MARKET COMMENT
For Sept. 11, 2008. Courtesy of Dave Fry, ETF Digest.
"this is the most manipulated market I’ve experienced in 35 years of trading"
September 11, 2008
It’s hard to believe 7 years have passed since that sad day. But so it has.
It was another strange day to say the least. Market internals reveal terrible breadth despite the headline index numbers. But a late day rumor suggested Bank of America will buy Lehman or maybe just a piece like Neuberger Berman. That accounted for the big time stick save in the last half hour. LATE BREAKING: As I go to post this, another rumor is circulating of an imminent Fed rate cut. This is “not” what the market needs right now since rates are already ridiculously low. If true, the dollar would fall and commodities rally along with stocks. I can’t imagine it helping bonds other than short term. Then, if that’s not enough, the Washington Post reports the Fed is working overtime to arrange a shotgun wedding for LEH before Asian markets open Sunday.
According to the WSJ buyers for LEH assets would come out of the woodwork to make bids if the Treasury or Fed “encouraged” them. What BS! What they might be saying is two things: first BAC may have had the largest counterparty exposure to LEH and the Fed and Treasury are greasing the deal. Moral Hazard be damned–“in for a penny, in for a pound.” 
Lehman Brothers in Sales Talks; B of A Seen As a Potential Suitor
By MATTHEW KARNITSCHNIG, CARRICK MOLLENKAMP, SUSANNE CRAIG and ANNELENA LOBB
September 11, 2008.
Lehman Brothers Holdings Inc. is actively shopping itself to potential suitors, including Bank of America Corp., people familiar with the matter said Thursday. The need for a sale intensified as Lehman’s shares dropped 45% in Thursday trading, creating new doubts about its ability to trade with other Wall Street firms while keeping its best talent.
But potential buyers remain wary about plugging holes in Lehman’s balance sheet, and are increasingly looking to the U.S. government to help backstop future losses, according to people familiar with the talks. A number of these buyers would "come out of the woodwork," if the U.S. were to step in, said one person monitoring the process. It remains unclear whether the U.S. Treasury or Federal Reserve would take such steps, as was done when the government assisted J.P. Morgan Chase & Co. in its Bear Stearns takeover in March.
Bank of America, which is holding preliminary discussions about a transaction, appeared to be Lehman’s best hope on Thursday afternoon. BofA may only do a Lehman deal if it is encouraged by the federal government, since it has its hands full digesting mortgage lender Countrywide Financial Corp. Still, the situation was so fluid Thursday that people involved in the deal talks said it was too soon to say what shape a sale would take or if it would happen at all.
Without explicit government support, a range of other suitors have proven uninterested in absorbing Lehman and its $600 billion balance sheet. Goldman Sachs, for example, is not bidding on the company, said a person familiar with the matter. Other much-discussed buyers, including France’s BNP Paribas SA, the UK’s HSBC Holdings PLC, Germany’s Deutsche Bank AG, Spain’s Banco Santander are not expected to participate.
The Fed for its part kicked-in $21 billion in extended repurchase agreements today. So, maybe they anted and are “in”.
As we head to Friday we should remember another weekend bailout is at hand perhaps. This is a very hard market to deal with since you can’t seem to string together durable trends in US equity markets anyway. Why is that? Because this is the most manipulated market I’ve experienced in 35 years of trading.
Is it any wonder then we’re carrying 70-90% cash positions?
If the government backstops potential losses thru a deal to save Lehman Bros. it shouldn’t shock anyone. It will lead to a knee jerk rally and then we’ll have reality to deal with once again as in an ongoing credit squeeze continues to keep home prices falling. That’s because no one can qualify to buy a home even from the few willing to lend. And, lest we forget, there’s WaMu yet to contend with and an assortment of regional banks in trouble.
Let’s see how many smaller banks the FDIC seizes this weekend.
In the meantime, enjoy your weekend.
Disclaimer: Among other issues the ETF Digest maintains long or short positions in: SDS, QID, SMN, SIJ, XLP, UGE, XLV, RXL, XLU, SDP, IEF, TLT, UUP, DRR, GLD, DZZ, DBC, DEE, EFA, EFU, EEM, EEV and FXI.
