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?!?

Keepin' It Real / Urb Update: China Digital Holdings (STV)

My job here is to keep it real and keep hitting you with the truth. Kinda like real hip hop in my day when Public Enemy came out with the track “911 is a Joke”. So get up a get get get down 911 is a joke in your town! Well I wanted to finish posting my thoughts about the economy as I had promised in my last post. A few things have changed that will start to temper my views, however. But in honor of Public Enemy I will “keep it real” and hit you with my true assessment of how the economy and the market look at this point. When I sat down and took notes about what I was going to write it was just about the economy…and I believe it will be important to also write about the market. Because although similar the two do not necessarily go hand in hand. The economy represents the REAL, the everyday real time stuff that going on today. Houses being foreclosed on is REAL, prices of copper (and people beginning to steal copper from construction sites) is REAL, the price of gas is very REAL. And the market is based many times on Interpretation…you often have to ask yourself what do I think is going to happen to the market or this stock and how did I just interpret data or information provided by the market, or Ben Bernanke (Federal Reserve Chairman) or the chief executive of the corporation that I own. So stayed tuned for that because I just remember that my views on the economy haven’t changed… but with an emergency rate cut of .75%, and now another rate cut of .50% begins to change my views on certain segments of the stock market.

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URBANOMICS UPDATE: SELL CHINA DIGITAL HOLDINGS (NYSE: STV)

For the 3rd time in less than 2 weeks I have bought and sold STV for more than 5%! I told you that I have just begun the art of reading charts and the charts don’t lie. I used to laugh at those commercials that promise to make you a chart reading pro, and even though I still think that they are a bunch of bulls$#@!, I am beginning to understand the rewards of chart reading. URB REAL LIFE EXAMPLE: My most recent example is based on my recommendation, I told you that my price point for STV was $21.50. STV fell to my targets and I received an alert yesterday to determine if I wanted to buy the stock again for the 3rd TIME! So I watched in and decided to get in YESTERDAY (1/30/08) @ $21.25. STV is up almost 10% today and I will place a limit order to sell the stock somewhere above $23.25. I will reflect this sell in my stock tracker also. And again if STV hits my target I will buy it for the 4th time and attempt to pick it up in my stock tracker also…so that you can see that multiple roundtrip buy and sell orders can be made on this stock.

Enjoy!!!

~J. Gotti

Trying to Catch My Breathe...

Or better yet, "Let Me Clear My Throat". I am trying to catch up to a few things so far. For example, I wanted to follow-up on a previous post and I'd like to respond to a reader's comment left recently and of course I want to drop my personal thoughts on something that I nailed right on the head.

Follow-up to My Previous Post

First thing, is I wanted to briefly follow-up on my previous post that I was just now able to get around to. I really like Radisys (RSYS) at these levels and even in this volatile market...I stray away from posting a new Superman Price, but if I were it would go a little something like this. I am sticking to my original price point of $12.25, but I would Superman RSYS @ $11.85. Hopefully you'll remember some of my writings on price points because as I become better reading charts I really like using these points to determine my buys and most importantly my REPEAT BUYS. My real life example is today my limit order for RSYS filled at 11.85 and that is my repeat buy.

Next matter on hand, China Digital Holdings (STV). Warning, this is a very volatile stock so those with queasy stomachs beware. I will need to continue to monitor this one close but I stick to my earlier price points from my previous post. I bought at $21.50 and noticed quick profit taking at resistance levels of 22.70, maybe 23. Since then I have purchased and sold at the prices described here. And to show that I stand by my points I had a limit order fill today at roughly $21.50, and I will sell again at 23. Note: Although volatile, I believe this will continue to trade in this range for awhile. As noted I have already bought and sold this stock in the range and I will keep doing so for small but effective 5% gains. The first time it took two days to reach my 5% target and today when my 2nd limit order filled, I was please to see that our target hit again on the same day! I will be selling STV, very likely by tomorrow and looking to buy again and continue picking away at the 5% target.



Reader Response

Click here for my Reader Response to: Subzero Mortgage Freeze

That nasty word...RECESSION:

and stay tuned for why I called the recession awhile back!

Disclosure: I own shares of RSYS & STV

Out of Sync...

This posting should be easy. Technically it was written on January 17, but it saved away on another laptop so this is the first opportunity that I have had to post my thoughts. It goes a little something like this:

Yep this year my goal is to sync up my recommendations with the handy little portfolio tracker that you see to your right of my site. This will help you understand how our recommendations are doing. The hard part is that it will never completely be accurate because the market is all about timing. When I recommend price points to you, I go out there and put a limit order to buy that stock, which helps me not have to follow its every move or make spontaneous buy or sell trades.

Limit Trade Definition: Instruction to execute an order for a stock only at a specified price or better. The broker continues the order until a specified date or until the customer terminates it. Assume an investor places a limit order to buy at $10 or less a stock now selling at $11. If the stock goes up to $20, the broker will not execute a buy order; if it falls to $10, the broker will execute a buy order immediately. (Courtesy of allbusiness.com)

Great examples:

Rite Aid (NYSE: RAD) – I recommended selling this stock here on my post but it remained on the tracking tool to see if my recommendation to sell if for a small loss was correct. And that appears to be a good decision, we sold RAD for a loss because we didn’t believe the fundamentals were there and the stock ended up plummeting even further. So that is an example of how the tracker can be used to display my thoughts, even though the losses appear much worse. Don't believe I recommended selling, use the search tool and look for all postings about Rite Aid or RAD.

Radisys (NASDAQ: RSYS) – This stock is an example of what I hope to be able to do from here on out when I recommend a stock. I post it here @ URBANOMICS and then buy/track it on my stock tracking tool. NOTICE, my price point for RSYS is $12.25 and I will place a limit order for this price until it fills (See limit order definition above). However, because the stock tracking tool does not accept limit orders I have to buy it at whatever price is available at the time (which I believe was $12.38).
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New Recommendation – China Digital Holdings (NYSE: STV) is a BUY

China Digital Holdings (NYSE: STV) This is a great play, where I can’t take credit for finding this stock. Disclosure: This stock was not produced by my stock picking strategy, therefore I don’t have a lot of info which came as a recommendation from a friend who has been following the stock more closely. It’s Initial Public Offering (IPO), or the first sale of a corporation's stock to the public, was last year and it took off. But when the market cooled this stock cooled even faster. So my friend brought the stock to my attention and as my strategy often calls I began reading the chart of STV to identify a floor or resistance level for the stock. An easy floor if you believe the stock will rise and continue to do well is the 52 week low. I researched STV and found that the 52 week briefly brushed $20.64 yesterday and after looking at previous closing prices and intraday lows I developed my price point of $21.50.

Collectors Universe (NYSE: CLCT) – This a stock I have recommended in the past and they offer a huge dividend payout at the tune of 8%. I am re-recommending CLCT at 11.01 to take advantage of dollar cost averaging down, the dividend and potential growth.