June 12, 2008
Global Market Comments for June 12, 2008
1) The COO of Lehman, Joseph Gregory, was fired this morning. Also gone is CFO Erin Callan. The former tax attorney only had the job for 7 months. Dick Fuld may follow. The stock fell an immediate 10% to $21. People who bought the $6 billion equity deal on Monday, now down 25%, are going to be livid. They may try to walk away from the trade which settles today, claiming failure to disclose. Firing the CFO three days after you launch a very huge public issue doesn't exactly instill confidence. The shorts led by David Einhorn are vindicated. Rumors are now percolating that Lehman will be sold, possibly to private equity firm Black Rock, already a big investor in the firm. HSBC and Blackstone are also mentioned. Did securities fraud take place here?
2) Retail sales for May came in at 1.1%, much better than expected. Don?t pop the Champagne corks yet. Part of this is accounted for much higher gasoline sales. The tax refund checks are having their desired effect. 30 year Treasury bond futures plunged to 113. Please see my earlier recommendation to put on a leveraged short of the 30 year Treasury bond futures at 120. The euro visited the $1.53 handle.
3) Belgium's Inbev launched an unsolicited all cash takeover bid for Anheuser-Busch at $65/share, or $46 billion, a 12% premium. With the euro at $1.53 foreigners are coming in to buy up America's family jewels on the cheap. This is the third largest foreign takeover in US history.
4) Corn hit my target of $7.50/bushel today. The Midwest weather news doesn't get any worse than it is today, watching houses floating down rivers on TV. Time to bail on all long corn positions. The profit on a non leveraged position in corn would have been 30%, or $900,000 on a capital commitment of $3 million.
5) High fuel prices are accelerating the 'results only' work movement whereby employees are paid for results, regardless of how many hours they work or where they work. Managers see a 41% increase in productivity with such workers and voluntary turnover falls by 91%. Managers have to overcome entrenched concerns that if they can't see staff working at a desk in front of them they aren't working. See the newly published book 'Work Sucks' by Ressler and Thompson.
TRADE OF THE DAY
Your may recall that I advised selling S&P 500 1200-1450 strangle for the first five months of the year and walked away when the VIX fell below 18%. VIX is now back up to 23% so the time to revisit this strategy is approaching, ideally on a day when there is a major sell off in the stock market. Watch this space.