will be interesting to hear how many of the highly coveted 3G phones will be available and how soon. I'm sure Jobs will have an answer for everything. He usually does.
http://online.barrons.com/article/SB121279308452953373.html

Friday, June 6, 2008

Bush on the economy

The White House is still buying DVD's!

Bush had this to say about the increase of the jobless rate of 5.5%:

Bush noted that a surge of young new entrants to the job market contributed to the worse-than-expected new numbers. But, he said, "It's clearly a sign that is consistent with slow economic growth."
http://www.msnbc.msn.com/id/25007112/&GT1=43001

Teenagers out of work? Did Bush ever think that the jobs the teenagers wanted are already being taken by more able-bodied workers? Go to a restaurant or a business that needs the temporary help or odd hour jobs that the teenager wants. It's being taken by the guy/gal that needs two jobs to make ends meet.

But you wouldn't expect this logic from government workers. Last month, they estimated that 45,000 new jobs were created in the construction industry!
http://4.bp.blogspot.com/_nSTO-vZpSgc/SEk7tWVb47I/AAAAAAAACsE/3rw5tfKj9ic/s1600-h/BirthDeath2008-05.png

In Bush year 2004, Joe Sixpack were buying the new releases of DVD's on Tuesday at Best Buy or Circuit City.

The next year they were buying them off eBay.

The next year they were renting them from NetFlix.

The next year they were renting them from NewRelease cubes.
http://www.thenewrelease.com/

Now in Bush year 2008, Joe and Mary Sixpack are checking the DVD's out at the library, and putting the money they "saved" into their gas tank, so they can get to their second job to make ends meet, that the economists think the teenagers should have!

So if they're still buying DVD's at the White House, don't look for calls of a new stimulus plan to get any traction. They said the first check would be "spent."

It was "spent" but on gas and bills.

And $4 gas?

I'll just let the President opine again!
http://aaronandmoses.blogspot.com/2008/03/4-gallon-of-gas-surprises-bush.html


Put some lipstick on this pig

JP Morgan analyst Thomas Lee says to buy stocks on the unemployment numbers. He must have a following on Wall Street as the market came down 400 points.

The biggest rise in the unemployment rate since 1986 is an "aberration" and investors who sold equities today are "completely misreading" the outlook for economic growth, according to JPMorgan Chase & Co.

The Dow Jones Industrial Average fell as much as 412 points today after the Labor Department said the jobless rate increased by half a percentage point to 5.5 percent, the highest since October 2004, as an influx of students into the workforce drove the biggest jump in teenage unemployment since at least 1948.

"The surge in unemployment is probably an aberration," Thomas J. Lee, the New York-based chief U.S. equity strategist at JPMorgan, said in an interview. "It's not because there were fewer jobs, it's because there were more people looking for jobs. Stocks are completely misreading the situation."

Lee, 39, wrote in an e-mail that "stocks should be up" after the report, which also showed payrolls fell by 49,000 in May, a smaller decline than economists surveyed by Bloomberg News had forecast.

"Surges in unemployment happen at the end of the cycle," Lee said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aDlaPbZCxQ2w&refer=home

An opposing viewpoint came from Mish:

This was a once in a lifetime credit binge. To expect anything other than a once in a lifetime credit bust is being far too Pollyannaish. There was indeed an "aberration" today, an "aberration" in clear thinking by Thomas J. Lee, chief U.S. equity strategist at JPMorgan.
http://globaleconomicanalysis.blogspot.com/2008/06/aberration-in-clear-thinking-by.html

South Dakota approves a refinery

The facility, owned by Texas-based Hyperion Resources Inc., will have the capacity to process 400,000 barrels of oil per day. It will process crude imported from Canada, the largest foreign oil supplier to the United States. Hyperion is planning to break ground on the project in 2010.

Located in South Dakota's Union County, the $8 billion project is estimated to create 4,500 construction jobs and 1,800 permanent jobs, according to the company. The 100,000 or so voters in the county approved it by a margin of 58% to 42%.

According to the National Petrochemical and Refiners Association, the project represents the first major refinery the United States to be built since 1976, when a 245,000 barrel-a-day refinery was built by Marathon Petroleum Co.


So they estimate that the refinery will cost $20,000 per barrel of crude oil per day, while refiners are selling at a $5,000 equivalent on Wall Street. Now Saudia Arabia says it will expand refinery capacity:

Saudi Arabia, through its state-owned oil company Saudi Aramco, is planning to expand its refinery capacity by nearly 80% in five years, in part by signing deals with foreign oil majors including COP, TOT, XOM and SNP.

Much of that new capacity will be aimed at turning the kingdom's reserves of heavy crude oil, which is less desirable and is sold at discount to premium light crude, into gasoline and other petroleum products for shipment to Europe and Asia.
http://www.marketwatch.com/

The big multinational oil companies, Chevron, Exxon and Conoco, that pull backed the last few weeks, rebounded yesterday. They can probably go back to new highs with the increase in bubbling crude.

Lehman to pre-announce?

June 6, 2008 -- Lehman Brothers is considering releasing its second-quarter earnings a week earlier, and tying that announcement to news about a plan to raise capital, as the embattled investment bank looks to quiet doubts about its future, The Post has learned.

Lehman had planned to announce its second-quarter earnings sometime during the week of June 16, but a barrage of negative sentiment from short-sellers, including hedge fund manager David Einhorn of Greenlight Capital, has forced the investment bank to mull putting out its financial results sooner.

According to a person familiar with the matter, the earnings release would be coupled with an announcement that the bank is bolstering its balance sheet by injecting cash raised through an offering of shares known as a "rights offering."

As it stands now, Lehman cannot directly address the negative reports that have bombarded it this week because it is in a so-called "quiet period" mandated by the Securities and Exchange Commission ahead of the public release of earnings information.

Led by CEO Richard Fuld, Lehman has stated adamantly that it is not in need of new capital and has some $40 billion in cash to weather any credit storm.

Nevertheless, the perception on Wall Street has become Lehman's reality and anything the firm can do to beat back the naysayers may go far toward stemming the hemorrhaging its shares have seen this year.

Lehman's stock has dropped about 53 percent in value since the start of the year. Its shares shed about 20 percent in value in the first two days of the week, but have recovered steadily since Wednesday.

Meanwhile, Lehman is said to have talked to a handful of institutional investors in the US and abroad to raise as much as $5 billion in capital, Bloomberg reported late yesterday.

Lehman declined to comment last night.

The collapse of rival investment banking firm Bear Stearns has put Lehman in the crosshairs of those aiming to make bearish bets that the firm might face a similar fate.

Bear and Lehman are perceived as big bond shops and both have been vulnerable to rumor mongering because they're smaller than their peers. Bear was acquired by JPMorgan Chase in an unprecedented Federal Reserve-engineered deal.
http://www.nypost.com/seven/06062008/business/lehman_pre_empts_114227.htm

Thursday, June 5, 2008

Greenlight capital gives Lehman the green light

To short.

Shortseller David Einhorn, gave a pathetic job defending his short position on Lehman on CNBC this morning.

He gave bulls the green light to buy the stock. For a few days.

Lehman has all kinds of junk on their balance sheet disguised under Level III assets.

But our Fed already has close to $400 billion of assets on its balance sheet from the banks.

What's few billion more?

So you can spend your time digging through the 10Q at Lehman, finding all the junk real estate they've managed to hide. But it won't make you any money.
http://aaronandmoses.blogspot.com/2008/03/run-on-lehman.html

But they have more money, than the shorts have time.

This time, when Lehman faced pressure from the shorts, Merrill Lynch upgraded the stock. Last time, in March, when Lehman faced problems and rumours, Citigroup upgraded Lehman.
http://aaronandmoses.blogspot.com/2008/03/citigroup-upgrades-lehman.html

Last March 28th, when the shorts pressed their bets, the market had a huge rally on April Fool's day.

The shorts remembered that, and the bears, who pressed stocks down by laying out more shorts earlier this week, started their covering today, and the market rallied all day.

What a surprising coincidence!

S&P lowers ratings on Ambac and MBIA

And stocks sell off for ten minutes!

What a difference a couple months make!

Remember when Charle Gasparino would breathlessly warn us on CNBC at 3:30 each day of the imminent downgrade of the monolines?
http://aaronandmoses.blogspot.com/2008/01/more-on-gasparino.html

The bears shorted stocks to death, telling us we were facing a depression brought on by housing.
http://aaronandmoses.blogspot.com/2007/12/morgan-stanley-sells-fear.html

Now we can't even find the recession!

But you had the whole story, here, the week of the market lows, before it happened.
http://aaronandmoses.blogspot.com/2008/03/david-slays-goliath.html

The bears have already been steamrolled on the NAZ. Next step is the Dow! Look for 13000 next week.

Wednesday, June 4, 2008

Lehman's Lexicon

At least we know what the word "counterproductive" means.

Erin Callan, Lehman's saucy CFO, said a couple weeks back that some of their hedges were "counterproductive."

Last week at a conference hosted by UBS analyst Glenn Schorr, Lehman Brothers Chief Financial Officer Erin Callan said some of the firm’s hedges have become “counter productive” or are actually losing money.

This is a far cry from a few months ago, when, she says, the firm’s hedges were about 70% efficient, meaning that for $100 it lost on one side, it would recover $70 with the hedge.
http://online.wsj.com/article/SB121133047664409039.html

In today's FT, we find out the "hedge" losses are $500-$700 million:

Lehman Brothers lost $500m-$700m on certain hedging positions in the second quarter, contributing to what is expected to be a larger-than-anticipated loss that may lead the bank to raise more capital by selling a stake to an outside investor.
http://www.ft.com/cms/s/0/f453e96c-31b0-11dd-b77c-0000779fd2ac.html?nclick_check=1

So now we have the definition of "counterproductive." It's a billion dollar plus loss pre-tax.

Now Erin previously said that their hedges were 70% efficient. I won't even try to do that math!

Dick Fuld, said Lehman didn't need to raise capital, but wanted to keep it's options open and Lehman, actually bought back some stock yesterday. Maybe they learned from AIG's playbook. Report a larger loss but increase the dividend.

Then raise the capital.

Now the WSJ says that Lehman is looking for overseas capital.

The Wall Street firm has managed to raise capital from a rich base of existing U.S. shareholders, but this week reached out to overseas investors, including at least one in South Korea.
http://online.wsj.com/article/SB121253687372943195.html?mod=hps_us_whats_news

It just means that Lehman has already burned through the last $4 billion that it had previously raised.

But we'll get just half of that story. Because unmarked down assets will remain in Level III land, and that story won't come out, until after Lehman raises more capital "that they don't need."

Thank goodness for the Fed's alphabet soup!
http://blogs.wsj.com/economics/2008/03/28/guide-to-feds-alphabet-soup/

Tuesday, June 3, 2008

Tomorrow's Oil Market today

Oil closed under $125 barrel today, and it should fall sharply again tomorrow. Here's how I see the action.

At 10:30 am we get the oil inventory numbers, so oil shouldn't sell-off that much overnight. Last week, they showed a drop of 8.8 million barrels of oil. Oil rallied, and then sold off on the news.

Why the drop-off? Because we are heading lower. But here's some anecdotal evidence to consider.

Lloyds MIU, is the best and most comprehensive source of global ship movements in the world. They have an AIS (Automatic Identification System) network that gives you real time data on vessels in over 1,000 ports, and you conduct a search on 120,000 vessels in 2,800 ports around the world.
http://www.lloydsmiu.com/lmiu/index.htm

Remember how oil sold off on the news last Wednesday? Oil speculators have been buying two-month subscriptions of Llyods for $1400 to track oil and shipping vessels. (It pays to know if oil is sitting on a ship in a port.) The two month subscription was set up in part because of the demand by oil speculators.

Here's a bit on Llyods:
They offer a subscription to "Vessels" plus AIS for the following subscription periods:
Two Months - $1,400
Four Months - $2,586
Six Months - $3,395
One Year - $6,465

The subscription provides you with access to 120,000 vessels including:
Vessel Movements (latest sighting and destination plus most recent movements)
Vessel Overview with basic characteristics
Casualty and Detentions - up to 10-year history
Best Company Contact
AIS Global Network


If you used this properly, you wouldn't of been taken by surprise by the oil sell-off on the seemingly bullish news of the 8.8 million barrel drawdown in crude. Here's more on that:

The U.S. Energy Department's Energy Information Administration said delays in unloading oil tankers along the Gulf Coast had led to the 8.8 million-barrel drop in crude oil inventories for the week ended May 23. Analysts surveyed by Platts had expected a gain of 750,000 barrels. Usually such a discrepancy would send prices soaring.
http://www.examiner.com/a-1415443~Oil_prices_fall_to_near__126_a_barrel.html

A very speculative play on oil cracking is Macroshares Oil Down (DCR 1.30). You can read about that here:
http://aaronandmoses.blogspot.com/2008/05/crapshoot-on-oil-cratering.html

Last Wednesday, it traded as low as .95, and as high as $1.27.

But if you do your homework yourself, and get real time information, then, I suspect, you'll act like the oil speculators who sold down oil last Wednesday on the supposedly bullish news.

They are using real time data. Or at least, they have someone else mining it, so they can concentrate on laying out shorts on crude rallies!

World's most over-rated CEO

But Merrill Lynch in the 40-41 range is a buy here, despite the guy on the top.

At least he had enough sense to take writedowns that were almost sufficient.

And they won't raise any capital unless the stock gets above 48.

Buy NYX now

Thank goodness John Thain now works at Merrill Lynch, and no longer looks down at the help at NYSE Euronext. (NYX 63). CME got cracked and then traded up to 400. Meanwhile, for the next month, judges are pouring over the details of Spitzer's suit against Grasso.

So buy NYX here now.

We know the news about Grasso. We know that a trial will bring up dirt. We know that the CME and ICE are getting hit. But they are getting hit because they allow anonymous futures trading.

That's going to end.

But the pullback in oil, is going to help the stock market. And the NYSE, under Duncan Niederauer, is a more transparent, and much better company than under John Thain.

Today the stock traded up in a down market, and option players were all over the June 65 calls trading over 2000 contracts, which is over 40% of the open interest.

Last week, TSO had the same option activity.

Just look at the action in the refiners as Western refining (WNR 11.45) closed up over a stick, and Tesoro (TSO 24.24) closed up 3%, with extremely heavy call options in the June 25 strike, indicating that it's time to start the rumour mill with the refiners, and that the cost of goods, oil prices, are heading down, and not up.
http://aaronandmoses.blogspot.com/2008/05/flip-flops.html

So did Garmin, so I wrote up the stock.
http://aaronandmoses.blogspot.com/2008/05/take-look-at-garmin.html

Now it's the time for NYX. Despite what the oil bulls say, oil is ready to collapse $7-10 dollars the next couple of days.

The pullback in stocks is over. The Fed, with their alphabet soup of programs to help the banks and brokers, now needs some help because the bears are pushing for more disclosure on the financials.

The Fed doesn't need that light! So shine the light on the oil speculators!

So look for oil to come down hard, here, right now, so we can forget about the balance sheets of the banks!

Lehman to write off billions

And to raise another $4 billion in capital. I wonder if their "sexy" CFO, Erin Callan, is going to give anyone a high five after that?

After sifting through the numbers for nearly an hour, Ms. Callan coolly answered more than 20 analyst questions. Then she strode down to Lehman's bond-trading desk and high-fived trading executive Peter Hornick.

Later that day, bond traders gave her a standing ovation, a Wall Street rite typically reserved for CEOs. Profit had plunged, yet Lehman shares surged 46%.
http://online.wsj.com/article/SB121098034130400069.html?mod=WSJBlog

Their problem is this:

During the second quarter, Lehman was stung by hedges used to offset losses in real estate and other securities, according to people familiar with the matter. The firm bet that indexes tracking markets such as real-estate securities and leveraged loans would fall. If that happened, it would book profits that would make up some of its losses from holding these securities and loans.

However, in an unexpected twist, some of the indexes rose, even as the assets they were supposed to hedge against continued to lose value or stayed relatively flat. Lehman's losses from both write-downs on assets and ineffective hedges will likely top $2 billion, people familiar with the matter said. Lehman will also realize additional losses related to its decision to reduce its work force, according to a person familiar with the matter.

http://online.wsj.com/article/SB121246409689840681.html?mod=hps_us_whats_news

Unexpected twist?

Not here:

As we have huge shorts in stocks, we have even bigger shorts in credit. Knock down an index, and then get your mark, and then take 20% of the "phantom" profit that you can't realize for the year end or the quarter, since your position, and every other hedge fund, cannot be monetized because you have the same playbook and positions bigger than the index that you're getting your phantom mark!

But if this was the case, you'd then have a huge rally starting on the first day of the next quarter as the shorts in stocks and credit try and scramble and cover their positions, where they got paid on, of which they didn't monetize!
http://aaronandmoses.blogspot.com/2008/04/are-bears-prepared-for-new-highs.html

It looks like the "wizards" at Lehman couldn't see thru the looking glass! That's because on April Fool's day, they had their "sexy" CFO, complaining to the SEC about the shorts instead of managing their books!

Lehman Brothers on Tuesday said it had sent information to the Securities and Exchange Commission about possible abusive short-selling in its shares in recent days.

Erin Callan, Lehman chief financial officer, said the SEC was examining whether hedge funds acted in concert to drive down the bank’s share price in the days following the near collapse of Bear Stearns. Such behaviour could constitute market manipulation, subject to civil and criminal sanctions.
http://www.ft.com/cms/s/0/7575cc0a-003c-11dd-825a-000077b07658.html

You had the whole story here two months before it happened:
http://aaronandmoses.blogspot.com/2008/04/markitcom-markdown.html

To refresh, here was Lehman's last quarterly report.
http://aaronandmoses.blogspot.com/2008/03/lehmans-latest-earnings-report.html

Take a look at how Lehman manipulated the cookie jar for their Level III assets, and then you'll be able to figure out how much they'll need to write off. http://aaronandmoses.blogspot.com/2008/03/run-on-lehman.html

But don't expect Lehman to come clean, all at once. Just expect them to hit you for $4 billion dollars whenever they have to report earnings.

And let Erin have her personal shopper pick out some dark clothes to wear that day!

She'll pick out her own shoes!

The Glass Hammer salutes you, Erin Callan, for climbing to the Wall Street corporate ladder, while wearing fabulous (if uncomfortable) shoes. You’ve made it to the top in style.
http://www.theglasshammer.com/news/2008/05/27/spotlight-on-erin-callan-cfo-of-lehman-bros/