While financials will continue to be the focus of the investment community today, we will also be getting Initial Jobless Claims numbers for the week ending 09/13/08. This piece of economic news has the potential to rattle the markets today. If more filers than the 440,000 that forecasters are expecting, applied for benefits, stocks could take a beating.

And considering the state of the economy, if the number of filers is less than expected by a significant amount, the stock market will get a significant boost that is if the overhang on the market does not dominate the trading day.

The numbers will be reported at 8:30 AM, which will give Wall Street time to digest the news and maybe move on to concentrating on the crisis going on in the financial sector.

Something else that Wall Street will have to focus on, is that Wachovia (WB) is reportedly in merger talks with Morgan Stanley, while Wachovia has put itself up for auction and also pursuing other capital raising opportunities.

We may see a bounce in stocks over the next few days and weeks, but these will be nothing but bear market rallies, and traders should look to profit by shorting the market. A good way to do so will be by buying puts on the Ultra S&P 500 Proshares (SSO).

Word of caution, the October 50 puts have an ask price of $4.90, while the bid is only $4.10. This is a very wide spread and the underlying index will have to move a bit to cover this spread. Those looking to purchase the options can put in a lower bid, say $4.50, but if you believe the stock market is headed much lower, then bite the bullet and enter into the trade if placing a lower bid does not work.

Morgan Stanley  Wachovia  Lehman  S&P 500  Options  Puts

To paraphrase President Franklin Roosevelt, Monday 09/15/08 is a day that will live in infamy. The two last serious potential acquirers of Lehman Brothers (LEH), Bank of America (BAC) and Barclays Bank have pulled out, with Bank of America (BAC) pulling a suprising move and offering $29 per share for Merill Lynch (MER) instead. As a result, with no acquirers to rescue the company, Lehman (LEH) is filing for bankruptcy.

The futures are indicating that we will see a drastically lower open and the only potential saving grace will be the Bank of America (BAC) offer for Lehman (LEH), which might temper the loss in stocks of financial companies.

With the markets getting closure of sorts on Lehman Brothers, Wall Street will now start looking at whom the next financial company to fall will be and the most likely candidate is AIG (AIG).

AIG will be announcing a restructuring plan later on Monday although it is unlikely that the plan will completely assuage investors concerns. The root cause of the problems we are having in the markets and in invidividual companies still exists and as such the smart money will be betting on the fall of at least one more major financial company.

We will probably see further declines in stocks over the next few days, so while traders who are not already properly positioned might miss out on the bulk of the losses for this week, there are still gains to be had by going short.

Traders should consider puts on the S&P Ultra S&P 500 Proshares (SSO) and Powershares QQQ (QQQQ).

If AIG opens above $7, traders should consider buying puts on AIG as well, or shorting the stock itself.

Tags: Lehman  Merrill Lynch  QQQQ  Lehman Bankruptcy

Bank of America (BAC) has reportedly acquired Merrill Lynch (MER), in a deal that’s worth $44 billion, or $29 for each share of Merrill Lynch (MER). The boards of both companies have reportedly approved the deal.

While the $29 per share offer represents a rich 70% premium to Merrill Lynch’s (MER) closing price of $17.05 on Friday 09/12/08, it is still an almost $8 discount to the recent high of $36.97 level that Merrill Lynch’s (MER) shares touched on July 23 of this year and a 63% discount to the stock’s 52 week high.

The purchase of Merrill Lynch (MER) by Bank of America (BAC) will come as a surprise, as the bank was as late as Sunday evening, looking through Lehman Brothers’ (LEH) book and was considered one of the most likely buyers of Lehman (LEH).

A tie up of both companies will create a financial powerhouse that will rival Citigroup, which is currently the largest bank in the U.S., based on asset.

Tags: Merrill Lynch  Bank of America  Lehman

Lehman Brothers (LEH), which is currently fighting for its survival, has on Friday (09/12/08) evening, reportedly received an offer for its asset management division from private equity firms Clayton Dubilier & Rice and Bain Capital. Lehman’s (LEH) asset management division encompasses Neuberger Berman and Lehman Brothers Asset Management.

According to the Lehman Brothers website, Neuberger Berman provides money management for individuals and families, while Lehman Brothers Asset Management specializes in investment strategies for institutional and qualified individual investors.

In a bid to raise capital and keep the firm going, Lehman Brothers was looking to sell the asset management division, while retaining the company, or seek outside investors who’d take a stake in the company and infuse capital into the company. Korea Development Bank was interested, but they could not agree on a price with Lehman and they faced opposition from the Korean financial regulators.

The stock, which had managed to stay above $12.40, an eight year low that was set on July 14th, started free falling on Monday September 8th and since Friday September 5th, the stock has lost 77%. The falling stock price this past week, pushed Lehman into overdrive and survival mode and the company started looking for buyers for the whole company. With the stock having falling to $3.65, which was the closing price on Friday September 12, 2008, Lehman’s (LEH) market capitalization is now just $2.53 billion, from the $11 billion market cap just a couple weeks ago.

The offer from the private equity firms, values the asset management division at $5 billion dollars, so if this is a solid offer that ends up going through, Lehman’s shares might get a boost as Wall Street realizes that the sum of the part is greater than the current whole.

Tags: Lehman  Neuberger Berman  Bain Capital  Clayton Dubilier & Rice

At 10:35 AM today, we will be getting the Crude Oil Inventories numbers for the week ending 09/06/08. This will be the first report to reflect the effects of hurricane Gustav and depending on whether or not Wall Street wants to discount this special circumstance, we could see a spike in oil prices. Should oil prices rally, we might see further declines in stocks.

Coincidentally, FEDEX (FDX) after the close of market on Tuesday, upped its earnings guidance for Q1 2009 as a result of falling oil prices and the stock surged over four points in after hours trading.

Lehman Brothers (LEH) will also be front and center as it will be releasing what it terms “Key Strategic Initiatives” and its Q3 2008 results, which it is releasing a week early, at 7:30 AM today. Since Lehman (LEH) is currenty on life support, this news will be dictating direction for the markets today and depending on whether Wall Street deems the key strategic initiatives good enough to help keep Lehman afloat or not, we could see financials stage a rally, taking the rest of the market along for the ride, or further declines for the markets.

Tags: FEDEX  Lehman  OPEC

Lehman Brothers late on Tuesday, said that it will be announcing “Key Strategic Initiatives” as well as announce its third quarter earnings on Wednesday morning, a week earlier that the originally planned 09/18/08 date. 

Lehman’s stock was battered in regular trading on Tuesday, as the company’s survival is being questioned by the investment community. Also, the company has been reportedly seeking either a buyer for the whole company or parts of its asset management unit, or secure a cash infusion for an investment stake in the company. Neither of that has panned out yet and Wall Street is beginning to question whether there are any interested parties.

The initiatives being announced, are obviously meant to boost investor confidence in the company and stem the losses in the company’s share price.

 Tags: Lehman

Lehman (LEH) shares are down $5.16, trading at $8.99, a 36.47% loss in the stock from yesterday’s closing price. Concerns keep mounting about Lehman’s (LEH) chances of survival and whether the company can either secure a buyer or a major investor which hasn’t happened yet, even though the company has been aggressively courting outside investors.

One of the issues the company has been facing is what will it reveal when it reports it’s third quarter results, which were scheduled for Thursday September 18th, however, rumors are now circulating that the company will preannounce today. S&P at about 2 PM today, is coming out and putting the company on credit watch because of the precipitous drop in the share price.

We’ve been looking for news from Lehman (LEH) with regards to a sale or major investment and as bad as the drop in the stock price looks, we’ve upped our expectation. Lehman’s shares look like they will drop to penny stock status if the company does not do anything, so the pressure is definitely on on CEO Dick Fuld who besides the company’s survival, has to be fighting for his job as well. So we see some positives.

Tags: Lehman

The list of potential investors and possible acquirers in Lehman Brothers (LEH) continues to grow. According to Japanese newspaper Yomiuri Shimbun, Nomura (NMR), which is Japan’s largest securities brokerage house, is considering making an investment in Lehman (LEH).

The newspaper quotes Kenichi Watanabe, the President of Nomura (MNR) as saying that Nomura has $1.87 billion that it wants to use to make investments in financial institutions in the United States and Europe, and Lehman is currently one of its considerations.

Korea Development Bank is supposedly in talks to acquire a 25% stake in Lehman (LEH) and China’s CITIC as well as sovereign wealth funds from the Middle East are also rumored interested parties.

On Friday, we recommended that subscribers to our Options Capitalist trading advisory, purchase the October $17.50 calls in Lehman (LEH) we got in at $1.76. At the close of the stock market on Friday, they were quoted at $2.00 on the bid side. We believe some concrete news on either a buyout or a major investment in Lehman (LEH) will soon be announced, so traders might want to either buy Lehman’s (LEH) stock or purchase some October calls.
 

 Tags: Lehman Lehman Takeover

Lehman Brothers (LEH) which closed last Friday at $16.09, hit an intraday high of $17.53 today, although it has since pulled back for a gain of only $0.31 on confirmation that Korea Development Bank is interested in the company.

In an interview last week, the CEO of Korea Development Bank Min Euoo-sung, said that discussions were under way “to form a consortium with private banks as we believe it is more desirable to acquire Lehman Brothers jointly rather than alone.”

Lehman (LEH) is supposedly looking for Korea Development Bank to invest roughly $6 billion for a twenty five percent stake, which means that Lehman (LEH) has internal an valuation of $24 billion on the company although we don’t know if they are including Lehman’s (LEH) asset management division, which includes Neuberger Berman that Lehman (LEH) supposedly has been shopping around. It is expected that Neuberger Berman could fetch up to $10 billion in a sale. Lehman’s (LEH) current market capitalization is $11.54 billion.

Whether a purchase by Korea Development Bank in whole or in part of Lehman (LEH), will actually go through, is a major unknown right now, as they have had disagreements on price. Also, Korea Development Bank may not be able to line up other partners to form a consortium.

Korea Development Bank might have a strong bias towards investing in Lehman (LEH) as the CEO Min Euoo-sung, used to head up the Korean division of Lehman (LEH) however, other banks might be reticent to invent in such a troubled asset.

tags: Lehman Brothers

With Gustav looking like it will be the worst storm so far this year, in terms of the impact it might have on the oil producing Gulf of Mexico region, oil is having a bullish week and looks to extend those gains again today. As of 7:30 AM ET, oil is up $1.06 to $117.33.

With oil up, the stocks are looking to open lower as indicated by stock market futures. However, we may see very active oscillations between negative and positive territories, as we will have some countervailing forces acting on stocks.

Lehman (LEH) might be trading higher on expectations that it will sell its asset management division. The company is also looking at setting up a new company with outside investors that will buy its asset backed securities that are currently a drag on the balance sheet. If Lehman (LEH) does move up for these reasons, it will pull up shares of the other brokers and maybe the financial sector as a whole.

Some of the news we are expecting today, that could move the markets include Durable Goods orders at 8:30 AM ET, Crude (as well as gasoline and distillates) Inventories for week ending 08/23/08 at 10:35 AM ET and Chicago Fed Midwest Manufacturing Index for July.

stocks