'The Good, The Bad, and The Ugly' on Lehman Brothers

"Lehman to Boost Funding with $3 Billion Offering" is the major headline after the close today.
(For more information on the details of this report, please visit cnbc.com)

Analysis:

"The Good"
-Lehman Brothers were able to present this news AFTER they've been able to find buyers to their offering. The release of this news was received with only a mild negativity in the after-hours trading, thanks in big part to announcing the offering that's been FINALIZED.
-In addition to the presence of long term believers of this company, Lehman was able to price their offering some 30-35% premium to the current share price. Getting a higher price for something that's worth less in the current market is a Good thing.
-Lehman is obviously trying very hard to not end up as Bear Stearns #2. They witnessed destruction and that should make them fight to the death.

"The Bad"
-The large, long term investors that purchased the offering are guaranteed 7-7.5% dividend yield. That's quite a rate considering the Treasury Bonds yields in the 3-4% range. Simply put, Lehman is paying lenders twice the rate that the government pays. This certainly won't make their balance sheet look better.
-30-35% premium to the current share price would mean that these shares are being bought at an approximately $50/share (max). The $50 price certainly looks great (a vote of confidence) but if you look closely, just a week ago the stock was trading at a high of $49.64 after Fed rate cut.
-Lehman's CFO Erin Callan was quoted as saying that there was a "window of opportunity in the market" and "significant interest" from several investors. We are merely 10 days away from the most recent market bottom (less than 4% rise in price of S&P500) and she saw a window of opportunity in the market to sell shares?? If she believed that the market will be in better shape 3-6 months, or even a month from now, why would Lehman attend to the significant interest of these investors now.
-Since Bear Stearns left the stage, of the major US brokerage firms, Lehman has the smallest market cap at $20B. Next in line is Merrill Lynch at $40B. It's no surprise that these two stocks have been hit the hardest on any financial weakness.

"The Ugly"
-Lehman Brothers' latest move to find more capital seems like a desperate measure taken during desperate times. Rumors and put buying interests have not tapered off since the collapse of Bear and I believe this is the final act of shooing away the short sellers. But they will be back and in greater number. I will look for an opportunity to join that group if Lehman manages to buoy itself up to $42.50-$45/share range thanks to slight bullishness in the market & bulls comprehending this news in a positive way. I even dare to say that Lehman will follow Bear and disappear. Will the Fed save another private banking institution? I'd say Lehman's has a better chance of filing for bankruptcy than to find itself under Goldman Sachs. The Fed is not going to hold its neck out a second time.

Next drop = Lehman Brothers' Collapse

Rino Choi
Titans of Wallstreet
Market Columnist

3rd Inning of Bear Market

I've been hearing people make reference to baseball when measuring the time frame of this bear market. With recent (fragile) stability in the market, majority of the analysts seem to be saying that we are in the 7th,8th inning of this bear market game. So I've decided to do some research and find out whether the starting pitcher has indeed retired himself, replaced by a relief pitcher from the BULLpen.

I referred back to the previous bear market of 2000~2002. In that bear market, the sector with the most problem was technology. That honor goes to the financial sector in this bear market. So I've decided to compare technology sector of '00~'02 with financial sector '07~?. According to my assumptive calculations, it'd appear that we may be 75% complete in terms of price retracement and 50% complete in retracement time. What that means is that from the highs of late last year, the financial sector have dropped in price 3/4 of the way to the bottom. However, the speed of decline will decelerate and it'll take as long as it's taken so far to retrace 75%, to retrace the final 25%. That'd mean that the bottom in financials will be reached around the end of 2008. Now, that doesn't mean that it'll skyrocket from there on. The recovery process prior to regaining upside momentum will also take some time.

After comparing the two most critical sectors for the two bear markets, I, then, compared S&P500 for the two timeframes. It seems as though we are 50% complete in price retracement but only about 33% complete in retracement time. These numbers are significant because the general market will fare worse than the financial sector from here on out. Fundamentally, this logic would prove to be true as the credit problems will turn away from financials (where the Fed is out to exterminate them) and cause problems in other sectors that have not experienced pain yet.

I expect not one but TWO more shoes to drop in the market price. With this in mind, I'd be wary of any rallies and not fall victim to the mass media that may make the market seem safer than it really is. Currently, we are undergoing one of these hard-to-trust rallies. We may be setting up for the next drop, making this summer quite painful for some.

My final analysis: We are currently in the 3rd inning of this bear market. Get used to it and act accordingly.

Rino Choi
Titans of Wall Street
Market Columnist

R.C. Corner

Make money and the whole nation will conspire to call you a gentleman.
-- George Bernard Shaw

Simon: Fishy Lehman Action

Very fishy activity going on in Lehman recently...check out the huge volume on the 30 put. that is not the most fishy thing.
Because i have a position in it, i was watching it tick by tick most of the day. The last 15 minutes was crazy. As SPX, DIA, and QQQQ fell to new lows, so did everything else, even GS and XLF...but one stock rose..and rose quite strong with big volume too...it was LEH. why the hell did it rise so much....i expected short covering to take profits...i didn't like the rise at all...

but wait...craziest shit is still to come!

after checking the charts, i checked options data. i got my may 30 put option for 3.70 at about 3:30 when LEH was 10% down. At the close with LEH down 8.9%, the same exact option had a bid / ask of 4.50-4.80...and of course the options volume jumped like crazy...when i bought, the options volume was about 8,000...thats 2x the open interest...a huge number...but after just 30 minutes, at the end of the day, the volume was 18,000+...very fishy action...

was it all insiders buying puts? it makes sense since LEH has consistantly showed weakness this week, with 5%+ down moves each of the past several days. BSC showed these very same signs of collapse the days before the news hit. lets see if options again tell the tape...what will the Najarian Bros say??? you know i'll be tuned in...

news after the bell was that BSC ceo sold off the rest of his shares for 10.83 (something like that) today...that news dropped BSC after hours but didn't move LEH after hours though....i guess that ain't the big news the put buyers were speculating

Simon: Speculation Play - Nile Call

Possible short squeeze play in the works for Blue Nile. With so much short interest and a good looking chart, once Nile moves up, you can be sure that the short covering will race in and skyrocket the stock.

Check out the "Short Interest Ratio" of 11.2...thats crazy high. 5 is concidered a high ratio and on average, most companies don't even break 2.
Also look at the "Short % Increase"...the shorts have increased 13.07% ! thats huge!

Huge Volume at the 55 calls and puts for this month. Whats going on? Huge straddle play going on. I won't be surprised to see news coming out of NILE in the coming days.

MACD is looking up, relative strength is great as of late compared to the S&P, and best of all, it has risen above the 50EMA plus the 20 and 50 EMA are starting to rise.

Simon: LEH put options...what's going on????

Check out the 40 put which i owned. crazy 6.02% drop is the move today and the options price remained unchanged? What the fuck is wrong with this option? Huge volume, just out of the money, still have almost a month of time value, and it doesn't move? shit! In fact, when it pulled back to about 5% down intraday, the price was actually down 15 cents. Crazy! Can anyone explain this?

hypothesis: Implied Volatility is getting crushed for LEH and killing the premiums in the options.

Simon: The Winning Ticket - Paul / Pisani 2012!!!

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