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Monday, September 15, 2008


The headlines this morning aren’t good. It’ll take a while to catch up…

Lehman Files for Biggest Bankruptcy as Suitors Balk (Update2): “Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.

The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.”

Wow. Just wow. On Friday I said Lehman: Will Get Sacrificed, No Bailout:

“Lehman doesn’t stand a chance here.

These guys are going to get sacrificed…”

Bank of America to Acquire Merrill as Crisis Deepens (Update1): “Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co. for about $50 billion as the credit crisis claimed another of America's oldest financial companies.

Bank of America will pay $29 a share for New York-based Merrill in stock, 70 percent more than the Sept. 12 closing price, the company said in a statement today. Merrill, battered by $52.2 billion in losses and writedowns from subprime-mortgage- contaminated securities, has plunged more than 80 percent from its peak of $97.53 at the start of last year.”

Wow. Well, this stops the second domino from falling as the first goes up in flames…
Merril Lynch (MER) clearly knew they’d be next and cut what probably amounts to the fastest deal ever. The poor bastards at Bank of America (BAC) probably haven’t slept in weeks.

The largest component of the Financials UltraShort ETF (SKF) is BAC. I highlighted the three largest components in the post Time to Go Ultra Short Again.

China Cuts Rates as U.S. Turmoil Adds to Global Risks (Update2): “China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves as worsening credit-market turmoil and weakening export demand dim the outlook for economic growth.

The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio at the nation's smaller banks by 1 percentage point. The changes were in a statement on the central bank's Web site today.”

China will feel the pain too. Remember, they produce to export.

Stocks Drop Worldwide as Treasuries Surge on Lehman Bankruptcy: “Stocks tumbled worldwide, the dollar fell and U.S. Treasuries surged after the bankruptcy of Lehman Brothers Holdings Inc. drove investors to the safety of government debt.

Equities dropped in Europe and Asia, led by a 36 percent tumble in HBOS Plc and a 10 percent decline in Macquarie Group Ltd. Futures on the Standard & Poor's 500 Index fell 4 percent as American International Group Inc. sank 46 percent. Russia's Micex Index declined 5.3 percent, leading a retreat in emerging markets.”

ECB, BOE Join Fed in Soothing Markets After Lehman (Update1): “The European Central Bank and the Bank of England joined the Federal Reserve in taking action to soothe financial markets spooked by Lehman Brothers Holdings Inc.'s bankruptcy filing.

The ECB said it awarded banks 30 billion euros ($43 billion) in a one-day money-market auction that was more than three times oversubscribed. The Bank of England loaned banks 5 billion pounds ($9 billion) for three days. Earlier, the Federal Reserve widened the collateral it accepts for loans to securities firms.”

Oil Falls More Than $7 as Lehman Fails, Ike Spares Refineries: “Crude oil fell more than $7 to a seven-month low as Lehman Brothers Holdings Inc. filed for bankruptcy and refineries along the Gulf of Mexico escaped major damage from Hurricane Ike.

Futures dropped on speculation turmoil on Wall Street and the worsening credit crisis may slow the global economy, cutting energy demand. ICE Futures, the exchange for Brent oil, suspended Lehman's access. Refiners said preparations are under way to restart plants in the Houston area, home to more than 20 percent of U.S. refining capacity.”

Credit-Default Risk Soars After Lehman Files for Bankruptcy: “Concern the $62 trillion credit derivatives market will unravel increased after Lehman Brothers Holdings Inc. filed for bankruptcy.

Benchmark gauges of corporate credit risk rose by a record in Europe, and traded at an all-time high in North America, after an emergency trading session in New York yesterday where investment banks sought to minimize losses from Lehman's collapse. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.

Lehman, the fourth-largest securities firm until last week, has been one of the 10 largest counterparties in the market for credit-default swaps, according to a 2007 report by Fitch Ratings. The market, which is unregulated and has no central exchange where prices are disclosed, has been the fastest-growing part of so-called over-the-counter derivatives, according to the Bank for International Settlements.”

I’m not gonna lie. I’m sitting pretty today. I’m short the entire financial AND commodities complex.

For high frequency, short term traders such as myself, today is going to be a wild party.


Anonymous said...

Kaboom what down only 200 pts..Business as usual...Now we know for sure that market are manipulated...Look at a chart and you won,t be able to tell that LEH just went bully up and that there is panic...No panic at all..NADA

Ben Bittrolff said...


The day isn't over yet.

Rumors are the Fed will do a fifty basis point emergency cut.

Cut or no cut... the game is over. It just hasn't sunk in yet.