Posts tagged Lehman Brothers
September 21, 2008
· Filed under business, economy, investing, money, politics, stock market · Tagged "Paulson's Monster", $11 trillion, $700 billion, ABK, ambac, bankruptcy, banks, Barclays, Berkshire Hathaway, bond insurer, economy, Google, hedge funds, Henry Paulson, investing, Lehman Brothers, MBI, MBIA, Moody's, SEC, Warren Buffett
“Paulson’s Monster”, as it’s being called, has now proposed the need for $700 billion of taxpayer dollars, raising the US debt limit to $11 trillion, to spin off the bad sectors of the financials into its own entity. Paulson claims his plan will “minimize” the cost to the taxpayer in the long run, but who can really be sure? As part of the plan, Paulson said that he was currently in talks with other countries for help. He wouldn’t disclose which countries.
Back in Ratings land, one ABK message boarder claimed that the Feds raided Moody’s on Friday looking for connections between the ratings company and hedge funds. No link was provided, and given that any Joe Schmo can go on a Google Finance board and post whatever he or she pleases, it could very well be completely fabricated. However, a Bloomberg article titled “Berkshire’s Bond Insurer, Moody’s Stake Face Probe”, reports that one such link may in fact come to light:
“Billionaire Warren Buffett’s Berkshire Hathaway Inc. faces a probe by Connecticut’s attorney general for possible conflicts created by owning almost 20 percent of credit ratings company Moody’s Corp. while also running a new municipal bond insurer.
Moody’s gave its top rating last week to Berkshire Hathaway Assurance Corp., created in December as existing bond insurers struggled to maintain their AAA ratings. A favorable rating for Berkshire by New York-based Moody’s, or a lower rating for competitors including MBIA Inc. and Ambac Financial Group Inc., may give Buffett’s company an advantage.”
So maybe there is truth in rumor.
In other news, Barclays is the proud new owner of Lehman Brothers’s investment banking and trading businesses. The $1.75 billion deal approved yesterday is a definite bargain as compared to the one Barclays would have had to strike last week for Lehman’s entire assets before bankruptcy.
September 21, 2008
· Filed under business, economy, investing, money, politics, stock market · Tagged ABK, AIG, ambac, banks, banned, Barclays, Ben Bernanke, Charles Schumer, economy, financials, Henry Paulson, investing, LEH, Lehman Brothers, LEHMQ, MBI, MBIA, Moody's, Moody's Ratings, short selling, stocks
Whoa mama. I was definitely wrong about the profit-taking. The US market rallied harder in the last two days than it has in 38 years- longer than I’ve been alive! Lehman Brothers, now on the OTC board as LEHMQ, gained 313% on rumors that it would sell parts of itself to foreign banks. Barclays is back in the running. In just the last two days of trading, I made up almost all of what I had lost in the last week and a half.
The SEC banned ALL short selling- regular and naked alike- of 799 financials for the next 10 days. The United Kingdom temporarily halted short selling yesterday, and the US did the same. This is a huge step from just banning naked shorting; this is a total ban on betting that stocks will lose value, essentially disqualifying half of the game. Hillary Clinton and Charles Schumer, both New York Senators, proposed the ban. Critics say this ban will warp the market, making it seem as if the financial stocks are worth more than they are. But when naked shorting was banned in July, the effect lasted long after the ban was lifted. In fact, it lasted right up until last week when AIG teetered and fell and dragged the entire sector along with it. So in a market that is so emotionally driven, a little banning may do the trick to snap the depression (no pun intended).
Henry Paulson, our Treasury Secretary, and Federal Reserve Chairman Ben Bernanke proposed the idea to spin all bad parts of financial institutions into its own entity- a black hole of badness. This idea reminds me of that story I had to read in high school about the utopian society that was only a utopia because of the little girl who lived in a cage in the basement of someone’s house. Remember that one? I was never big on reading, so titles slip my mind. I just remember the girl in the cage and the annual field trip every schoolkid would take to see the girl in the dirty dark cage dungeon as a reminder of why they lived as perfectly as they did. I wonder if part of the Paulson and Bernanke plan will have the American people visiting the dark entity once a year. Oh wait, now I get it. We will be visiting once a year- at tax time. Seems these two guys kept up on their high school reading.
Meanwhile in Ratings Land, Moody’s threatened to downgrade Ambac (ABK) and MBIA (MBI), which dropped ABK 42% and another 27% in afterhours, and MBI 8% and another 8% in afterhours. The ABK message boards caught fire, and it seems Moody’s may catch some of it by Monday, if not sooner.
Do you know the name of that book yet? Maybe it was a short story.
September 16, 2008
· Filed under business, economy, investing, money, politics, stock market · Tagged $85 billion, AIG, bailout, bankruptcy, banks, Barclays, Christopher Cox, crude oil, economy, Enron, gasoline prices, Goldman Sachs, government bailout, GS, Hank Greenberg, interest rate, investing, Lehman, Lehman Brothers, MER, Merrill Lynch, Morgan Stanley, MS, naked short selling, real estate, SEC, uptick rule, WaMu, Washington Mutual, WM, WorldCom
Where to start? All these stories are unfolding all at the same time. Most people alive have never seen such things.
AIG no doubt drove the market today. Lehman was six times as big as Enron and WorldCom, and AIG is 50% bigger than Lehman. Yesterday when it became clear that Goldman Sachs (GS) and Morgan Stanley (MS) were last two independent investment banks left standing, the government asked the two giants to inject capital into AIG to keep it alive. When that didn’t go over so well, the fed went back to the drawing board and came up with a new idea, which was later captured in a Bloomberg article titled “Fed Said to Reverse Stance, Consider AIG Loan Package”. Originally the government said that it would absolutely not help AIG, but throughout the day AIG’s tentacles were measured and realized to stretch much further than previously thought. The news stories about AIG threw the stock all over the place today. As an example of just how turbulent the ride was, at 2:30PM the stock was trading at $2.76. At 3PM, the stock was trading at $5. That’s an 81% increase in 30 minutes. AIG is the world’s largest insurer, and unless it’s shored up, many institutions (including regional banks, as exposed by CNNMoney.com) will likely get knocked out.
Reuters released an odd article today about former chief executive of AIG Hank Greenberg leading a hoard of investors in a bid to take over AIG. I think I’ll let that one rest.
The Federal Reserve, against what everyone predicted, left interests rates alone today. The rate will stay at 2%.
When the market broke in 1937 signaling the Great Depression, the US Securities and Exchange Commission (SEC) created the “uptick” rule, which essentially stopped people from betting against failing stocks. “Naked short selling” is what it’s called now, and is when a trader buys a put for an underlying amount of stock he or she would not be able to deliver. The SEC did not eliminate the uptick rule until July 6, 2007.
Our government tried to being back a sort of uptick rule this past July and it did, in fact, help the financials rebound. You can still see the ban reflected in most stock charts, not only the financials, from July 15 until the beginning weeks of August.
Now that banks are acting more like houses made of cards than they are the good old impenetrable banks we all grew up with, the government and some analysts have began buzzing about a possible reinstatement of the uptick rule. Back in August when the ban on naked short selling was lifted off the 19 financials it protected, the plan was to create “within a few months” a sweeping rule would eliminate excessive short selling. Some, like Alan Greenspan, think this is eliminating an important side of the market, but when a bet is sure, much like oil was six months ago, people will take and take advantage of it.
The head of the SEC, Christopher Cox, announced today that the “within a few months” will probably be this week (TheStreet.com) in light of what happened yesterday and the free lunch frenzy it caused among the traders who know how to sell short naked.
I’m not going to lie; In this economy, with oil going down yet gasoline refusing to budge, the price of food through the roof, the cost of electricity forcing me to cram foods into my toaster oven instead of firing up my electric stove, and clothing being so expensive I’m at least 3 seasons behind (if not many more), I’d naked short sell a few of the stocks I own if I knew how to. But just a few, not all day and not to the point I felt sick with guilt. I wonder if anyone feels guilty. Doubt it.
I bought long into Merrill Lynch (MER) today, and added to my positions of Citigroup (C) and Washington Mutual (WM). Washington Mutual is a real gamble, but MER should be one stock I won’t have to worry about.
The Dow crossed from red to green and back again 15 times today and really rallied in the last two hours of trading to close up 141 points to $11,059. My stocks that gained today included C, MBI, MER, MTG, RDN, RF, and WM, but it wasn’t enough to have me end the day in the green, and in fact, I’m now overall up just $2.08. But I’m keeping the faith that regulations will come this week and we’ll look back on this time as another bottom.
When the top stories are no longer about the banks, people are going to start asking questions about the price of gasoline. Crude oil slipped another $4.56 today to close at $91.15, so why is gas still over $3.50 a gallon? I smell “pissed off” coming.
In late-breaking news tonight, Barclays announced it put a bid in to buy Lehman Brothers for $2 billion, and the government decided to loan AIG $85 billion.
Also in tonight’s late-breaking news, an SEC spokesman told Reuters that “The American Bankers Association said many of its members have seen precipitous declines in their stock, high trading volumes and huge spikes in so-called failures to deliver [due to naked short sellers], leading them to conclude that their stock is being manipulated. The U.S. Securities and Exchange Commission expects to issue new rules against abusive short selling within 24 hours.”
Within 24 hours. This is great news.
September 15, 2008
· Filed under business, economy, investing, money, politics, stock market · Tagged ABK, AIG, American International Group, BAC, Bank of America, bankruptcy, banks, CHC, fmd, Great Depression, Lehman Brothers, lending window, PMI, RDN, reform, short sellers, TMA, wall street, WaMu, Washington Mututal, WM
Exactly two months from the widely-believed bottom, “the biggest shakeup since the Great Depression” is what it’s being called. Today was the largest 1-day loss to the Dow in seven years. What a total mess. All this time, I’ve been sure no one knew what they were talking about the financials and that the bottom was already hit. Slowly though, I’m coming to ask myself, “what were you thinking??” Analysts had said the worst wasn’t over, but of course I didn’t believe them; I’m stubborn and always have been. Late last night and early this morning, former employees streamed out of Boston’s Lehman building, and all other Lehman locations, with boxes and resumes in hand. After last night’s negotiations failed, it was certain death for their jobs, and their stock, which was at 70 cents by 6:30AM, 45 cents by 7:30AM, and 18 cents at day’s close. In less than 24 hours, the 158 year old mainstay lost 94% of its value. Not only was the bankruptcy of Lehman Brothers the largest bankruptcy in United States history, it dwarfed all other bankruptcies in our country’s history. Along for the hellevator ride from par to the bottomless abyss went all the financials today. Even Merrill Lynch, which was up 30% in premarket trading because of being bought out last night for nearly twice its current value, closed the day up just 0.6% from its sorry close on Friday.
Articles and blog titles that ht today had some pretty colorful titles: “Jaw-dropping day for financial markets”, “A day of reckoning”, “Meltdown in US finance system pummels stock market”, “AIG fights for survival”, “Street’s nasty surprises keep experts guessing”, “Giants fall on judgment day”, “Stocks plummet on financial meltdown”, “It’s a morose Monday for Street’s employees”, “Goodbye to easy money”, and “Broken brothers” were just a sampling. The articles spanned all languages as today hit the entire world like a million tons of bricks.
So many questions arose out of today. What will happen to WaMu? What will happen to the mortgage insurers now that one of the banks they insured has evaporated? What will happen to AIG’s stock value now that the bank plans to head to the lending window? AIG had asked for $40 billion, but word on the street is that they’ll “only” get $20 billion. Following suit of its sibling ratings companies, Standard & Poor cut Washington Mutual’s rating to “junk” today.
Of the stocks I watch, here are today’s nearly unbelievable numbers:
Regions Financial (RF): Down 4% to $11.12
Community Bancorp (CBON): Down 4% to $4.53
Syncora Holdings (SCA): Down 6% to $2.39
Thornburg Mortgage (TMA): Down 7% to 35 cents
Triad Guarantee (TGIC): Down 9% to $2.1549
Financial Select Sector ETF (XLF): Down 9% to $19.15
MBIA (MBI): Down 11% to $11.45
National City (NCC): Down 11% to $4.28
First Marblehead (FMD): Down 14% to $2.67
Centerline Holding (CHC): Down 14% to $2.05
Radian Group (RDN): Down 14% to $3.90
Citigroup (C): Down 15% to $15.24
Ambac (ABK): Down 16% to $6.24
PMI Group (PMI): Down 17% to $2.57
Deerfield Capital (DFR): Down 18% to 60 cents
Bank of America (BAC): Down 21% to $26.55
MGIC Investment (MTG): Down 21% to $5.35
Washington Mutual (WM): Down 26% to $2.00
American International Group (AIG): Down 60% to $4.76
My friend works for AIG. I hope that if he loses his job it’ll be the kick in the pants he needs to get his ass to Hollywood.
The Dow plunged 504 points today to close below $11,000 to $10,917. A few days ago, an analyst on TV said that “it is possible we may see $100 oil within six months”. Within six months, buddy, how about within six days? Crude oil fell to a 7-month low today, losing $5.47 to close at $95.71 a barrel.
This experiment is going to be much longer-term than I previously thought. Luckily I have time to wait. I took another advance on my credit card to possibly take advantage of some of the week’s bargains, and will pay it back on Friday when my paycheck hits.
Later in the day, an article titled “Wall Street Losses Seen Spurring Regulatory Reform” hit CNNMoney.com. Some are calling for another ban on short-sellers. Alan Greenspan, in his interview this weekend, said that short-sellers are necessary to keep prices as a closer reflection of company values. But if Washington Mutual, for example is really trading at [now less than] 17% of its book value (MarketWatch, September 11), how real are the shorties really keeping things?
September 15, 2008
· Filed under business, economy, investing, money, politics, stock market · Tagged AIG, American International Group, Bank of America, Barclays, black Monday, Dexter, economy, Lehman Brothers, MER, Merrill Lynch
This weekend was one wild ride, and it’s going to be a bloody Monday. Barclays walked away from talks to buy Lehman Brothers today because our government wouldn’t back up the deal, and a bankruptcy filing could come by midnight. Lehman Brothers has $128 billion in long-term debt. Ouch.
Still in the running for the bad bank, although with rapidly-fading interest, are European bank HSBC Holdings (on the New York Stock Exchange as HBC), Bank of America (BAC), and Goldman Sachs (GS). None seems interested in Lehman’s total assets, and for some unknown reason, GS seems interested in just the part of Lehman that holds real estate.
At 10PM I came home to a story out of nowhere, or at least from a place I had no idea existed, that Bank of America would acquire Merrill Lynch (MER) for $44 billion, offering $29 a share for the bank whose stock closed Friday at less than $18 a share. Meanwhile talks stalled on Lehman, an orderly wind down of its assets is seen as the only viable solution, and AIG declared it would go to the Federal lending window to ask for its own $40 billion. “Merrill Lynch gets $40 billion, why can’t I get $40 billion?” Bankers are such babies.
I stayed up passed midnight tonight, even though it’s a school night, just to see what if anything would magically happen to Lehman Brothers, and probably subconsciously to avoid a jar tomorrow morning. Like I said, I have no stake in Lehman, and hopefully BAC’s purchase of MER will cause some stability in the market tomorrow. But somehow I seriously doubt it. By 11PM, Dow futures were down 300 points, pointing to another black Monday. Washington Mutual message boarders were sweating themselves.
I’m sweating a bit too, maybe. Earlier in the summer I set off on an experiment that soon took me over and trapped me into a world that was completely foreign to me three months earlier. I still find it foreign, but more like Brazil after your first cop shakedown than Paris when first stepping under the Eiffel Tower foreign. As a side, I’ve never been to either Brazil or Paris, and as good as my imagination is I know it’s not a fair substitute for the real thing, but I can imagine that looking up through the Eiffel Tower is much more pleasant than being forcefully robbed by the Brazilian police, which is the type of foreign this experiment has turned into. And even though I know all this, and even though I sometimes can’t sleep at night in anticipation of what news will hit the next day, and despite how badly I sometimes want to nap before 4PM, I can’t seem to step away. I’m invested, both literally and figuratively, as well as emotionally and psychologically, and sometimes even physically through a churning stomach, in the largest clusterfuck this country has ever seen. My only solace is the thought that even if I lose it all, at least I can say that I watched it all happen.
But it may not be all bad. Alan Greenspan said that the crisis our financial institutions are facing is a “once in a century event” and is by far the worst he has seen. If he’s right, and he probably is, this is a real bottom where some serious bargains can be found and some serious money can be made- if only some pull through.
By midnight no new news hit about Lehman Brothers, so I finished up another episode of Dexter and went to bed. It seems the death day of a 158 year old bank will in fact come tomorrow.
September 15, 2008
· Filed under business, economy, investing, money, politics, stock market · Tagged AIG, American International Group, Bank of America to buy Merrill, Barclays, Lehman Brothers, MER, Merrill Lynch, WaMu, Washington Mututal
Yesterday’s talk of the Lehman’s sale to Bank of America caused the financial sector to rally, both here and in Europe, but now that the BAC deal seems to be fading away, analysts are predicting a “bloodbath” on Monday.
United Kingdom bank Barclays now says that they may buy Lehman, but only the good parts. No one wants to touch the bad parts, namely Lehman’s real estate assets. A meeting was held today in New York about the fate of the bank and how to go about with an orderly sale, but no deal has been struck yet.
Because these days it seems that the strength of the entire banking sector is so dependent on its weakest link, one option that came up in today’s New York meeting was the possibility that other Wall Street firms will inject capital into Lehman Brothers to keep it alive and therefore restore the confidence that was washed away this past week. But with everyone hanging on by a thread, no one seems too open to this idea. It seems at this point, liquidation is a very possible option. But unless whatever happens is done orderly, chaos on Monday is a fair guarantee.
Also on Friday, Washington Mutual came out swinging at Moody’s Investors Service for downgrading the bank, stating that “the downgrade was based on instability in the sector and not an in-depth analysis of Washington Mutual’s actual standing.” Amen WM. WaMu’s new CEO Alan Fishman reportedly got a $7.5 million bonus on top of a $1 million salary, and starting in 2009, Fishman will get a bonus of 365% of his base salary, which basically has the guy pulling in at least $4.65 million a year after this year’s $8.5 million. I sure hope all that money will persuade him to work overtime to get this ship turned right! Or at least guilt him into working really, really hard. Right now, Washington Mutual seems to be thought of as next in line to fail, or at least in a dead heat with American International Group (AIG), and Merrill Lynch (MER), so it’s going to be important for Lehman to come out soon with a plan that will stabilize the sector’s emotions.
After yet another extremely volatile day yesterday, the Dow closed down 11 points to $11,422. Crude oil closed up 31 cents to $101.18 after briefly dipping below the $100 mark for the first time in five months. President Bush warned gas station owners against price gouging because of Hurricane Ike. It’s still not clear how many people were stranded in the hardest hit Texan coastal towns of Galveston and Lake Charles, but many of the people being rescued are elderly and sick.
September 11, 2008
· Filed under business, economy, investing, money, politics, stock market · Tagged BAC, Bank of America, Fitch Ratings, Galveston Texas, Hurricane Ike, LEH, Lehman Brothers, Moody's, WaMu, Washington Mutual, WM
Lehman Brothers (LEH) again dragged down the entire market for the great majority of the day. The stock closed last night’s afterhours at $7.25, and was trading below $5 by today’s 8am premarket. By 8:30, the stock was below $4 and by the opening bell, the stock was already down 38%.
But in the last half hour of today’s trading, Bank of America stepped in to stop the hemorrhage. This large bank, who earlier in the year bought Countrywide, announced a possible purchase of Lehman Brothers. The announcement did little to the common share price of LEH, maybe because no one believed them, and the stock closed down 41% to $4.22. Later in the night, the Federal Reserve announced that they would step in and help Lehman sell itself, and Bank of America started to sound like it was having second thoughts.
The Bank of America announcement seemed to kick Washington Mutual from red to green and the Dow to skyrocket. Both WM and the Dow took a sharp turn north right afterwards. In premarket trading, WM stock had slipped below $2, but turned around in the last half hour of the trading day to close at a 22% gain to $2.83.
After the closing bell, Washington Mutual released an updated third quarter expectations report, which included a focus to build reserves, an unchanged long-term credit outlook, a stable $50 billion of liquidity, and an updated projection of loan losses in the third quarter- from $5.9 billion to $4.5 billion.
But then a few minutes later, Fitch Ratings threw a wrench in the works, as they seem to enjoy doing, and “downgraded” the company. Fitch is the fingernail in the birthday cake. Fitch is the hair in the risotto. A few hours later, Moody’s Investors Service, another ratings company, jumped on the bandwagon and downgraded WaMu too. Who are these people? I’d like to see what their stock would do, if they had any. A MarketWatch article that my friend sent me earlier in the day, before all the stories and ratings hit, stated that Washington Mutual is currently trading at just 17% of its book value, so I’m hanging on. If WM crawls back, I think it will pull my other financial stocks back up with it.
In today’s afterhours, WM broke $3 a share. Sure I’m seeing the glass half empty, but in this bear market, there are only two possible scenarios: go bust or get up. I’m betting on my stocks getting up.
In much graver news than losing money, Hurricane Ike is headed straight to Galveston, Texas. This island was completely wiped out on September 8, 1900 by an unnamed hurricane that killed an estimated 10,000 to 12,000 people, and which made the storm the deadliest natural disaster the Unites States has ever seen. Today, the mayor of Galveston ordered a mandatory evacuation of the island. The National Weather Service stated that staying in Galveston would bring “certain death” as a storm surge of 20 feet is expected to blanket the island and the hurricane is expected to morph into a category 3 by the time it makes landfall tomorrow night.
Despite the impending storm, which some are already predicting to be “catastrophic”, crude oil lost $1.71 to close at $100.87, nearly breaking the $100/barrel psychological barrier. The Dow gained 164 points, all of which were tacked on between 3:30PM and 4PM, and closed the day at $11,433. The dollar hit a year-high; it would now take just $1.39 to get one euro. Thanks to WaMu, I closed the day up $37.
September 10, 2008
· Filed under economy, investing, money, politics, stock market · Tagged Alan Fishman, default, dow closed, LEH, Lehman Brothers, mortgages, oil closed, oil demand, OPEC, Radian Group, RDN, TMA, WaMu, Washington Mututal, WM
OPEC is made up of 11 countries, and in September 2007, the group agreed to produce 28.8 million barrels a day. Because global demand had been so high (except for in the last few months, of course), OPEC needed to bump that production up by 500,000 barrels a day.
Now that global demand is down, OPEC is “cutting” its production by those extra 500,000 barrels a day and re-adhering to the September 2007 quota. But despite this, and the impending hit on Texas by Hurricane Ike, crude oil lost 68 cents a barrel to end the day at $102.58.
My strength has really been tested this week. Often in the sectors, one bad stock in one sector can cause investors to run hard to other sectors. This week that rotten apple has no doubt been Lehman Brothers whose premarket numbers were up over 20% before 8AM, but then fell like a rotten redwood once 8AM, along with the news that the bank lost $3.9 billion in Q3, hit. Over the course of the day, LEH did make up ground and go green, and when it did, other financials followed. But by 3:30PM the optimism was over and LEH took a turn to close down 7% for the day, again, taking other financials with it. Later in the day, the company made a claim that it will spin its commercial real estate, worth $30 billion, into a new company and will sell another $40 billion worth of residential mortgages to the United Kingdom bank Blackrock. Regardless of all these claims, the last thirty minutes of trading were gut wrenchingly painful as I watched the modest gains of some of my riskier stocks slip away.
I have no stake in Lehman Brothers other than the residual effect its bad numbers have on my stocks’ numbers; I just watch the stock out of interest, much like some (not me) are compelled to slow down to rubberneck a car wreck on the other side of the highway. However, I do own Washington Mutual (WM) who is having some serious problems of its own and whose share price fell to a 17-year low today. I read somewhere today that “there is a 90% chance it will default within five years.” By “default” do they mean “go bust”? And if so, who can predict even the next day, let alone the market five years out? I’m hoping that it was artificial panic, but WM fell by a very real 30% today. Someone on the Google message boards claimed to have purposefully driven by a local branch to make sure a run wasn’t happening. It wasn’t. People were still going in at a leisurely pace to make deposits. That made me feel [only very, very slightly] better since there are no WaMus around here for me to drive by, and I had been wondering. A friend of mine says that Washington Mutual’s new CEO Alan Fishman is “a genius and had a stellar record with Sovereign Bank”. He doesn’t see WM failing. I’m going to take his word for it because my friend is smart himself and what other option do I have? Sell at a loss? Cry in my hands? I don’t think so! Go big or go bust! Oh please go big, not bust!
This week has been painful, but out of optimism, I have to say today was less painful than yesterday, and hopefully tomorrow will be positive, or at least even less painful than today. And amidst it all, Radian Group (RDN) and Thornburg Mortgage (TMA) made double digit percentage gains today, so there is still some light in the sector. The bailout of Freddie and Fannie was a game changer, and arguably a very unfair one, but soon again it will be about balance sheets and not terror.
The Dow moved sideways today and closed up 38 points to $11,268.
September 9, 2008
· Filed under economy, investing, money, politics, stock market · Tagged ABK, ArthurDental, BAC, C, dow, Fannie Mae, FMH, freddie mac, investing, LEH, Lehman Brothers, MA, oil, OPEC, PMI, RDN, reuters, September 9 2008, STI, TGIC, TMA, trading, Visa, Washington Mutual, WM
My God, what have I done? All across the country, investors in all sectors and companies must be asking themselves the same thing. I know my friends are. After yesterday’s huge [emotional] rally in all sectors but one (energy), today seemed completely irrational. Everything fell. This was more than profit-taking. All of yesterday’s gains, 280 points, were shaved off the Dow as the index slipped all day to close down to $11,230, as investors in the financials asked themselves one extra question: “will any financial survive?”
Lehman Brothers (LEH), Washington Mutual (WM), Radian Group (RDN), PMI Group (PMI), Ambac Financial (ABK), First Marblehead (FMH), MBIA, Inc. (MBI), MGIC Investment (MTG), Triad Guarantee (TGIC), and Thornburg Mortgage (TMA) are just some of the financial institutions that had double-digit percentage losses today, and those are just the ones with losses greater than 10%. Citigroup (C), Bank of America (BAC), JP Morgan (JPM), SunTrust (STI), American Express (AXP), and even Visa (V) and MasterCard (MA) lost today. Lehman Brothers (LEH) is reporting their third quarter earnings tomorrow- a week early- after their Korea Development Bank deal fell through and its stock price lost 45% of its value today. LEH stock did bump up 7% in afterhours trading, so maybe there’s good news on the horizon. But no doubt, this bad news cast even more doubt into the financial sector today and helped push share values down. Today was very, very painful. Luckily I was so busy at work, with teaching, duties, and meetings, that I had no time to sit down and digest what was happening.
But my friends did. One of my stock friends, who has made a small fortune day-trading these financials, sent me an article that eased my mind a bit. It definitely crossed my mind a few times in the last couple days that my experiment may not work out after all, but the article he sent gave me some hope. It was titled “S&P Picks and Pans: Wells Fargo, Washington Mutual, TW Telecom, JC Penney, Avery Denison”, and was an article in BusinessWeek online. After all the upgrades and downgrades and rating cuts by people with questionable credentials and too much power, it was nice to read an article from a reputable source deeming one of my stocks, WM, a “hold”. If Washington Mutual is a hold and its going through some actual concrete, documented troubles, then my thinking (and hope) is that yesterday and today’s major sell-offs were out of pure fear. But I still hope the sell-off doesn’t continue!
A Reuters article from yesterday titled “Ambac’s planned muni insurer may be hit by changes” shed some light on what the common sentiment towards the mortgage and bond insurers might be. “In another even more fundamental change, agencies are mulling a shift in how they rate muni debt, using the same scale used for corporate debt. That would result in widespread rating upgrades for municipal bonds, which have a much smaller risk of default than corporate bonds. Higher ratings would in turn reduce the need for insurance.” If there’s less risk of default, then there’s less need for insurance.
One last article I’ll quote, this one from MarketWatch.com titled “Community building ire MarketWatch readers kindle own outrage over Fannie, Freddie takeover” quoted ArthurDental, who is a member of the MarketWatch Community. “”Everyone gets upset about financial aid to the poor,” ArthurDental wrote, “but where’s the outrage when taxpayers foot the bill because some ‘investments’ went sour? So stockholders would be largely wiped out; why then aren’t bondholders made to pay for their mistakes, too?”
It’s telling that this article didn’t hit yesterday when the market soared, but ArthurDental is right. When SSBX failed, I lost my investment. But when Freddie and Fannie exposed themselves to trillions of dollars in bad mortgages and therefore didn’t have the capital to pay the bonds it issued to China, the two lending giants got a slap on the wrist and trillions of our taxpayer dollars. Hey, I made a mistake investing in a company run by a McCain, where’s my money? It ain’t coming and I have to deal. And that’s the way it should be.
That Hurricane Ike took a turn south, and the Organization of the Petroleum Exporting Countries (OPEC) will likely maintain its oil production even though demand is down, caused the price of crude oil to fall to a 5-month low. Crude oil lost $3.08 to close the day at $103.26 a barrel. I lost $1700 today, or in my brother’s terminology, “seventeen hundo”. Ouch.
So what is going to happen now that the rules of the game have completely changed? I don’t dare speculate. But whatever it is that eventually happens seems as if it won’t make itself known for a while. For now, I’ll keep the faith. I took a gamble and put in a limit order for 25 more shares of WM today, and you can imagine my surprise when I signed on later, saw the stock price was at $3.30, and that my order executed at $3.60. When I put the order in, I assumed it was so low that it would expire unexecuted.
And more than anything, tomorrow’s a new day when anything can happen.
