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Tuesday Tear-Down, This Time It’s Lehman

What a disastrous day!

After running up to 11,575 shortly after the open, the market fell off a cliff and closed 345 points down from there at 11,230.  We have retraced all of Monday's gains and sit back on Friday's close, with Friday's low still 200 points below us.  91% of the S&P 500 lost money today as did ALL 10 sectors – we finally got heavy volume (1.7Bn on the NYSE) and it was almost all selling.

LEH led the collapse, falling 45% from its open.  Things seemed all right at first, they had already taken a hit on the withdrawal of the offer from Korea yesterday and this morning (5:30) they announced a conference call for next Thursday in which they would discuss "key strategic initiatives for the firm" as well as Q3 earnings.  Richard Bove came out with a much wider loss estimate for LEH at 8am, up to $3.17 from $2.32, estimating they would lose $7.39 for the year but MER UPgraded them to neutral pre-market based on their improved ability to attract capital.  Even Cramer's had a bullish report in the morning

So where did it all go wrong for LEH?  Well CNBC hit them at 9:59, as the stock was recovering from a morning gap down with "Lehman Shares Fall as Korean Investment Grows Dim" (note this has been updated since then but original title is on this page) then Forbes hit them with a video-cast "Lehman's Fate remains Uncertain" at 10:40 as well as the print version "For Lehman, Uncertainty Looms."  By 11, the stock was already down at $9.75 from a $14 opening and the XLF had already begun gathering downward momentum which continued all day. 

While nothing actually happened to LEH in the morning, by the afternoon the S&P put them on credit watch due to the drastic loss in share value, effectively locking them into their basement position.  Over $5Bn in shareholder value was lost today but that's nothing compared to the $40Bn they had already lost since early this year.  Things got so dire in just 6 hours of trading that the company announced they were moving up their earnings call to tomorrow morning, which didn't really help the stock but at least we'll know what's really up in the morning.

Steel was not at all up today with that whole sector trading down 11.6% on the day lending credence to the idea that $101.87 oil may indeed be a bad sign for the global economy.  The overall commodity sector fell 1.7% led by many gold miners hitting 52-week lows.  On the whole, a truly terrible day in the markets…



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  1. my favorite line is in bold:

    IEA Lowers Oil Demand Forecast as U.S. Curbs Spending (Update1)

    Sept. 10 (Bloomberg) — The International Energy Agency, an adviser to 27 nations, cut its forecast for global oil demand in 2008 and 2009 as high crude prices and the economic slowdown reduce U.S. consumption.

    The IEA lowered its 2008 forecast by 100,000 barrels to 86.8 million barrels a day, and the 2009 estimate by 140,000 barrels to 87.6 million barrels a day, the Paris-based agency said today in its monthly report. Declining consumption in developed economies is partly offset by higher fuel demand forecasts for China, India and Iran.

    “A combination of weak economic prospects and persistently high prices appears to be having an impact on consumer behavior and choices,” David Fyfe, the head of the IEA’s oil industry and markets division, said in a telephone interview.

    Oil prices have fallen about 29 percent since reaching a record $147.27 in New York in July, as drivers in the U.S., the world’s biggest gasoline consumer, switch to smaller cars and make fewer journeys. Slower demand led the Organization of Petroleum Exporting Countries today to limit production at levels below current output. The IEA warned that the drop in U.S. consumption may last longer than previously expected.

  2. Xian – that bold line is repeated in almost all the news reports (trade) on oil. :-)

  3. Asia Markets :    Wednesday, September 10, 2008
    (The following is from WSJ; please cross check with other sources to confirm.)   

    Nikkei Average*               12346.63      -54.02    -0.44%
    Hang Seng*                     19999.78    -491.33    -2.40%
    DJ Shanghai*                       230.77          0.89     0.39%
    Seoul Composite*            1464.98        10.48     0.72%
    Bombay Sensex*             14662.61    -238.15    -1.60%
    Baltic Dry Index                   5255.00    -237.00    -4.72%

  4. Reuters Asia Market Summary
    Asian Markets Decline on Lehman Fears, Oil Gains

    Asian stocks weakened Wednesday, hurt by financial shares ahead of results from Lehman Brothers, which has been rocked by the same crisis that led Washington to take over Fannie Mae and Freddie Mac this week.

    Japan’s Nikkei finished 0.4 percent down, led lower by blue-chip exporters on concerns about the global economic outlook and a stronger yen. A fall in oil prices dented energy shares But banks,  rose sharply, ahead of Lehman Brothers’ release of "key strategic initiatives" and quarterly results due later in the session.

    South Korea’s KOSPI closed higher after initially losing up to 1.7 percent earlier in the session.

    Australian shares fell 1.5 percent, as miners slid on falling metals prices and banks fell on fresh worries about U.S. banks’ ability to cope with mortgage losses.

    Hong Kong shares dropped 2.4 percent as commodity-linked stocks were walloped by falling oil prices and Chinese property shares slumped on more broker downgrades following grim August sales figures.China’s once red-hot property market has been faltering since the end of last year as the economy shows signs of slowing, cooling speculative purchases in high-end urban areas.

    Singapore’s Straits Times Index was down 1.6 percent with banks leading the losses.

    China’s Shanghai Composite Index rebounded, up 0.2 percent as blue chips were bought across the board after slightly better-than-expected consumer price inflation data. But while turnover rose from Tuesday’s very low levels, it stayed thin, and analysts said it was not clear that any extended recovery of the stock market was starting, given concern about slowing corporate profit growth and heavy supply of fresh equity.

    The Bombay Stock Exchange’s 30-share Sensex Wednesday closed at 14,657.53, down 243.23 points or 1.63 per cent from the previous day’s close. The Indian rupee today breached the crucial 45-level against the US currency for the first time after November 2006 following sustained appreciation in dollar against major currencies in overseas markets. Augurs well for exporters but analysts fear higher inflation.

  5. Reuters Euro Market Summary

    Euro Stocks Sag as Lehman Hits Banks

    European stocks fell early on Wednesday, led by banks after troubles surrounding Wall Street firm Lehman Brothers reignited fears over the health of the banking system.

    But the drop was limited by gains in the pharmaceutical sector, with French drugmaker Sanofi-Aventis rising 3.8 percent on expectations Chief Executive Gerard Le Fur would be replaced by GlaxoSmithKline executive Chris Viehbacher.

    The FTSEurofirst 300 index of top European shares was down 0.2 percent at 1,153.12 points.

    European banks were among the biggest losers, with Banco Santander down 2.1 percent and Barclays down 2.6 percent.

    The DJ Stoxx bank index was down 1.5 percent. The index has fallen 30 percent in the year to date.

    But Lehman shares in Frankfurt were up more than 10 percent.

    The FTSEurofirst 300 has lost 24 percent so far this year, hit by recession fears, worries over inflation as well as concerns on the impact of a crisis in the credit market on the banking sector.

    Energy shares also gained ground, trimming some of the previous session’s sharp losses as oil prices rose after OPEC agreed a small but unexpected production cut.

  6. Oil Rises Toward $104 on OPEC Output Cut

    Oil prices jumped more than $1 a barrel on Wednesday, reversing early losses after OPEC unexpectedly agreed to effectively cut production by just over 500,000 barrels per day (bpd) from July levels.

    U.S. light, sweet crude [  103.36    0.10  (+0.1%)] for October delivery was up, reversing earlier losses of more than $1 a barrel after OPEC decided to trim its production ceiling to 28.8 million barrels per day (bpd).

    London Brent crude [ 100.93    0.59  (+0.59%)] rose after briefly dipping below $100 for a second day. Prices hit their lowest in five months on Tuesday.

    After hours of wrangling, OPEC on Wednesday agreed to revise its complex output targets and said the move would effectively cut supplies by half a million barrels per day (bpd).

    "OPEC is basically cutting the amount which Saudi had increased. Oil prices jumped initially after the news but we are not surprised by the amount of the cut. I don’t think the cut can actually stop the current downtrend in the oil market," said Susumu Ogasawara, a manager at Ace Koeki in Toky0.

    US Inventory Data: Gasoline stockpiles were seen falling by 4.2 million barrels and distillates by 2.7 million barrels in the data.

    Dollar Slips Before Lehman Announcement

    The dollar slipped against a basket of currencies on Wednesday as traders braced for a survival plan by Lehman Brothers Holdings, as well as quarterly results which are expected to be grim. The U.S. currency was also weighed by a rebound in oil prices from a five-month low after the world’s major oil producers agreed to a small but unexpected production cut.

    The yen hit a 13-month high against the euro earlier in the day.

    The euro [1.4092    -0.0039  (-0.28%)    ] was flat against the dollar, but increasing worries about a growth slowdown in the euro zone kept the single currency near an 11-month low of $1.4045 hit on Tuesday.

    The dollar slipped 0.2 percent versus a basket of currencies belonging to the U.S.’s biggest trading partners.

    The greenback [ 107.4    0.61  (+0.57%)   ] was up versus the yen, but hovered in range of a near two-month low around 105.50 yen hit earlier in the month. The yen had received a broad lift in early Asian trade after shares in U.S. investment bank Lehman posted their biggest one-day fall on record on Tuesday, causing investors to dump risky, yen-funded carry trades.

    Gold recovers as oil rises on OPEC output move

    Gold recovered in Europe on Wednesday after hitting an 11-month low in Asian trade with rising oil prices boosting bullion’s appeal as an inflation hedge and on strong physical demand.

    Gold was at $775.50/776.60 an ounce against $775.80/777.80 in late New York, well off its session low of $762.55 an ounce, its weakest since Oct 2007.

    Among other precious metals, platinum and palladium both slipped sharply as investors worried about the outlook for demand from carmakers, who are major consumers of both platinum group metals. Platinum fell to an 18-month low of $1,196.50, down more than 3 percent on the day, while palladium slid more than 5 percent to $219.50, its lowest since November 2005.

    Platinum later recovered to trade at $1,202.50/1,222.50 an ounce against $1,236.00/1,256.50 late in New York on Tuesday.
    Palladium was at $228.00/233.00 against $234.00/242.00.
    Silver slipped to $11.22/11.28 from $11.39/11.47.

  7. ike projected path…human danger aside, this looks like it’s teeing up perfectly to cause an oil rally (especially when we consider the OPEC move.

    i might buy calls on USO…anyone have ideas, or opinions on this.

  8. C- strange…max pain is centered on 25- although, i dont put much weight on that, it’s still saying something about the way traders r positioned.

  9. xian,

    Seems that Max Pain targets has been quite off in the past few months.  Was it better when markets were less volatile?

  10. xian – Oil does not look to have a rally coming off of the Hurricane.  Ike is situated in an area where water temperatures are warm but not hot like you would expect this time of year.  Also there is moderate shear above the storm that will inhibit its strength.  That is not to say that Ike will not have winds up to 130 mph, but it will not be a devastating Cat 4 and travel directly through the peak offshore drilling area.

    OPEC cut does not match demand destruction of 6-8% that is occurring.  They need bigger news like a war to forment a rally IMO…

  11. fab- i havent really studied it, but i check it out b/c of habit and b/c it’s easy enough to look at.

    from my recollection, it works half the time and fails half the time- pretty much random. yet, i do have the sense that volatility makes it much less reliable- if things can b can less reliable than random- and that slower stocks r the best candidates for this to matter.

    in short, i dont really know.

  12. oil- thanks david…i dont feel right going long anyhow. im just looking for a good reason to get more short and thought in the meantime ill play it long if this is a catalyst…im better off just playing my putters.