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Jun 16

Stock Market Updates

MAINTAINING SHORT POSITION ON LEH

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…and looking to add on to my short position after the conference call. Take a look at the reasons why:

Technicals:

We have rebounded about 30% (at 27.53) from the intermediate lows of 21.17 last Thursday, a huge but somewhat expected rally since LEH was very oversold on a technical basis. Last time we had a move was when LEH did an intermediate bottom at 28.60 and then rally 25% up past 34 before trending lower. Just as it was then, the trading pendulum is now swinging back to overbought levels.

The key is once LEH shows signs of HIGHER LOWS, then LEH will continue its downward trend. That trend, I believe will be into the mid teens based on book value ratios with its rival brokers.

Market movers and news and its effect to LEH:

Many of the big players seem to be holding for Goldman’s report tomorrow though which could be a significant market mover. If Goldman reports positive, then LEH could rally, but if its negative, the entire markets go lower.

Regardless of it being positive or negatve once Goldman reports and has its subsequent effect to the markets, I think LEH will trade lower.

LEH’s Fundamentals:

LEH is deleveraging even if Fuld says they are, “finished in principle.” The deleveraging gives them less room for growth in the longer term which is not good in this very competitive and tiring environment. Some assets are becoming Level 3, up from level 2 and the possibility of further downgrades on their debt from rating agencies cannot be ruled out.

LEH’s management, while quick to flood analysts with ‘positive’ numbers and tons of number-crunching information, stumped when technical questions were asked about future projections, specific debt and the balance sheet. More importantly, LEH did its best not to give a clear outlook and forcast into the coming quarters, instead of indirectly saying that macroeconomic concerns could act as the fall guy for the next earnings report.

Speaking of Macroeconomics, a contracting national economy, continued pressure on dollar devalution and continued issues within the credit crunch as we move from residential debt problems to commercial and personal credit portfolios does not look well for LEH’s forecast.

Book-to-value:

Much vaunted, book-to-value apparently does not provide much support in the short term as many brokers are trading at half to only a third of their book value. If LEH’s book-to-value is at 34 like some have said, then this stock should be at 17. If we are at 22 book-value like others have said, then this stock should be at around 11 compared to its peers.

Average those two numbers together and I think LEH could end up trading at 14 per share price in a couple of months.