Imminent and severe market correction

[sassa]

Oh! What a tangled web we weave(apology to the bard).

I just heard live on CNBC via Gasparino that Lehman is circulating an internal memo claiming they have deleveraged to 12:1 and have better liquidity than Goldman or MS.

And there was more, per Felix Salmon:
And CNBC's Charlie Gasparino has got his hands on an internal Lehman Brothers memo...
One of the items had to do with stories that came out yesterday about stock buybacks, were they buying back stock amid the financial crisis to prop up shares. They are saying, in the memo, the firm purchased quote "a small number of shares" as part of what they described as its ongoing and regular purchase program to minimize the dilution related to employee stock awards. This is part of what they do all the time at this point in time. They said they only purchased 1.3 million shares compared to volume, which is larger than that. Also they said in the memo, they are not in the market buying back today. So, this is what Lehman Brothers has put out in a memo.
Now first to the content, which is sus, and then to the tactics, which are deplorable

Now to the tactics, which stink to high heaven. Why, pray tell, is Lehman resorting to leaks and whispers rather than the proper procedure of public disclosure via a press release?

But leaking an internal memo with non-public, material financial information to Gasparino is an SEC violation, although I am highly confident it was done in such a way the the firm has plausible deniability if questioned. Don't tell me this may have been an unauthorized employee leak; if this memo was circulated broadly to employees, it was done with the full intent that word would get outside the firm. That happens predictably with mass employee communications. And if it was limited distribution, the recipients, as anyone who has passed a Series 7 exam ought to know, are fully aware that selective disclosure of material information is a big no no under SEC Rule FD.

So why wouldn't Lehman disclose the sort of information it has been leaking to the Times and Gasparino (or more charitably, handled in such a way so as to guarantee that it would get out), particularly since they are favorable to the firm? Ah, the firm would be liable for the accuracy and completeness of any such disclosures.

 

[Whiskers]

some lunchtime reading
ac

http://www.apfn.org/APFN/reserve2.htm

Bludy long lunch!

...but essential reading to understand the 'real system' v accedamic idealism.

 

[sassa]

Source of last article.

http://www.nakedcapitalism.com/2008/06/dirty-tricks-at-lehman-and-defense-of.html

 

[Whiskers]

I don't normally study overseas charts too much, but I decided to test my EW skills to see if I could find why the the XAO didn't turn up as my indicaters initially suggested before going away just before close the other day.

... and I think I may have worked it out. :bananasmi

What I am thinking is the US finished a 5 leg up and had a little corrective wave A, B, C... which stretched out the XAO wave 4.

I reckon we've finally hit bottom for awhile again... and I have a theory why some other counts are wrong.

I know I'm a brilliant student... ... but can someone please mark my assignment.

 

[davo8]

Aaah... just another accedemic, philosophing. :

As I've mentioned on the gold thread, the fundamental indicators coming out of the US are OK now and starting to come in more on the better side of forecasts.

Pardon? With the greatest of respect, what are you smoking?

Nouriel Roubini runs RgeMonitor, one of the most respected sources of independent economic commentary.

Residential property is still in free fall, with foreclosures running into the millions. There have been several small bank failures, and the ^BKX just fell through support at 75. Commercial property has just started to fall. Jobs are plummeting.

Lehman, Merrill Lynch, Morgan Stanley, MBIA, AMBAC all downgraded. Lehman desperately raising capital but unlikely to survive.

What you're seeing is a slow motion crash, courtesy of the Fed, instead of a quick crash and quick recovery. The banks are too big to let fail but all desperately need recapitalising, and the real question is who gets to carry the losses.

 

[Whiskers]

Pardon? With the greatest of respect, what are you smoking?

Nothin mate.

I'm just gettin high on life atm.

Nouriel Roubini runs RgeMonitor, one of the most respected sources of independent economic commentary.

Residential property is still in free fall, with foreclosures running into the millions. There have been several small bank failures, and the ^BKX just fell through support at 75. Commercial property has just started to fall. Jobs are plummeting.

Lehman, Merrill Lynch, Morgan Stanley, MBIA, AMBAC all downgraded. Lehman desperately raising capital but unlikely to survive.

What you're seeing is a slow motion crash, courtesy of the Fed, instead of a quick crash and quick recovery. The banks are too big to let fail but all desperately need recapitalising, and the real question is who gets to carry the losses.

I don't doubt his economic credentials... but I'm not sure he is jelling the (covert) political influence into his short term analysis.

As I say the fundamental economic data is generally OK and improving a little better than forcasts.

Unemployment popped out tonight a bit as did the number of foreclosures recently. On the plus side earlier today wholesale trade was strongest in a few months and retail sales are improving. Suggests to me people may have wiped their hands of problem mortgages and getting on with normal living/spending.

Since the end of the 1st quarter was widely tipped to be the crunch time for mortages, I would expect the number of foreclosures to translade to the writing off of a lot of consumer debt if not later today then very soon.

 

[Uncle Festivus]

I reckon we've finally hit bottom for awhile again... and I have a theory why some other counts are wrong.

Whiskers, I admire your optimism but the evidence is becoming even more compelling now -

The U.S. unemployment rate jumped by half a percentage point in May -- to 5.5%, the highest since October 2004 -- on

the biggest increase in seasonally adjusted unemployment in 33 years,

government data showed Friday.

We have just gone from an orderly increase to possibly the start of a parabolic surge. And these stats usually err on the good side. This is getting scary. Still time for you to come over to the "dark side"

And this is data from the real economy - derivitives will follow in a much more spectacular way, causing a global meltdown, BRIC's included (China will implode!).

 

[Uncle Festivus]

From Thursday nights report...

Yes, I've seen that ascending wedge pattern in a few charts and the breakdown several weeks ago now (https://www.aussiestockforums.com/forums/showpost.php?p=293325&postcount=3396), notably the FTSE, and a huge one building for the $AU/$USD.

 

[sassa]

Time for a bit of a chuckle.

"The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy.

The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part, and I thank you for your help"

http://www.bigpicture.typepad.com

 

[dhukka]

I don't normally study overseas charts too much, but I decided to test my EW skills to see if I could find why the the XAO didn't turn up as my indicaters initially suggested before going away just before close the other day.

... and I think I may have worked it out. :bananasmi

What I am thinking is the US finished a 5 leg up and had a little corrective wave A, B, C... which stretched out the XAO wave 4.

I reckon we've finally hit bottom for awhile again... and I have a theory why some other counts are wrong.

I know I'm a brilliant student... ... but can someone please mark my assignment.

Well your timing on that call couldn't have been more unfortunate Whiskers. That said I actually agree with you that SOME of the economic data has been better than expectations. If people want specific data points look at the ISM's, however the employment component of those indexes has deteriorated which is a bad sign. This week's intial jobless claims number was encouraging yet it should be remembered that the survey week that number pertains to was a 4 day week which always presents problems for seasonal adjustments.

I think the US could be in for W shaped recession reminiscent of the early 1980's. There will be a blip in growth thanks to the rebate checks but what then? Where is the growth going to come from? Then we have oil which is wreaking havoc. The VIX is back up to 23.5. Sentiment could turn sharply here.

 

[ithatheekret]

There will be a blip in growth thanks to the rebate checks but what then? Where is the growth going to come from?

Corporate welfare and more corporate welfare to come ..........

 

[dhukka]

Corporate welfare and more corporate welfare to come ..........

Interesting that Former Fed voting member Lacker was saying yesterday that the Fed needs to take away their corporate welfare mechanisms (TAF's etc.). Could you imagine what would happen to Lehman Bros if the Fed took their backstop away? Can't see it happening, but the rhetoric is interesting.

 

[IFocus]

I know I'm a brilliant student... ... but can someone please mark my assignment.

Whiskers waves 1,3 and 5 should be impulsive waves your wave 1 is not an impulsive wave so more likely to be corrective.

 

[ithatheekret]

If Bear Sterns was the crash test dummy , we can easily imagine what would happen if Lehmans went belly up . I can't see it being allowed to happen though . It would definitely not be in their interest to allow Lehmans to stumble to close to the edge . Strong dollar twins ( Ben and Hank ) bellowing strength to the masses . Ben stating that the weak USD only affects Americans , what a wally of a statement ........ that must be why the US is now importing inflation , whilst USD denominated assets are deflating , bloomin' marvy for everyone else ....... yeah right .

I think they need to start rates moving to the upside , they know this , but won't go near it until they've got a new C.I.C. , they wouldn't dare yet , it would make the administration look bad . Not that this was ever a secret .

I'm with you Dhukka on the big W , but the claytons recession has to finish first . If Obahma takes the helm , it could be Obummer for some months after , not a good time to think of becoming a lobbyist . The only good thing , would be that the system could be flushed properly after a few good swallows of the metamucil ............

 

[wayneL]

Interesting that Former Fed voting member Lacker was saying yesterday that the Fed needs to take away their corporate welfare mechanisms (TAF's etc.).

I wonder what the price on his head is?

 

[sassa]

With recent economic reports coming in generally weak but slightly better than expectations, we're seeing a relative calm in the financial markets. We don't see investors abandoning their aversion to risk, (though we're still alert to any signs of substantial improvements in market internals that would signal that), so there's not enough optimism to provoke self-feeding speculation. Still, credit spreads held relatively steady last week, rather than continuing their recent widening.

For now, we remain tightly hedged, since the overall profile of valuations and market action remains unfavorable. As I noted a couple of weeks ago, “The reality is that as recessions develop (and I continue to believe the U.S. faces a much more significant downturn than we've observed to date), the data can take months to accumulate to a compelling verdict, and in the meantime, speculative pressures can remain alive.”

Lest investors allow the weak but benign economic reports to create an “all clear” impression for the economy, the latest FDIC Quarterly Banking Profile, released last week, should encourage them not to close their ears and hum. I have to say that having read these regularly since the early 1990's, this is easily the most dismal report I've ever seen

http://hussmanfunds.com/wmc/wmc080602.htm

 

[Whiskers]

Whiskers waves 1,3 and 5 should be impulsive waves your wave 1 is not an impulsive wave so more likely to be corrective.

Thanks for the comments IFocus.

I reckon I had an impulse wave 1. I suspect you are referring to the point wayne made in the XAO thread about iv over lapping i.

Still working on the big picture and the proper hierarchy of codeing. I inadvertantly contradicted my own FA by using others assumptions that the Oct high was the end of the major wave 5 as my starting point.

I'm still confident my C (ticked) is a big C, but still checking.

Any other critique? Jump in y'all, cos I expect to confront others analysis... now that I've finally decided to get my teeth into EW.

PS: Damn, my 3 dissapeared, but you know where it was.

 

[josjes]

No wonder the US market took a fright with 400 point drop on DJIA Friday. BKX (Banking Index) has just broken very important support level at 70, which was last seen in Mar 2003 (the start of the last bull run and the end of last bear market).
BKX is the most important index as it flags the upcoming financial health or difficulty in the market.
Looking at this chart is quite telling, for the last five years, profits earnings from Financials/Banks were just puff of smoke, nothing more than just a mirage.
http://finance.yahoo.com/echarts?s=%5EBKX#chart1:symbol=^bkx;range=19930225,20080606;indicator=volume;charttype=candlestick;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

 

[sassa]

Lehman Brothers Holdings Inc. is close to raising more than $5 billion of fresh capital from an array of investors including the New Jersey Division of Investment, according to a person familiar with the matter.

The move comes as the firm is set to report a second-quarter loss of more than $2 billion, this person said. Until recently, most analysts who follow Lehman have been predicting a loss of about $300 million

So far, Friday's market turmoil hasn't deterred the outside investors, but Lehman may decide to see if markets stabilize on Monday before announcing its plans. A big capital increase from Lehman could help calm nervous investors and stabilize the broader market. The capital raising would come primarily through common shares, the first such issue since Lehman went public in 1994.

So far this year, Lehman has raised almost $6 billion, but that was mostly in the form of preferred shares, a stock-bond hybrid that doesn't dilute the ownership of common shareholders. While a common-share issue would hurt Lehman's already-suffering shareholders by diluting their ownership stake, rating companies and regulators are likely to look favorably toward a greater capital cushion.

Lehman's larger-than-expected second-quarter losses stem partly from asset write-downs and hedges used to offset losses in real estate and other securities, according to people familiar with the matter. The firm bet that indexes tracking markets such as real-estate securities and leveraged loans would fall. If that happened, it would book profits that would make up some of its losses from holding these securities and loans.

Note that according to the transcript of the first quarter earnings conference call (I have the pdf but no web version), Lehman was hedging Alt-As with mortgage servicing rights. If you call that a hedge, I have a bridge I'd like to sell you

http://www.nakedcapitalism.com/

 

[sassa]

I don't normally study overseas charts too much, but I decided to test my EW skills :

What I am thinking is the US finished a 5 leg up and had a little corrective wave A, B, C...

I reckon we've finally hit bottom for awhile again..

You may well be correct at this time, but if we follow the U.S. market leads then according to SOME we will be in for further trouble.

The US Stock Market probably still has another Major leg to the downside. There might be some backing and filling to the upside, but I believe the Stock Market is in trouble.

http://www.safehaven.com/article-10466.htm

I don't expect to open in a free-fall tomorrow or the next day, but want you to be aware that we're only 300 points from breaking through key downside support levels. Once that happens (which I'm sure it will in the coming weeks) the next support level @ 11,700-11,600 becomes very vulnerable -- and if that one doesn't hold, expect all hell to break loose as the last leg of propped-up confidence in our economy gives way to unknown panic/crisis.

With that said, and expecting more bad news to roll in each and every day, I feel quite confident in stating that both of these downside support levels will eventually be broken (this year), but the real question ultimately relates to timing and the PPT -- What else do they have up their sleeves? No one yet knows, but expect a fight

http://www.safehaven.com/article-10463.htm