September 16, 2008

Global Market Comments for September 16, 2008

1) The fallout is still reverberating from the Lehman (LEH) bankruptcy. Wells Fargo (WFC) announced it took a $109 million hit on LEH preferred. Their initial investment was certainly a lot more than that. George Soros also took a hit. Banks all over Asia announced $100 million plus losses in LEH preferred, loans, derivatives, and open trades. LEH had a big options and derivatives operation in Hong Kong, and they have defaulted on everything.

2) Ken Lewis, CEO of Bank of America (BAC), does not see a real recovery in the economy until the first half of 2010. He should know, as he now owns a large part of the US financial system. He expects there will be many more bank failures over the next year, especially among smaller banks concentrated in commercial real estate.

3) New York City has just been thrown into a commercial real estate crisis. The end of Bear Stearns and Lehman Brothers will destroy 40,000 financial jobs this year and dump 10 million square feet of class ?A? and trophy office space on the market. The tax bases of New York and New Jersey are going to wither dramatically.

4) Crude hit $90.55 today, 56 cents away from my short term target, as rolling margin calls force hedge fund long liquidations. Each $1 drop in the price of crude is equivalent to a $1 billion tax cut for consumers. Right now Cash Is King!


Goldman Sachs September $75 puts traded today at $1 and they expire at the Friday close, in three days. These were $40, or 35% out of the money. Sell 150,000 of these at $1 each and make an easy $150,000 when they expire worthless. If Goldman Sachs falls below $75 by Friday, it will only be because there has been a nuclear war and we are all dead, so we won’t care if we lost money on the trade.