September 15, 2008, 6:00 am

Lehman….where is it headed?

by: The Financial Blogger    Category: Investment, Market and Risk,Trading
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A few weeks ago, I discussed my buying of leveraged ETF UYG, which tracks 2 times the return of financials. Well, it’s been up about 20% and down 10-15% but it now sits at 21.50, .25$ above the price I bought it for. Not a great return right? Hmm, sure. But we’ve had a couple of very tragic events for the financial sector since then so I figure that if even such events have taken me to be flat, then I’m comfortable with my position and will keep it for now. The exit for me would be somewhere around 35-40% of return, so I’m obviously far from that point (1.18% return so far).

One of these events that has been making headlines is what almost looks like a repeat of events that happened a few months ago when Bear Sterns collapsed. Well, when that happened, speculation was that the next to go would be Lehman Brothers, a mid-size US investment bank.

And while it did have a few good moments, looking at the graphic will show you very quickly things have gone gloomy for the financial stock. One year ago (Sep 13th 2008), LEH closed at 59.68$. Well.. a few months later, today LEH closed at a dismal 3.65$, a 95% decline.. Tragic? Absolutely.

Over the past few months, Lehman has been looking to reverse losses by getting capital. It has mostly been looking at sovereign funds and foreign investors, but those have been very wary after losing so much money in past months on other investments.

Perspectives are now very dark for Lehman and rumors are all over the place. The options market on Lehman is very very volatile and speculation is that the Fed will get involved while other rumors talk of a buy-out from Bank of America. Would I be long or short Lehman? Probably long, just because I can only imagine that this is similar to Bear (which went down to 2$ and was finally bought out by JP Morgan for 10$). So I would probably go long (not sure if it would be through stock or options) but for now, I’ll stay on the headlines. If ever I’m looking for gambling options, I’ll just go to the Montreal casino, it’s probably about the same odds…

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Comments

Just a clarification, this was written this weekend but last night, Lehman actually declared bankrupty… huge impact… the share is down in pre-trading to 3.21$

To add more to it, it was for liquidation, not restructuring of debts. Meryl Lynch got bought by Bank of America.

2 Giants be gobbled up in a mess they helped create. I have no sympathy and am enjoying it. On a side note, Lehman Brothers is the parent company of AIG. If AIG does not find a way to get out from under this mess, they are gone as well.

In all honesty, AIG will probably find a way, but wont be the same for quite some time. Will probably have it’s rating drop for this as well.

well AIG is down a under 3$ in pre-trading today…not looking good

Pretty gloomy, but I have the faith to stay the course.

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