[Silver]

It's getting uglier:

http://finance.google.com/finance?q=NYSE:LEH

Interesting assertion:

http://meganmcardle.theatlantic.com/archives/2008/09/lehman_loses_its_shirt.php

Look at the volume yesterday...

 

[stoney]

Lehman Brothers.
They will likely fail unless the SEC begins enforcing Naked Short Sale rules (I've detailed this many times before). It is likely that over 50% of the shares sold in the last three (3) days do not have a legal locate and are therefore not legal shares that can be sold.

They are in very bad shape, but the market manipulation currently occuring (the same manipulation that took out Bear), is causing additional liquidity issues.

 

[Silver]

Title typo, thanks.

On the bright side, there won't be any counterparty risk when Goldman is the only big IB left...

 

[dante]

Lehman Brothers.
They will likely fail unless the SEC begins enforcing Naked Short Sale rules (I've detailed this many times before). It is likely that over 50% of the shares sold in the last three (3) days do not have a legal locate and are therefore not legal shares that can be sold.

They are in very bad shape, but the market manipulation currently occuring (the same manipulation that took out Bear), is causing additional liquidity issues.

thought that was only good through the end of July or something. didn't it have an end date?

found it, Aug 12th was the end date for that. http://www.forbes.com/feeds/ap/2008/08/28/ap5368242.html

 

[reflux]

@ Joker

Do you put any weight in the story (rumors?) of a financial conspiracy to take down Bear? The fake TV report (MSNBC?) regarding Bear's liquidity certainly speed that problem along nicely.

 

[$tinkle]

trading below 4/sh this a.m.
is de-listing or gov't bailout (a-la FRE/FNM) in their immediate future?

 

[stoney]

@ Joker

Do you put any weight in the story (rumors?) of a financial conspiracy to take down Bear? The fake TV report (MSNBC?) regarding Bear's liquidity certainly speed that problem along nicely.

www.deepcapture.com

You could see the put spreads rising the 2-3 days prior, then an unconfirmed rumor that GS stopped lending to them, huge drop in price, an increase in short interest by 20%+, AND a spike to 20x normal volume? These are all indications of manipulation and rumor mongering, both of which are HIGHLY illegal.

It was a takedown, not a failure. Lehman and Wamu are next on the chopping block. Who is swinging the axe? Don't we want to know.

www.deepcapture.com

 

[stoney]

no bailouts, no de-listing. They still have a high enough market cap. Plus if nyse de-lists, they will defiantely fail and they expose the market to counter-party risk. IT won't happen.

 

[stoney]

thought that was only good through the end of July or something. didn't it have an end date?

found it, Aug 12th was the end date for that. http://www.forbes.com/feeds/ap/2008/08/28/ap5368242.html

Yep. That emergency order did nothing but enforce current laws that are not enforced. They need to enforce current laws or this will spiral out of control.

 

[dante]

Yep. That emergency order did nothing but enforce current laws that are not enforced. They need to enforce current laws or this will spiral out of control.

ok, I think I was confused. I was thinking of the following, which was rescinded in 2007:

Political fallout from the 1929 crash led Congress to enact a law banning short sellers from selling shares during a downtick; this was known as the uptick rule, and was in effect until 2007.

http://en.wikipedia.org/wiki/Uptick_rule

Overall, I doubt that there'll be any real prosecution or findings of impropriety here. Lehman Bros was such a juicy, obvious target. After Bear collapsed, LEH was the #1 concern based on their asset portfolio and their similarity to Bear. All it took was for hedge funds to watch it carefully, and when it became apparent that *others* were shorting, to jump in and hammer the stock. In a way, this becomes a self-fulfilling prophecy; you think the stock's going to go down, you short, it drops a little, other people see it dropping, they short, it goes down further, until EVERYONE jumps on and the stock price plummets. Then when the price of the stock is barely above $0, and it's securities are worth crap, it can't raise money, and *presto* the company *is* worthless. It happened with Bear, it's happening now with LEH and WaMu, and who knows what'll happen next.

 

[ridiculous]

...the beauty of put options.

 

[stoney]

ok, I think I was confused. I was thinking of the following, which was rescinded in 2007:



http://en.wikipedia.org/wiki/Uptick_rule

Overall, I doubt that there'll be any real prosecution or findings of impropriety here. Lehman Bros was such a juicy, obvious target. After Bear collapsed, LEH was the #1 concern based on their asset portfolio and their similarity to Bear. All it took was for hedge funds to watch it carefully, and when it became apparent that *others* were shorting, to jump in and hammer the stock. In a way, this becomes a self-fulfilling prophecy; you think the stock's going to go down, you short, it drops a little, other people see it dropping, they short, it goes down further, until EVERYONE jumps on and the stock price plummets. Then when the price of the stock is barely above $0, and it's securities are worth crap, it can't raise money, and *presto* the company *is* worthless. It happened with Bear, it's happening now with LEH and WaMu, and who knows what'll happen next.

Shorting is not the problem. It's shorting when there are no more shares left to short. Without a solid locate to a specific share number, there is no way to track how many shares are truly available to short. Add that when people are double and triple selling shares, you get an infux of shares into the market that don't actually exist, you have a problem.

The repeal of the down tick rule is/was appaling. That was written when ticks were $.125, a $.01 tick rule is virtually useless with the current algo trading models available. They need to re-instate the up-tick rule at $.125 AND enforce laws regarding locates, delivery, and settlement. It isn't happening and THAT is leading to the downward spiral.

I've mentioned this before, but the 1929 market collapse was a combination of many factors, but primarily: over extension of credit (check), lack of regulation from dark pools (read hedge funds) (check), excessive speculation (check), market manipulation (check) and lack of an up-tick rule to stem the fall (check).
We are primed for a collapse of epic levels. This can be stemmed by ENFORCING current laws. There will be failures because of it, but it will prevent a decade or more of stagnation while we sort it out and recover (see Japan 1990).
No matter how you look at it, we are approaching a precipice and if we do nothing to change course, we will go right over the edge.

 

[$tinkle]

No matter how you look at it, we are approaching a precipice and if we do nothing to change course, we will go right over the edge.

it's laughable when al gore says this, and i can easily dismiss the claim.

with you, not so much. you're bringin me down, man.

 

[stoney]

it's laughable when al gore says this, and i can easily dismiss the claim.

with you, not so much. you're bringin me down, man.

Let me put it this way. Fiance' and I are in the process of changing our savings and investment structure to 30% of our pre-tax income, as a singular entity. In the process, we will each be setting aside a LOT of money into our 401k's. I have been hesitant to add additional funds into our 401/IRA/Investment accounts because there is no investment that I feel can weather a market fallout on par with what will come if the govt can't get the banks straightened out and HF's regulated.

Think about it this way, if we have 3-4 major banks go under, you will have nearly $100 TRILLION dollars of open trades now uncovered. These trades will fail, as there is no money to back them. That will in turn cause the counter party banks to lose hundreds of millions of dollars if not more. You can expect banks to start calling in margin when their books are about to blow because of failed trades. As these margin calls go out, Hf's and retail clients will need to start selling to cover margin calls, this will cause a major drop in the market causing the general public to start selling. At this point the balance will be negative as people expect the market to collapse as we can expect to see a 20%+ drop over a matter of a few days. As people freak out that their bank will fail as well (thank the media), they will pull deposits, causing evne MORE pain for the remaining banks leading to more failures. As major banks start failing, they will lay off more and more people. Finance as a sector produces 18% of the US GDP. When you start laying off workers that make up nearly 1/5 of the US GDP, other sectors start falling. Consumer cyclicals (discretionary) fall as people go into full save mode. More people get laid off. As more people get laid off, you start seeing incomes drop. If things do not turn around (which is not likely on a short term basis) other failures begin. Debt becomes an issue. Those banks with are surviving on their interest streams are at the whim of now unemplyed people - with no income. Credit cards default first, then automobiles, then homes. All of this on you prime level borrowers. If people are defaulting, they aren't buying big ticket items - automobiles or luxury goods. These companies will begin layoffs, etc, etc.
You will eventually hit a certain critical mass at which point the US is not taking in emough income from taxation to offset the payments for unemployment and interest on govt debt. This will lead to the Govt printing more money to pay debt, leading to inflation on an epic scale.

This is not a new concept. It happened in 1929, it happened to Germany between the world wars. I know this is 'worst-case' scenario, but if you step back and look at the debt levels of the country and the citizens, then look at our spending habits, you'll see the math doesn't add up. At some point the party ends and you get poor while you work out of debt. Grand promises of continued prosperity are just that. The bottom is falling out, it's just a matter of how fast and with how much control. Right now, there is no control and we are careening towards that cliff.

 

[$tinkle]

Let me put it this way. Fiance' and I are in the process of changing our savings and investment structure to 30% of our pre-tax income, as a singular entity. In the process, we will each be setting aside a LOT of money into our 401k's. I have been hesitant to add additional funds into our 401/IRA/Investment accounts because there is no investment that I feel can weather a market fallout on par with what will come if the govt can't get the banks straightened out and HF's regulated.

i'm confused. are you planning on dumping money into your 401k but keeping it in cash, and not stock/funds?

also: FRE trading below fiddy cents :vomit:

 

[stoney]

i'm confused. are you planning on dumping money into your 401k but keeping it in cash, and not stock/funds?

also: FRE trading below fiddy cents :vomit:

I want to, but I can't find a worthwhile location that is not at risk to large market fallout. I'm stuck between a rock and a hard spot.

 

[Samirol]

The subprime situation simplified into a slideshow with stick figures

http://www.slideshare.net/guestd5ab54/the-subprime-primer

 

[stevew]

So how far does the market fall today?

300.....

 

[ridiculous]

man i really hope so

 

[dante]

So how far does the market fall today?

300.....

I'll take the over on that one.

 

[stoney]

Well, we're down 300+ and the market's only been open for 25min...

 

[dante]

you never know what the bottom-feeders will do...

 

[dante]

Back to more than 300pts down, although my next question is: "What happens if the Fed doesn't cut rates tomorrow?" The market has baked in a 25bp cut tomorrow, and 75bp by the end of the year. Yikes!!

 

[stoney]

I'm showing the market has predicted:
85% no change
9% .25 decrease

 

[dante]

dunno, just going by the news stories...

Rate futures show high chance Fed will cut rates

Implied prospects for the Fed to lower the benchmark fed funds rate to 1.75 percent traded as high as 92 percent and have now subsided to 72 percent. On Friday, prospects for a September rate cut were a slim 12 percent.

 

[stoney]

Mine is coming straight off the Fed Funds Implied Probability estimates from Bloomberg. Live, not a news story.

 

[dante]

is that estimates, or is it based on fed funds futures?

 

[stoney]

Imp prob based on futures, options, and estimates.
The prob has changed. decrease to 1.75 now 72% prob.
I'll put money they go to 1.5 given today's action. If not, the floor will fall out.

 

[dante]

Imp prob based on futures, options, and estimates.
The prob has changed. decrease to 1.75 now 72% prob.
I'll put money they go to 1.5 given today's action. If not, the floor will fall out.

<----- runs off to roll coins to throw into the market when it gets down below 7500... :biggrin:


dunno, this reminds me of some Sci-Fi movie where the hero empties an entire clip into the monster, and then in a last bit of defiance throws the gun at the hulking creature. whether this upcoming rate cut is the last bullet in the gun, or it is the gun is still in question...

 

[stoney]

I'm voting that it's the last bullet. When AIG or WaMu fail, we've thrown the gun. When the other fails (AIG OR WaMu) we're f'ed.

 

[dante]

final DOW tally: -504.48

damn.

what i want to know, though, is what took so long? it was sitting at "only" down 240 or so for much/most of the day, and then finally took a nosedive at the end. I understand the lack of confidence causing the sell-off going into the end of the day (nobody wants to be sitting with a long position for the next 17 hours while bad news can come out), but who was buying earlier in the day?? any ideas?

 

[stoney]

I didn't see anything out of the ordinary. Volume was normal. Possibly a paint the tape close?

 

[dante]

I'm voting that it's the last bullet. When AIG or WaMu fail, we've thrown the gun. When the other fails (AIG OR WaMu) we're f'ed.

*click.. click...BANG!*

 

[ironspoke]

I spent 10 years in the mortgage business as an account executive and got out about a year ago when I was laid off from Credit Suisse. Best thing that ever happened to me professionally as it made me realize that the industry was in a total tailspin and I needed to get out there and then.

It was literally insane what was happening at the height of the boom.

It wasnt that long ago that newspapers like the USA Today were running stories on places in Florida that were appreciating in value 100% a year! Think about what that really meant. Literally they couldnt build the homes fast enough. People would sign the purchase agreements on these new construction, high rise properties on the beach and before their loan closed a month later the exact same unit on another floor was selling for $40-50k more. That was just nuts.

I remember back around 2001 or 2002 I toyed with the idea of buying one of those swank beach houses with a few other guys. The plan was to buy a property we really couldnt afford and put it on a 5/1 arm or some other I/O high LTV product. It never mattered even for a second if any principle would get paid down because a $500,000 property in 2002 would be worth $600,000 two years later. This was happening all over the country and a lot of people were basically doing this for a living.

When the missus laid down some good old fashioned common sense that it was crazy to even remotely think of getting involved with something as risky as real estate speculating, the idea fell apart. Man, I got a keeper in her.


Its easy to talk about the greed of Wall Street but without the consumers trying to cash in on this easy money they wouldnt have had any products to sell.

 

[$tinkle]

*click.. click...BANG!*

"BBB-minus"


dude.

 

[stoney]

Wamu is problematic, but AIG is the 500lb gorilla. $1 TRILLION in assets.
Who knows what their liability is, but given they are the largest insurer in the US, I'd assume it is high.
They also hold a very large amount of mbs/abs. That is where the real issues lie.

 

[Samirol]

Wamu is problematic, but AIG is the 500lb gorilla. $1 TRILLION in assets.
Who knows what their liability is, but given they are the largest insurer in the US, I'd assume it is high.
They also hold a very large amount of mbs/abs. That is where the real issues lie.

Just to put that in scale, the U.S navy is worth 1 trillion dollars, Texas would probably sell for around 1 trillion dollars.

 

[dante]

to also put it in perspective, AIG has a current "worth" of 6.2B dollars as far as market cap goes...

 

[Silver]

Its easy to talk about the greed of Wall Street but without the consumers trying to cash in on this easy money they wouldnt have had any products to sell.

Sure, except that the people on Wall Street sell themselves as professionals and they get compensated very well for it. That's like blaming a retard playing 3 card monte for the fact that he's losing money instead of the con man behind the table.

 

[X3pilot]

Sure, except that the people on Wall Street sell themselves as professionals and they get compensated very well for it. That's like blaming a retard playing 3 card monte for the fact that he's losing money instead of the con man behind the table.

Best goddamn comparison EVER.