THE DOT - if this turns orange or red be alert

Wednesday, June 4, 2008

Another one bites the dust? Lehman in trouble

Lehman raising 4 Bil will be for sometime helpful to survive but not enough to bring confidence back to its clients and a broker needs clients to earn the bred and butter. Lehman has not much time left since its financing big chunks, part of is a 90 Bil of mortgage related assets (froom CDOs to real estate) who are negatively performing but still booked far above real value. Overall assets have still a huge leverage of 27 and even plain-vanilla parts are poised to loose money since the curve should get steeper with rising inflation. So they< have even a low duration book which generates close to nothing or they run a longer duration book which will loose money. They have to finance 90 Bil of assets which loose money and loose clients business thats a deadly mix and the only way to survive would be taken over I suspect. They do not need to go under chapter 11 as long as the FED keeps up this finance facilities without it they would be in the same situation as Bear Stearns. That is a positive for the strong brokers like GS and JPM who will win over plenty of new clients or business.
The technical picture is weak and further losses are in the pipeline within 3-4 weeks LEH should find a bottom in the lower 20s which is the overall timing for a bottom of the broader markets and should trigger a powerful rally in Q3.
SPX tested the 1370 neckline yesterday and managed to hold and we might hold the levels for a week in case of LEH the 30 area and 1370 for the SPX.

Astrological spin to this week an excerpt from R. Merriman:

But this week begins yet another strange transit. Heliocentric Mercury now begins its passage through the volatile sign of Sagittarius, June 1-12. Usually financial markets will commence a powerful 3-8 day rally or plunge during this time band. Add to that the observation that markets which are rising from the time Mercury turns retrograde will usually suffer a sharp collapse around the 8th calendar or trading day, and you get a picture of some fireworks likely to unfold this week. The 8th day of Mercury retrograde coincides with June 3-5. June 3 is also the New Moon day—a Gemini New Moon. Gemini is an erratic sign in terms of market behavior too, so it all points to a very volatile trading week coming up.

but we are in an interesting time frame due to the other excerpt

Financial Astrologers will be pleased to hear that the Mercury and Neptune retrograde principles were very much in evidence last week. As stated in last week’s column, “Compounding this frustration is the fact that both Mercury and Neptune turn retrograde on Monday, May 26. Accuracy and facts are in short supply, in favor of misleading or even intentionally deceiving projections of information. Mercury is the planet of communication. Neptune is the planet of aesthetics on the one hand, but with Mercury, trickery and misdirection on the other. Many false rumors or accusations could be intended to harm the reputation of someone in the public eye. In terms of Financial Astrology, Neptune also pertains to oil, and the runaway blow-off in oil and gasoline prices may not be accurately explained in the news media.”

This Neptun retrogade also as expected marked the high in crude oil and we hear a lot of arguing about the possible manipulation and a phony CFTC investigation into the matter of manipulation. Just grab the book reminiscence of a stock operator and you will be aware since markets exists always some manipulation is going on and that includes the PPT (Plunge Protection Team) which was initiated by Reagan after the 1987 crash.

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