Tuesday, July 1, 2008

"Green Cheese????"

“Someone started the rumor that Barclay’s Bank was going to underbid for Lehman and buy the company for $15 a share. This rumor ranks up there with the moon is made out of green cheese in terms of its validity.”
-Richard Bove, Ladenburg Thalmann Bank analyst

Some advice to Richard-

While I agree this rumor sounds ridiculous and at this stage in the game probably is ridiculous, I have to warn that over the past 12 months the rumors have been consistently right.

Let’s recap a few of my favorite rumors from the past 12months...To be honest i could list 200...but you have to draw the line somewhere

-E*TRADE had a huge drop on rumors that it was in serious subprime trouble…this was on august 16th…stock fell from $16 to $9.92. It then recovered as analysts came out with notes that put out the fire. Stock is 3$ today. Why? Because Etrade did have serious subprime trouble!!

-Mbia was constantly getting heat from shorts claiming the monocline insurer was in trouble. And with every analyst defense and rally came a new wave of lows. Then finally in jan the stock looked like it was going to die as it plunged 50% from $13 to $6. Again, some analyst came out and said the bankruptcy rumors were unfounded. Where is the stock today ..$4.39. Not bankrupt yet..but exiting one business entirely and defintently nowhere near being out treacherous water.

-There were rumors that the buyout of Harmon Kardon led by gs private equity fund was going to fall apart….again arguments where made this was rumor mongering and that the deal was fine…or that arguing for a MAC would be too hard. Well, the buyout was pulled and the stock dropped about 60%.

-Then there was the citi free fall and rumors that the dividend would be cut….a whole team of analysts came out saying that those rumors were unfounded. But a few months later citi cut its dividend.

-Oh, and Bear Stearns…rumors were circulating in august that the losses by two bear hedge funds could eventually force a run on the bank and that bear or a broker like bear could go under. Again, a whole team of analysts and pundits ridiculed that one. 5 months later….Bear Stearns doesn’t exist

-Oh and what about the Lehman rumors the day after Bear that were put out by Erin Callan. They were totally false right? Except 3 months later she has lost her job and lehman shares are lower than where they were when everybody thought a bankruptcy was around the corner.

So, when it comes to Lehman, I’d make sure I know the hand I am playing. The rumors may seem crazy…but if that’s the case I might just go to the Smithsonian and check the moon rock samples. Because as far as I am concerned I don’t believe these banks are coming clean. Look at the game being played with Merrill right now. Up until 3.5 weeks ago every sell sider had Merrill making money this quarter. Then…almost miraculously…they all started reversing course. One quiet downgrade 2 weeks ago, and then more and more downgrades over the past 10 days. Do you think these analysts went from predicting a profit to predicting a massive loss without any rumors…hints…direction…etc…in a matter of two weeks? Last I checked Merrill had not disclosed anything to the public. Either way these stocks keep falling…and while people bicker over why…I am content knowing that for now the words “investing” and “investment banks” should not go together. Nobody knows what’s going on, and very few people have been truthful.

I usually like bold notes out of analysts, but most of these notes have been pretty sad. Look at some of the price targets these guys have on brokerage names. They are like 50-100% above current levels. Anyone think this has something to do with all the underwriting that has been done with respect to raising equity for fellow brokers?

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