Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Lehman Brothers Next Wall Street Bank to Go Bust?

Companies / Credit Crisis 2008 Mar 18, 2008 - 01:05 AM GMT

By: Nadeem_Walayat

Companies In the wake of Bear Stearns Firesale to JP Morgan, which itself is far from immune to panic withdrawals, the credit crisis loss of confidence contaigent appears to have Lehman Brothers in its sights. Panicking Wall Street investors who saw their shares in Bear Stearns go from $62 to $2 in a matter of days dumped stock in Lehman Brothers on Mondays opening. The stock traded down to $20 on Monday before rallying and closing at $31.75 down about 20% on the day.


Lehman's Chief Executive issued soothing statements that the investment bank had more than $35 billion in cash, which were reminiscent of last weeks announcements by Bear Stearns CEO on Tuesday that everything was okay.

Chart courtesy of bigcharts.com

Lehman brothers like Bear Stearns is a big player in the over leveraged and now deleveraging derivatives market, where a relatively small loss of 5% could wipe out the bank due to the estimated 30X leverage deployed.

Would the US Fed Step in to Save a Collapsing Lehman Brothers ?

Well that would depend on whether the Fed considered Lehman Brothers failure would result in a cascade of failures amongst its derivatives counter parties.

Whilst Lehman Brothers CEO can make appearances on CNBC to talk up the banks balance sheet. The fact is that if the banks creditors, mainly other banks, brokers and hedge funds panic, then it would all be over for Lehman brothers within hours. So the key is too look for indications of what actions the banks customers are taking in that respect and what the stock price is saying. In that respect the bounce from $20 to $31.75 is positive, however should Lehman Brothers break below $20 then it would indicate imminent collapse. On the other hand if its clients are able to hold their nerve and not panic then this may prove the long-term buying opportunity of a lifetime! Though don't take that as any sort of recommendation to buy ! Not under current market conditions. As the sale of Bear Stearns to JP Morgan is NO BAILOUT ! No, you can not class Bear Stearn shareholders losing 97% of the value of their investment in 2 days as a bailout.

US Interest Rate Cut

Forget 0.25% or 0.5% Cut at Tuesday's FOMC meeting, the market panic ensures that the Fed is going to cut by at least 0.75% and possibly as much as 1%. This being an election year, the US Fed has no choice but to abandon the US Dollar in an attempt to avert a pre-election recession. Today 2%, then what ? 1%, 0.5%?, follow Japan into 10 years of economic stagnation ?

The consequences of the rate cuts will be for a further sharp falls in the US Dollar against most major currencies, with the price of inflation to pay later in the year and well into 2009.

So many uncertainties and so much volatility!

By Nadeem Walayat

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article if published in its entirety, including attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in