Lehman to Announce Earnings and 'Key Initiatives' Tomorrow

AP
Battered Lehman to announce 'key' initiatives
Tuesday September 9, 7:08 pm ET

Lehman Brothers will announce third-quarter results, strategic initiatives early Wednesday

NEW YORK (AP) -- Lehman Brothers says it will unveil a set of "key strategic initiatives" early Wednesay as the embattled investment bank faces down investor concerns that it's running out of options to raise badly needed capital.

The announcement from Lehman late Tuesday came on the same day investors drove the company's shares down 45 percent to their lowest level in more than a decade.

The bank also said it would announce its quarterly results early Wednesday, a week ahead of schedule. It is expected to report a multibillion dollar loss.

Citigroup's Guide to Circling the Bowl with Fannie Mae

Another excellent observation from Michael Panzer at his site Financial Armageddon. Its a very good read, and the same for his most recent book.

Dollar Musings and the Potential for a Significant Stock Market Decline

What to make of this US dollar rally?

The fundamentals are decidedly negative, looking at the Trade Balance and Current Account Deficit, despite the case many make that we are 'better off' than Europe.

Our take is that the dollar is much worse off because it has been the world's reserve currency for the past thirty years or so and that is unwinding, in addition to the slumping economy and ballooning deficits. There is really no good fundamental reason anymore for two countries to conduct their trade in a third country's currency, and to maintain a reserve in it for those purposes.

Arguments about this can go on almost endlessly tit-for-tat since there are so many variables and exogenous factors, and too many degrees of freedom to make an objective short term projection with a high level of confidence.

So let's do what we always do when we are in a position of uncertain outcomes, and try to decide what to look for and what data might be important to help us come to a better understanding. For us that includes some charts.

The last sustained rally we had in the dollar ran almost the entire length of 2005, starting on New Year's eve in 2004.

Here is what it looked like.



That was a classic bear market rally. It had duration, and the overbought condition never reached extremes for any extended period of time. It was sustainable.

The funds were leading the buying to the upside, as they always seem to do in the Dollar Index market. We are very aware that this is only a narrow snapshot of their overall positions, and will very likely be more predictive than causal.

Nevertheless, however it works, the funds are the price leaders in this market, and the commercials make the market for them.



If you look at the 2005 dollar rally period on the funds' Commitments of Traders chart below the net long positions are obviously built over time to a top.

In this latest rally the net longs of the funds soared quickly to a near term record. The explanation for this has been the unwinding of trading pairs that favored commodities to the long side and the dollar to the short side. There is also some likely forced liquidation of positions from failing funds.

Here is what the 2008 dollar rally looks like so far on a price chart.



Anything can happen, we will gladly stipulate that. But how does this rally stack up so far in this particular market. Percentages help, so here is a chart of the dollar with some fibonacci retracement levels.



As it stands now this rally is remarkably similar to another short covering rally we had on the same leg down in this obvious bear market. From a probability point of view, admitting than anything is possible, until the dollar can take out the long term neckline and stick a close and hold it over 82 we think this is just another bear market rally. The Trend is the trend until proven otherwise.

We also believe that this dollar rally is at least partially due to a flight to quality in addition to a short squeeze and a likely central bank intervention. Dollars are coming home from emerging markets, and fleeing stocks and riskier investments. This is indicated by the Treasuries rally.

We have to remind you all that significant market declines or "crashes" are notoriously low probability events, and that people who predict crashes typically predict lots of things, most of which are incorrect and quickly forgotten.

We think that there is a heightened chance of a significant stock market decline that will start in the next thirty days. As we have previously said we are watching for a 'failed rally' hall mark in our model, We are almost there.

A likely target for clarification will be around the week of this month's option expiration on 20 September.

Keep an eye on the volatilty index or VIX. We put links to most of these charts on our site every day on the left hand section labeled "chart updates."

This may turn into or be linked with an "October Surprise" or a major bank failure.

Working against this is the desire of the G7's central banks to prevent a global market crash from dampening economic and monetary growth, threatening the world's banking system.

Or it may be something else entirely. But we now have a few more signposts on this difficult trail.

Who's Next?

In order to regain a shred of credibility, the Fed has to let someone fail. Even if Ben does not realize it, Hank knows that someone has to take one for the team.

The question is, who?

Not the public. We're on the menu as a slow roast.

WaMu? Spreads say its a good bet. The question we're pondering is cui bono, who benefits. Ben has to be gagging on this one since they are a 'real bank,' but the breakup fees and carcass picking must be tempting indeed to the pigmen. Maybe, but more likely for later. It might be messy. Same goes for Wachovia. Possible, but potentially dangerous.

LEH? It would make a manageable splash and the desperation is apparent. Dick "The Gorilla" Fuld is widely disliked and he's been at Lehman for so long he's probably not very wired into the right places. He's on the Board of the NY Fed, but we'd bet he used his time there to generally piss off the wrong people. An asset sale and then death by boofoo seems like a decent bet. Or just a sudden death and fire sale after the fact. Contrarian-wise too many expect it, but that might just be a way to keep it from shocking the markets, which is a plus.

MER? They are in deep trouble, but John Thain is making the right moves and knows too many gravesites, and is well respected. Maybe, if he gets airlifted out first and taken care of in a big way. He'd make a great chairman of the SEC, Treasury Secretary, or a government Resolution Trust chief.

We'll be looking for the unwinding of obligations by the right crowd. They-who-must-not-be-named very publicly put one behind Bear's ear by pulling their business, but its unlikely to be that publicly obvious next time. That was payback for LTCM.

That's the gameplan unless something unexpected happens. Then its time to grab some gold and head for the nearest door. But for now it looks like the Working Group on Managed Markets has this one by the nose and is just taking care of business.