I wanted to lead off with AIG and I hope that you had the opportunity to follow along last night when we made the following comment:
" AIG is now in focus and I will take the course of action that I should have taken with Lehman. AIG should be shorted as you see in my STOCKTRACKER PORTFOLIO because they also need cash and the Fed is in no position to lend it out. AIG is considered to big to fail but if I am JP Morgan and Citigroup why should we post $75Billion dollars by ourselves to pay for their mistakes. Even more importantly, AIG's ratings were downgraded tonight and that raises more implications where AIG has to come up with cash really quickly to pay contractual obligations that arise from ratings decreases."
Folks to emphasize the speed at which things are changing, I wanted to point that I learned about these latest developments last night after 545pm central and traded AIG during the aftermarket hours once I got home from work... and sold short AIG for $4.87. Between then and the opening of the market this morning we gained over 50%-80% in less than roughly 14 hours on timely information because the stock dropped to levels between $1.60 - $3.00. Jim Cramer has reminded us that BEARS AND BULLS MAKE MONEY...and PIGS get SLAUGHTERED, so I (bought to cover) the shares for a profit. AIG like most stocks then began to trade on rumors that it could get the funds it needed and moved up quickly to levels between $3.60-$4.40s. Well knowing the information that we obtained last night, all private equity firms had stepped away from the table and AIG was standing by itself unless it received help from the Fed. So I decided for the second time in less than 24 hours to short AIG... AGAIN I think the stock will fall because of the following:
1. There is not enough time for a buyout or AIG to sell assets - which would cause the stock to rise
2. Private companies have walked away and we know they will not fund the $75 Billion - which would have caused the stock to rise
3. The Fed has promised not to provide any more funding - which could cause the stock to rise
It appears our thinking was correct b/c NY Governor Patterson came out on CNBC urging that AIG needing additional capital quickly (Pt. 1), private equity walked away which brought the Fed back to the table (Pt. 2), and because AIG needs so much money and is considered too big to fail...the Fed WILL provide $85 Billion but they are requiring almost complete control of the company to ensure that all $85 Billion and more is returned to the Fed (Pt. 3) Well all these reasons point to the share price plunging because all scenarios leave the stockholders screwed. This stock may be trading below $1 tomorrow.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Morgan Stanley Breaking News
The street seems to have moved it sights to Morgan Stanley. Is there a RUN ON ALL BANKS!!! Late night reports say that MS is seriously considering whether the firm should remain solo or seek a merger with some large bank out there. There is alot of concern out there as the stock continues to swing back and forth. However, it appears that MS is watching all of this closely and does not want to make the same mistake that Lehman Brothers made.
Showing posts with label Lehman Brothers. Show all posts
Showing posts with label Lehman Brothers. Show all posts
Tuesday, September 16, 2008
Monday, September 15, 2008
The Aftermath...
I wanted to develop this post in response to a great comment from a reader, LLROOMTEMPJ:
"here's a stupid question for you. Now that lehman has filed for chapter 11, why would buying lehman now with an understanding that it may go back up in the future be a stupid idea?Is there no return from bankruptcy? Weren't there some airlines that filed chapter 11 that bounced back?i'm really an idiot, but if you could teach me, or direct me to some resources that would help me to make sense of things, it would be much appreciated."
My response: I wanted to say thanks for reading Urbanomics and I will answer you question to the best of my ability. You are correct Lehman has officially filed for Chapter 11 bankruptcy. I believe that buying Lehman now is not a sound decision because to my knowledge this firm as we know it will cease to exist.
Our first indication is that Lehman did not include any of their viable businesses that can still continue operate in its chapter 11 filing. It has businesses that act as brokers - dealers as well as Neuberger Berman (an investment advisory firm) that were specifically left out...because they still have VALUE. These viable businesses will be sold or liquidated to provide for more cash. I imagine other things like the headquarters (real estate) will be liquidated also. I believe that this decision is key because chapter 11 can give Lehman or more importantly Lehman's creditors the ability to reorganize of sell all the assets of the company and we already see the rush to sell those assets mentioned above quickly for their highest value. Unlike retailers, manufacturers, or airlines...Lehman does not have a lot of assets to sell to generate money to pay back all of the money it borrowed from banks (or creditors) so it must sell the businesses that make Lehman money (similar to how an airline might sell its planes) and with each sale of these assets Lehman begins to disappear.
Secondly, reorganization is unlikely because Lehman's biggest asset is it's NAME. People must trust the name to lend it money so that Lehman can make more money. There will be little trust in a company that has failed at managing your money if it came back.
Lastly, buying the shares at this point is not a sound decision because stockholders get no love in the PRIORITY of recovering money during bankruptcy. Anyone holding the stock will receive nothing and only creditors (usually banks who let Lehman borrow money) get PRIORITY. Once the stock is delisted, or removed from the stock market, it can still be traded but terms of the reorganization would terminate your shares...and leave you with NOTHING.
Hope this helps.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Today's Aftermath:
The only other thing I wanted to point out is that my long shot recommendation on Lehman was purely a high risk - high reward play. There were only two options BANKRUPTCY OR BUYOUT! And after reading my own post the other night I should have listened to myself and known that if the Fed has already promised not to assist in the process that it was a longshot.
AIG is now in focus and I will take the course of action that I should have taken with Lehman. AIG should be shorted as you see in my STOCKTRACKER PORTFOLIO because they also need cash and the Fed is in no position to lend it out. AIG is considered to big to fail but if I am JP Morgan and Citigroup why should we post $75Billion dollars by ourselves to pay for their mistakes. Even more importantly, AIG's ratings were downgraded tonight and that raises more implications where AIG has to come up with cash really quickly to pay contractual obligations that arise from ratings decreases.
"here's a stupid question for you. Now that lehman has filed for chapter 11, why would buying lehman now with an understanding that it may go back up in the future be a stupid idea?Is there no return from bankruptcy? Weren't there some airlines that filed chapter 11 that bounced back?i'm really an idiot, but if you could teach me, or direct me to some resources that would help me to make sense of things, it would be much appreciated."
My response: I wanted to say thanks for reading Urbanomics and I will answer you question to the best of my ability. You are correct Lehman has officially filed for Chapter 11 bankruptcy. I believe that buying Lehman now is not a sound decision because to my knowledge this firm as we know it will cease to exist.
Our first indication is that Lehman did not include any of their viable businesses that can still continue operate in its chapter 11 filing. It has businesses that act as brokers - dealers as well as Neuberger Berman (an investment advisory firm) that were specifically left out...because they still have VALUE. These viable businesses will be sold or liquidated to provide for more cash. I imagine other things like the headquarters (real estate) will be liquidated also. I believe that this decision is key because chapter 11 can give Lehman or more importantly Lehman's creditors the ability to reorganize of sell all the assets of the company and we already see the rush to sell those assets mentioned above quickly for their highest value. Unlike retailers, manufacturers, or airlines...Lehman does not have a lot of assets to sell to generate money to pay back all of the money it borrowed from banks (or creditors) so it must sell the businesses that make Lehman money (similar to how an airline might sell its planes) and with each sale of these assets Lehman begins to disappear.
Secondly, reorganization is unlikely because Lehman's biggest asset is it's NAME. People must trust the name to lend it money so that Lehman can make more money. There will be little trust in a company that has failed at managing your money if it came back.
Lastly, buying the shares at this point is not a sound decision because stockholders get no love in the PRIORITY of recovering money during bankruptcy. Anyone holding the stock will receive nothing and only creditors (usually banks who let Lehman borrow money) get PRIORITY. Once the stock is delisted, or removed from the stock market, it can still be traded but terms of the reorganization would terminate your shares...and leave you with NOTHING.
Hope this helps.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Today's Aftermath:
The only other thing I wanted to point out is that my long shot recommendation on Lehman was purely a high risk - high reward play. There were only two options BANKRUPTCY OR BUYOUT! And after reading my own post the other night I should have listened to myself and known that if the Fed has already promised not to assist in the process that it was a longshot.
AIG is now in focus and I will take the course of action that I should have taken with Lehman. AIG should be shorted as you see in my STOCKTRACKER PORTFOLIO because they also need cash and the Fed is in no position to lend it out. AIG is considered to big to fail but if I am JP Morgan and Citigroup why should we post $75Billion dollars by ourselves to pay for their mistakes. Even more importantly, AIG's ratings were downgraded tonight and that raises more implications where AIG has to come up with cash really quickly to pay contractual obligations that arise from ratings decreases.
Sunday, September 14, 2008
Lehman Brothers/Merrill Lynch/AIG
Three words just used to describe the state of what's currently happening in the financial markets: HISTORIC, DISTURBING, and ENORMOUS.
Credit is given to CNBC for breaking Sunday's developments in these three firms. I will update this posting tomorrow but in short summary:
1. Lehman will declare bankruptcy
2. Merrill Lynch has been forced by the Federal Government to sell itself...and Bank of America will be the acquirer
3. AIG is dire needs to acquire capital and is considering selling some of its assets
More to come!
Credit is given to CNBC for breaking Sunday's developments in these three firms. I will update this posting tomorrow but in short summary:
1. Lehman will declare bankruptcy
2. Merrill Lynch has been forced by the Federal Government to sell itself...and Bank of America will be the acquirer
3. AIG is dire needs to acquire capital and is considering selling some of its assets
More to come!
Saturday, September 13, 2008
Lehman Brothers - Should I buy?
Now I hardly ever write about just one stock because I usually don't get caught up in one story. For instance if you ask me what's on my Wall Street playlist I could list a number of chart bangers like long ESIO, short BIG, long RSYS, long STV, long CLCT, long PBR, long BNI, long CSX, long FDX and a host of other names in a few minutes.
But I wanted to take some time out to comment on Lehman (LEH). Lehman is in a very tough position as it stock keeps plummeting to all time lows (down roughly 95%). They have well respected business lines like the investment banking and money management divisions. However, the trouble lies in their real estate and mortgage portfolio where they are unearthing a large portfolio of risky investments.
Now let's fast forward to my interest in LEH. I am attempting to make a calculated bet here knowing all the pieces that have fallen into place in the last year. Bear Stearns, Fannie, Freddie, and numerous banks allow me to come to my own ODD conclusions of how this may play out. Well I do know a little about the financial industry and Bear Stearns, Fannie and Freddie were all to important for someone to just sit around and let go under. But the problem is that Wall Street and our government preach FREE MARKET CAPITALISM and this doctrine is supposed to allow the market of investors to decide the fates of these firms without interferences. Now here comes the glitch, the markets spoke and nearly drove all these firms to a state of BANKRUPTCY!!! So our government went against the FREE MARKET PRINCIPLE and stepped in and negotiated the Bear Stearns deals which lead to JP Morgan Chase buying that company out at a ridiculous price and more importantly the government assumed the liability of the risky assets that did Bear Stearns in. Then you have the Freddie and Fannie debacle, which are public companies but they are also government sponsored entities. If this doesn't make any damn sense to you either then raise your hand. Freddie and Fannie are owned by stockholders and when the stock began free falling the FREE MARKETS were telling us that there was lots of doubt around the financial health of these firms. Once again, going against FREE MARKET PRINCIPLE the government bailed out these firms by basically injecting the firm with loads of cash...and leaving the stockholders left holding an empty bag. Now many argue and I will agree that Fannie and Freddie couldn't be allowed to fail because they are too vital to our economy...backing roughly 1/2 of the country mortgage investments. I agree with these critics but then question why you would ever let a government entity of such importance ever trade PUBLICLY!!!
Knowing this lets move to Lehman. Lehman is just as important as Bear Stearns and signals to our country, economy and the global markets that our financial system is in BIG Trouble. The only problem is after bailout of Bear Stearns, Freddie and Fannie...the government can't afford to use MORE TAXPAYER money to rescue bad investments like it did with the other three firms. This point is very critical because it is what many believe is stopping Lehman from being acquired. Now bring the Federal Government back into the equation...because of the importance of Lehman (and what it means both locally and globally) the WANT a deal done to acquire Lehman. And WHAT THE FED WANTS THE FED GETS.
After analyzing this crazy turn of events I am taking a huge speculative bet and going LONG on Lehman's shares. Yup, I would take a little bit out of the piggy bank and buy Lehman because of the following reasons:
1. The Fed wants a deal done b/c Lehman signals financial disaster
2. The Fed will not use taxpayer money to buy bad Lehman assets (this will not cause the stock to become worthless like Freddie and Fannie)
3. Some parts of Lehman's business are actually worth buying
My shrewd calculations tell me that a deal gets done b/c the Fed says so and the stock with not become worthless b/c the government will not be injecting the cash. Very important b/c this is what left Freddie and Fannie shareholders crying. With some actual value still left in the company like Neuberger Berman, the headquarters it has to have some intrinsic value. My last support of evidence is the Bear Stearns collapse. The deal was initially negotiated by the Federal Government for $2 a share, which was the equivalent of handing a Lamborghini with a tiny scratch to a potential buyer for say $5,000...and the buyer was JP Morgan. Long story short, the government was forced to raise the value of the deal to roughly $10 a share. Now all things being the same...could Lehman go for $10 a share!!! I am willing to make that bet, however the only thing I struggle discounting is that RISKY BAD DEBT that the government won't buy...what's going to happen to it and who's left holding that worthless piece of investment (note: its looks like the Fed is strong-arming all major investment banking firms to pitch in and buy the bad debt). All that being said it I think an acquisition gets done, it may not be $10 but it should be higher than $4...right?!?
But I wanted to take some time out to comment on Lehman (LEH). Lehman is in a very tough position as it stock keeps plummeting to all time lows (down roughly 95%). They have well respected business lines like the investment banking and money management divisions. However, the trouble lies in their real estate and mortgage portfolio where they are unearthing a large portfolio of risky investments.
Now let's fast forward to my interest in LEH. I am attempting to make a calculated bet here knowing all the pieces that have fallen into place in the last year. Bear Stearns, Fannie, Freddie, and numerous banks allow me to come to my own ODD conclusions of how this may play out. Well I do know a little about the financial industry and Bear Stearns, Fannie and Freddie were all to important for someone to just sit around and let go under. But the problem is that Wall Street and our government preach FREE MARKET CAPITALISM and this doctrine is supposed to allow the market of investors to decide the fates of these firms without interferences. Now here comes the glitch, the markets spoke and nearly drove all these firms to a state of BANKRUPTCY!!! So our government went against the FREE MARKET PRINCIPLE and stepped in and negotiated the Bear Stearns deals which lead to JP Morgan Chase buying that company out at a ridiculous price and more importantly the government assumed the liability of the risky assets that did Bear Stearns in. Then you have the Freddie and Fannie debacle, which are public companies but they are also government sponsored entities. If this doesn't make any damn sense to you either then raise your hand. Freddie and Fannie are owned by stockholders and when the stock began free falling the FREE MARKETS were telling us that there was lots of doubt around the financial health of these firms. Once again, going against FREE MARKET PRINCIPLE the government bailed out these firms by basically injecting the firm with loads of cash...and leaving the stockholders left holding an empty bag. Now many argue and I will agree that Fannie and Freddie couldn't be allowed to fail because they are too vital to our economy...backing roughly 1/2 of the country mortgage investments. I agree with these critics but then question why you would ever let a government entity of such importance ever trade PUBLICLY!!!
Knowing this lets move to Lehman. Lehman is just as important as Bear Stearns and signals to our country, economy and the global markets that our financial system is in BIG Trouble. The only problem is after bailout of Bear Stearns, Freddie and Fannie...the government can't afford to use MORE TAXPAYER money to rescue bad investments like it did with the other three firms. This point is very critical because it is what many believe is stopping Lehman from being acquired. Now bring the Federal Government back into the equation...because of the importance of Lehman (and what it means both locally and globally) the WANT a deal done to acquire Lehman. And WHAT THE FED WANTS THE FED GETS.
After analyzing this crazy turn of events I am taking a huge speculative bet and going LONG on Lehman's shares. Yup, I would take a little bit out of the piggy bank and buy Lehman because of the following reasons:
1. The Fed wants a deal done b/c Lehman signals financial disaster
2. The Fed will not use taxpayer money to buy bad Lehman assets (this will not cause the stock to become worthless like Freddie and Fannie)
3. Some parts of Lehman's business are actually worth buying
My shrewd calculations tell me that a deal gets done b/c the Fed says so and the stock with not become worthless b/c the government will not be injecting the cash. Very important b/c this is what left Freddie and Fannie shareholders crying. With some actual value still left in the company like Neuberger Berman, the headquarters it has to have some intrinsic value. My last support of evidence is the Bear Stearns collapse. The deal was initially negotiated by the Federal Government for $2 a share, which was the equivalent of handing a Lamborghini with a tiny scratch to a potential buyer for say $5,000...and the buyer was JP Morgan. Long story short, the government was forced to raise the value of the deal to roughly $10 a share. Now all things being the same...could Lehman go for $10 a share!!! I am willing to make that bet, however the only thing I struggle discounting is that RISKY BAD DEBT that the government won't buy...what's going to happen to it and who's left holding that worthless piece of investment (note: its looks like the Fed is strong-arming all major investment banking firms to pitch in and buy the bad debt). All that being said it I think an acquisition gets done, it may not be $10 but it should be higher than $4...right?!?
Tuesday, September 09, 2008
My Dougie
Said she likes My Dougie, I'm Fresh!
If I just lost you then you need to check out this track by artist Lil Wil...in honor of the legendary Dougie Fresh (http://www.youtube.com/watch?v=TqeGZpHCURo). Down in Dallas, they have given this legend a new life with the younger generation as "My Dougie" is used to describe someone's style...Fresh. I hope the readers here at Urbanomics appreciate our blogging and hopefully you like our Dougie. And the reason why we think our style is fresh is because we hope to bring a difficult subject, INVESTING, and try to explain it to you in a very simple way.
To invest I've learned that you must have a certain style or swagger. The reason I say this is because with so much going on with the markets and in the news, you must remain calm and make informed and logical decisions. As we have written here before, to assist in that process I recommend that you take notes of things that you read and hear. Then perform additional research to assist you in deciding what to do. If you were following the news you would have heard about some of the following stories:
Lehman Brothers - One of the largest investment banks is struggling to raise capital as losses from investments continue to pile up.
Apple/Steve Jobs - Apple is unveiling a new iPOD touch, but all that is on the mind of investors is Steve Jobs and whether he is healthy.
Oil - Oil has dropped to levels of roughly 100$, and will OPEC allow it to drop any lower.
Fannie/Freddie - I love Alan Greenspan's (former Federal Reserve chief) comment that these entities were structurally flawed because they socialize losses and privatize gains! This is so true, when they are struggling the government bails them out, but when they were profitting the only people gaining were the private investors owning the stock.
Lastly, I have often talked about price points and how important they are when investing and getting your stock selections at a great price. My Dougie has helped me patiently wait and here are some of the stocks that I liked but I had to wait for great price points.
Electro Scientific (ESIO) - I have been patiently waiting for levels of 13.80s
Big Lots (BIG) - Big Lots has benefitted from the hard times as more people turn to discount retailers. This stock is not a result of my screening, just a informed decision that makes sense. They hit a 52 week high at 34.88 and I think they will decline from those lofty levels. With stimulus checks running out and higher costs hitting most retailers they appear to be a great short opportunity. I believe Walmart, Target and most recently 99 Cents (http://www.cnbc.com/id/26622876) are being affected by this. Big Lots is a great short above levels of 33.50$.
CSX Corp (CSX) & Fedex (FDX) - I have been saying for awhile I like the transportation sectors as oil prices continue to decline. Now I haven't identified a solid price point but this may need to be done as FDX is already raising their guidance which is causing the stock to rise. I am hoping to see the effect of declining oil prices to benefit these sectors.
I'm out, Get your URB on!
If I just lost you then you need to check out this track by artist Lil Wil...in honor of the legendary Dougie Fresh (http://www.youtube.com/watch?v=TqeGZpHCURo). Down in Dallas, they have given this legend a new life with the younger generation as "My Dougie" is used to describe someone's style...Fresh. I hope the readers here at Urbanomics appreciate our blogging and hopefully you like our Dougie. And the reason why we think our style is fresh is because we hope to bring a difficult subject, INVESTING, and try to explain it to you in a very simple way.
To invest I've learned that you must have a certain style or swagger. The reason I say this is because with so much going on with the markets and in the news, you must remain calm and make informed and logical decisions. As we have written here before, to assist in that process I recommend that you take notes of things that you read and hear. Then perform additional research to assist you in deciding what to do. If you were following the news you would have heard about some of the following stories:
Lehman Brothers - One of the largest investment banks is struggling to raise capital as losses from investments continue to pile up.
Apple/Steve Jobs - Apple is unveiling a new iPOD touch, but all that is on the mind of investors is Steve Jobs and whether he is healthy.
Oil - Oil has dropped to levels of roughly 100$, and will OPEC allow it to drop any lower.
Fannie/Freddie - I love Alan Greenspan's (former Federal Reserve chief) comment that these entities were structurally flawed because they socialize losses and privatize gains! This is so true, when they are struggling the government bails them out, but when they were profitting the only people gaining were the private investors owning the stock.
Lastly, I have often talked about price points and how important they are when investing and getting your stock selections at a great price. My Dougie has helped me patiently wait and here are some of the stocks that I liked but I had to wait for great price points.
Electro Scientific (ESIO) - I have been patiently waiting for levels of 13.80s
Big Lots (BIG) - Big Lots has benefitted from the hard times as more people turn to discount retailers. This stock is not a result of my screening, just a informed decision that makes sense. They hit a 52 week high at 34.88 and I think they will decline from those lofty levels. With stimulus checks running out and higher costs hitting most retailers they appear to be a great short opportunity. I believe Walmart, Target and most recently 99 Cents (http://www.cnbc.com/id/26622876) are being affected by this. Big Lots is a great short above levels of 33.50$.
CSX Corp (CSX) & Fedex (FDX) - I have been saying for awhile I like the transportation sectors as oil prices continue to decline. Now I haven't identified a solid price point but this may need to be done as FDX is already raising their guidance which is causing the stock to rise. I am hoping to see the effect of declining oil prices to benefit these sectors.
I'm out, Get your URB on!
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