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Is Lehman Out of the Woods?


Bank is one of several under scrutiny.

"We got to compete if we want to win. We can't pout and mope."
- Doc Rivers

The coach of the Boston Celtics said these words to his team going into the second half of the fourth game of the NBA finals. The team was getting waxed and suffered the distinction of being on the wrong side of the most lopsided first quarter score in NBA finals history.

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When will politicians utter those same words? I would rather "we" as an entire nation stop pouting and compete. Right now the sides are being drawn and it's mostly us versus them, American versus American. We are on the verge of abandoning what made us great in the first place. The fact is we are victims of our own success and complacency and we need only to point the finger at the person in the mirror and grab our bootstraps. Having grown up rooting against the Boston Celtics I never bought into that pride stuff. Now I do and I hope it goes beyond this particular basketball team and spreads across the nation.

The last two weeks have been really strange. The week before last the market began the week acting as if it might rally higher, only to stumble badly with that tough down 400 point session that came in the shadow of back-to-back record setting spikes in crude oil.

Last week crude held, continuing to pull stunts that would have made Houdini sit up and take notice. Still, the equity market was able to grind it out and stave off what could have been another big down week, putting in a fabulous session on Friday. Friday sessions have been difficult this year as weekends have come into play with respect to news, or more to the point, bad news in the financial sector.

Of course, that sector was the focal point of the market in addition to crude last week was the financials. The pendulum was swinging back and forth so quickly it could have slipped off its hinges.

It seems like once the crisis in the financials shifted into full bloom every other week there has been a different company on deathwatch. When this crisis began experts openly predicted several major financial companies would go out of business. Like bowling pins these names were supposed to drop one by one and in some instances as one tumbled it would knock another down, too. That scenario could have played out at Bear Stearns without the intervention but many believe it's still going to happen anyway. Lehman Brothers (LEH) has always been the pin nearest Bear Stearns and has been the subject of daily speculation. Last week began with talk of the company going out of business and ended with hints of the company being acquired. The stock finished the week surging 13.7% on Friday, as many investors believed a special weekend meeting at the company could result in news of an acquisition.

The company officially reported its financials today, turning in a loss of $5.14 per share. Even after it preannounced a $2.8 billion loss and the intention of raising $6.0 billion and demoting Erin Callen and Joe Gregory, there is a feeling of mystery.

Other companies in the space that will have to be monitored closely include:

  • Goldman Sachs (GS), which releases its earnings on Tuesday. The consensus is $3.42. Estimates for the quarter have fallen dramatically over the past three months but have held steady over the last couple of weeks and the stock was up almost 7.0% on Friday.

  • Merrill Lynch (MER) will be talked about today but in a more dubious fashion as a report from Associated Press says the company's CEO, John Thain, was the highest paid executive in 2007 with total compensation of $83.1 million. Thain's pay package isn't news, per se, but in the current political climate it could make a lot of noise on Main Street.

  • American International Group (AIG) the board has replaced Martin Sullivan as CEO after a three year stint that could only be described as disastrous, culminating with a loss of $7.8 billion and write down of $9.11 billion in the last quarter.
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No positions in stocks mentioned.
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