Lehman Goes to the Wall

Sunday, September 14, 2008

Unfortunately for all at Lehman Brothers, it looks like the King's English Defence has failed to avoid checkmate. Latest reports suggest that the street is preparing for a Lehman bankruptcy as Team 1250 has said "no mas."

As always in these cases, Macro Man now feels badly under-exposed to the short risk trade, having put on some EM FX option structures last week when he felt badly overexposed to Team 1250's machinations.

With much of Asia out on holiday on Monday, liquidity will be just fantastic overnight. What's more than a little frightening is that Lehman may soon have company, if AIG's share price (which shed 30% on Friday and is overlaid with Lehman's on the chart below) is anything to go by.

Strap in, boys and girls: it looks like the roller-coaster ride is just getting started.

Posted by Macro Man at 8:00 PM  


A wild week in prospect indeed. One might add WaMu (pronounced wham you) and MER to the list as well. There's been extensive coverage all weekend of the soap opera but not a lot of consideration of the larger, systemic issues. One of which is the small sliver of silver lining in this that reality begins to replace blinders ?
The End is Nigh ? (Update2): Frannie, Leh, WamU, AIG and Wild, Wild Markets

And beyond these financial giants and a potential see change perhaps one should also consider the other boulders lined up in the US pond that are teetering as well, e.g. ARM resets and rapidly deteriorating commercial, business and consumer loan business. We have a ways to go and this might be the show that break that camel's back.
Continuing Confusions & Crisis: Teetering Giants to Credit to Housing

Was it Tiny Tim who said good luck to us all ?

dblwyo said...
8:51 PM  

I just hope the PPT hasn't mis-analysed the situation. It's one thing to let the Maginot Line at 1250 fail, another for a bankruptcy to trigger a CDS meltdown.

Anonymous said...
8:55 PM  

Hallelujah! BAC and MER in merger talks, time for a relieve rallye tomorrow
and you thought team 1250 capitulated

Anonymous said...
9:16 PM  

Yes, the relief rally that comes before the sell off has had a chance to occur.....

Macro Man said...
9:20 PM  

somehow I don't really buy this merger talk, it just seems being a measure to stabilize MER for tomorrow, but well you can't fight team 1250

Anonymous said...
9:26 PM  

its looking increasingly unlikely but i cant help feeling a lehman bankruptcy isnt a given. remember they were on the SECs list of 19, a list which, to some at least, represented the institutions deemed too big to fail. http://www.sec.gov/rules/other/2008/34-58166.pdf . perhaps we need to be more worried about those who werent on it http://www.ft.com/cms/s/0/fc552bf8-8282-11dd-a019-000077b07658.html

Anonymous said...
9:41 PM  

BAC in talks about 25-30 $ a MER share, 38.25 bln, well, well, well

Anonymous said...
9:45 PM  

It' extreme mutual zugzwang. Who moves next?

calvino said...
10:05 PM  

Let's say that Leh files for bankruptcy (which i still don't think is a sure outcome). I would expect Merril's next week to resemble totally Lehman's past one. And what does BofA? Pays 40 bln for somthing that has serious chance to loose more than 50% in few days in absence of a bid. ..mmmm...

That said, unless someone show up to the rescue in the next few hours, tomorruw will be a real bloodbath for equity mkts, to be remembrered as another "black monday" in my view. I was very berarish, and still not expecting such outcome.

Sick trader

Anonymous said...
11:21 PM  

You've seen the news that BofA and MER are in merger talks ? Makes perfect sense for BofA to walk on LEH.

dblwyo said...
11:29 PM  

welcome to the real world

pej said...
12:01 AM  

MER board voting on 29$ BOFA offer, sounds like the worst investment decision I've ever witnessed myself. Tomorrow BOFA could get MER for 5$

Anonymous said...
12:04 AM  

Team 1250 being able to "sticksave" the market from losses is pavlovian conventional wisdom

Everyone knows it.

Time for some contrarian short love......

Anonymous said...
12:53 AM  

If you had LEH exposure, and hadn't mitigated it after all this time, you deserve to lose money. Therefore, it isn't critical.

AIG is a more recent vintage problem, and is an issue with all the CDS exposure, and that impacts Main St. as well. Maybe Berkshire becomes a MUCH larger insurance company?

Rich L said...
2:10 AM  

The banana republic that was formerly known as the USA is a short across the board.

Anonymous said...
3:35 AM  

1215am and no word on LEH bankruptcy...what's going on? are the CDS trades today cancelled?

Anonymous said...
5:17 AM  

The long LEH, short SPX trade will become a disaster!
It´s feakin unbeleive how amerger deal of that proportion can on such short notice the very same day!

Team 1250 will be my pink flamingo...

F!"#¤%U!"#¤CK TEAM 1250!!!! said...
6:42 AM  
Anonymous said...
7:00 AM  

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