Another checkmate (guess who?)

Tuesday, September 09, 2008

As painful as it is to see Macro Man's friends at Lehman in personal financial distress, it's hard to escape the conclusion that the endgame is near. A record-volume slide into single digits and a current price that's 50% lower than Monday's opening suggests that checkmate is very, very near.

By all accounts, Lehman is considering releasing Q3 earnings after today's close to stop the speculation; the danger, of course, is that the release merely confirms the market's worst fears. Bear, Fannie, and Freddie provide recent evidence that a single-digit stock price is a death sentence; continuing with the chess theme, there doesn't appear to be a white knight on the horizon to swoop in to the rescue.
The obvious conclusion, barring a shocking development over the next ninety minutes, is that it's back to plan A for the equity bears and back to the drawing board for Team 1250. Strap yourselves in....this ride is about to get (even more) interesting.

Posted by Macro Man at 7:48 PM  

32 comments:

MM - Superb timing with your new comment (hey two per day, is this the best view into HF's that you're bailing and becoming a writer!?)

Anyway I'm long LEH at $8. I can't see that the mgt would hold out for a big price from KDB on a pipe dream - and if it is releasing the earnings now can't do much more harm!!

Mind you SPX is off almost 3% and Europe is going to plunge in the AM.

Looking forward to Tom Keane later this evening.

Anonymous said...
8:10 PM  

Well, I am watching this market from my study precisely so I can manage my book (biggest risk being short European equity deltas) and thus ensure that I don't have to fall back on becoming a writer...

Macro Man said...
8:17 PM  

For the dead pool looks like a near photo finish between F&F and LEH

triozyg said...
8:56 PM  

Much like the pool's result, actually (albeit with LEH sneaking under the wire, which F&F have done in reality.) Who knew my readers were so clairvoyant?

Macro Man said...
8:59 PM  

Trading like they're about to be hit by a micro black hole thrown off from the Large Hadron Collider. Time for some scotch, methinks.

Anonymous said...
9:01 PM  

Anon, don't steal my thunder, baby! That's what I plan to write about tomorrow.....the turn on of the LHC couldn't come at a more apt time for markets, eh?

Macro Man said...
9:05 PM  

An internal strategist at UBS has said he believes that LEH is worth zero and the Fed will step in and make LEH debt whole but most likely wipeout preferred shareholders. So net net, LEH common and prefs go down the tubes. Any thoughts? I think LEH is toast.

Anonymous said...
9:11 PM  

It leaves me wondering that if the Fed is going to guarantee everyone's debts, no matter how dumb they are, why I don't live in a bigger house and driver a faster car. I mean, if they'll guarantee LEH debt, why not mine. This is a very slippery slope, and I find it difficult to see it ending well. At some point, bondholders will need to get punished, though perhaps we'll have to scour the globe for a bond that Bill Gross doesn't own, since they seem to have passed an amendment that that guy isn't allowed to lose money.

Macro Man said...
9:17 PM  

MM you're not Mark Faber are you?

Anonymous said...
9:24 PM  

No, not at all...until the beginning of this year I was actually quite cheery and upbeat, though Bill Gross on the TV has been an irritant for a number of years now.

Macro Man said...
9:26 PM  

We know that the pre- release of earnings from IBs often reflects an attempt to keep over night loan sources from drying up. We also know that deficiency of regulatory capital is rarely the cause of IB death; the cause of death is a lack of liquidity. Although the Fed will provide overnight loans, but if that source is all LEH's got, I suspect it will soon be game over. Today's price decline is likely to signal a liquidity death spiral. Will watch Europe and Asia markets with great interest.

Anonymous said...
9:32 PM  

What is the latest on the earnings release?

If LEH goes where does the black spot shift to? The next, next to go???

Could be worse, UAL thought they had a fleet of JU-87's yesterday.

Anonymous said...
9:38 PM  

The obvious next IB target would be MER, though I suspect the next casualty would actually be someone more prosaic like Wachovia, who were headed for single-digit oblivion until the short selling restrictions appeared in July.

As an aside, I've noticed today that everyone I speak to at other shops is verrryyyyyyy reluctant to speak about their bank's relationship with LEH, though they are happy to observe the share price.

It feels like everyone is scared to piss off the FSA & SEC, and could result in an "emperor's new clothes" scenario where everyone's afraid to state the blindingly obvious.

It was amusing to observe that Deutsche put LEH on the buy list of something called their "Solar trading system", which prompted one of my NY contacts to ask which solar system the trader inhabits...

Macro Man said...
9:49 PM  

Stukas? Rather low passenger capacity on those.

Anonymous said...
9:51 PM  

News feed suggests everyone is trading with LEH!!

Anonymous said...
10:27 PM  

yes everybody is trading with them but nobody is buying the stock, LEH hitting new lows afters hours

Anonymous said...
10:41 PM  

IMHO, we're approaching the dreaded 'pushing on a string' scenario.

Hypothetically, let's say that the Fed cuts rates this Sunday ahead of the FOMC meeting. I'd opine that such cut would signal that the Fed has lost control of the situation. And cause even more chaos.

On the other hand, Fed holds rates and fights the phantom menace of inflation while assets deflate.

What would Sarah Palin do? Does Australia give immigration waivers to Americans?

Anonymous said...
10:42 PM  

i would just like the yen to perform its duty again during this episode.

Corey said...
10:56 PM  

Does Australia give immigration waivers to Americans?

Don't they have a points-based system like the Brits? P(getting a visa)=f(education, salary, language skills, age), or something like that.

Anonymous said...
11:23 PM  

LEH, all gets revealed 7:10am Wednesday 10th....

Anonymous said...
11:39 PM  

Next playah dead....WM

Check CDS's for WM


AIG coming up quickly on deck....

AIG is a monster that gets little airplay....

Great blog...thanks for what you do.

TV said...
12:21 AM  

I finally understood the Team 1250 reference-- the team that is repsonsible for the beginning or end or an era. Correct?

Anonymous said...
1:10 AM  

MM,

I think we have to consider that LEH might be the example the Fed sets that proves they aren't going to bail out each and every bank that fails. I have a very strong suspicion that creditors are going to take a haircut this time.

And the obvious choice for who's next is either WM or WB. But certainly MER is the next B/D to be put under the microsope, albeit conditions there are very different.

NY

Anonymous said...
2:18 AM  

Just pointing out that Bear collapsed at $31 (double digit), just opened the coming monday at $3.50 - IIRC

Anonymous said...
2:59 AM  

The blogosphere rumors/news circulating on this side of the pond is that KDB had a decent offer for LEH but Fuld would have to have given up control and balked. And KDB took their bat & ball and went home. When good companies go bad CEO ego-tripping, eh ?
WM was down about as badly over here and MER didn't do any too well either but somebody mentioned AIG and that story/rumor's been in play for a while (~ 4 weeks+ now).
On the prior thread somebody asked about Real Estate - notice the XHB keeps running up along with the XLF every time fantasies triumph over analysis with yet another bottom call. The most astute source of prescient analysis on US real estate has been CalculatedRisk who hasn't missed a call or turning point in the three years I've followed him. Suggest you mention to the guy next to to review his estimates of the outlook and bottoming process.

dblwyo said...
3:06 AM  

Bill Gross aka "bond king" has figured out that if you really want to outperform... you have to get big enough to hold the govt hostage... I still remember El Erian saying that he can get the EM debt issuers to structure bonds the way they want... otherwise they won't participate and the debt wouldn't have any support. Perhaps he's more of a "bond tyrant" than a king...

Anonymous said...
4:07 AM  

Gross' Total Return Fund charges 3.75% front load to get in, 1% to get out, and .9% expense ratio. Given the disperson of returns in long-only fixed income returns is minutely small, I really ponder how one who gives money to these talking heads will come out ahead of the index. My Vanguard GNMA fund I bought in March is well ahead of PTTAX and I won't pay nearly 5% to get in and out. They were wrong on the Fed for 2 years, and they didn't get the housing bubble right (Paulson & Co did in our world), they merely pointed out what was obvious. The timing to the trade was what was key. I don't know who gives money to these muppets...

Anonymous said...
3:06 PM  

Anon, I had retirement money with them (though in PTTDX, which had more standard fees), and pulled it in 2005 after watching them get the Fed horribly wrong from 2% to 4% or so.

The cynic might argue that they now rely on the hedge fund model of market impact and nonpublic information to generate returns, rather than good old-fashioned analysis.

Macro Man said...
3:11 PM  

I have no doubt that given the fee structure they are an asset gatherer, which I also suspect Mr Ackman is trying to do given that his plan is DOA and I'm sure he knows it. Moreover, given my dealings with "the authority on bonds" and my colleagues' as well, they definitely rely on market impact to add alpha to justify their fees. they are a "price to miss" client

Anonymous said...
3:24 PM  

That doesn't surprise me in the least, as there are certain hedge funds, which you probably could name, that rely on running over their counterparties to generate a not insubstantial amount of return.

Macro Man said...
3:29 PM  

My fantasy (with zero hope of it actually happening) regarding the FNMA/FRE bailout was that Paulson would say "And the United States Treasury explicitly guarantees all FNMA and FRE debt issued from this day forward. No such guarantee exists for the currently outstanding debt." I would have loved to have seen the look on Bill Gross's face if THAT had happened.

Anonymous said...
3:53 PM  

Indeed...unfortunately, it was probably never gonna happen with Gross sitting at the table when they created the plan.

Macro Man said...
4:01 PM  

Post a Comment

Disclaimer

This commentary is written for entertainment purposes only. Nothing you read on this site is advice or an inducement to buy, sell, or hold any real or hypothetical investment, nor should you construe it as such.