Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
4.INVESTORS SEDUCED by CNBC and the STOCK CHARTS COMPLETELY MISS the BIG PICTURE! - 10th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22
Crypto Investors Stable Coins TERROR as Terra USD COLLAPSEs towards ZERO, Tether Next! - 11th May 22
INFLATION IS KILLING SILVER - 11th May 22
The Dominant Investing Theme of the Decade - 11th May 22
Is Bitcoin Headed to Zero? - 11th May 22
RECESSION RISKS 2023 - 10th May 22
The Future of the Dollar Seems So Bright It’s Blinding Gold - 10th May 22
Take Advantage When Markets Succumb to Fear - 10th May 22
How to Recognize a Less\ Than Obvious Opportunity (In focus: Corn) - 10th May 22
How to Ensure Financial Stability for Your Family - 10th May 22
The Stocks Stealth BEAR Market - 9th May 22
A Strengthening US Dollar Is A Double-Edged Sword - 9th May 22
Making Wise Investment Decisions - 9th May 22
Ways to legalize a Moving Company - 9th May 22

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

© 2005-2019 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