Is Deutsche Bank the next Lehman?

http://notquant.com/is-deutsche-bank-the-next-lehman/

The nature of all fractional-reserve banks — who are by definition bankrupt at all times – is to project an aura of stability until that illusion has already begun to implode.

Five Years After Lehman, BIS Ex-Chief Economist Warns "It's Worse This Time"

http://www.zerohedge.com/news/2013-09-15/five-years-after-lehman-bis-ex-chief-economist-warns-its-worse-time

Prepare for Lehmans re-run, Bank official warns

http://www.telegraph.co.uk/finance/economics/9342810/Prepare-for-Lehmans-re-run-Bank-official-warns.html

Turk - This Coming Disaster Will Be Worse Than Lehman 2008

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/31_Turk_-_This_Coming_Disaster_Will_Be_Worse_Than_Lehman_2008.html

Barron - This is Financial Armaggedon, Lehman x 1,000

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/2/14_Barron_-_This_is_Financial_Armaggedon%2C_Lehman_x_1%2C000.html

Wall Street analysts

This is all you need to know about Wall Street "experts", "pundits", "analysts", ad nauseum.

Shares of Lehman Brothers were trading at $12.69 on August 20, 2008, already down 87% from its 2007 peak.

http://www.ft.com/cms/s/0/586ed412-6ee6-11dd-a80a-0000779fd18c.html#axzz1OdXYUmPU

On August 21, 2008, banking analyst Dick Bove upgraded Lehman Brothers shares to a Buy recommendation. 

http://www.cnbc.com/id/26332773

Not to be outdone, on September 5, 2008, CNBC's Mad Money host Jim Cramer, went a step further and declared Lehman a "Screaming Buy", causing the shares to be bid up to $16.21, up $1.03 for the day.  It was due to the "Cramer effect", as he had a large following of retail investors (and probably closet institutional investors).

http://seekingalpha.com/article/94165-worst-downgrades-cramer-s-stop-trading-9-5-08

In fact, Cramer was going out on a limb here, he named Lehman his “screaming buy” for the last couple of hours of Friday trading. It “can’t get any worse there,” he said.

On September 15, 2008, Lehman Brothers was forced into bankruptcy, and shares plummeted to $0.  Investors in Lehman Brothers shares lost everything.

A conversation with Art Cashin

Art Cashin recaps "breaking the buck" of money market funds, and how we were all frozen out, post-Lehman collapse.

http://classic.cnbc.com/id/33432400/page/3/

There were reports today that they were considering would they need martial law if banks failed and people took to the streets. So they were as terrified as everybody else. I think they never realized what Lehman would do, not only with the money market funds, but when the money market funds looked like they were freezing up and everybody got terrified, they stopped dealing in commercial paper.

Money markets are the major source of liquidity in commercial paper. Not to bore the viewers, but commercial paper is a very liquid, short-term borrowing thing that IBM uses, that Proctor and Gamble uses. I mean, we're not talking about financials here. We're talking about transferring from Wall Street to Main Street. These people are used to borrowing for two or three weeks. And suddenly, they were frozen out. There were no assets. And that, I think, is what terrified both Bernanke and Paulson. And they had to guarantee to try to re-liquefy.

Lehman whistleblower letter

http://blogs.wsj.com/deals/2010/03/19/breaking-news-here-is-the-letter-at-the-center-of-the-lehman-report/

$50 billion loss is a drop in the bucket

According to some at investment bank Lehman, now bankrupt, a $50 billion loss is a "drop in the bucket." Someone look up the word "hubris" in the dictionary. Add "sociopath."

http://nymag.com/daily/intel/2010/03/lehman_executives_nonchalant_a.html

Washington Mutual...what's next?

I posted this last week on WaMu:

Well, another shoe just dropped--the biggest bank failure ever. Washington Mutual was just seized over night, so good luck to any depositors with over $100,000 in their accounts. I'm going to guess there are many Californians, Floridians, New Yorkers, and Washingtonians who lost millions.

Hate to be the bearer of bad news, but this is getting ridiculous. I saw this coming a couple years ago, and adjusted accordingly, but my friends thought I was a doom and gloomer, when in hindsight, I wasn't gloomy enough.

So what's next? More bank failures, I assure you. Berkshire Hathaway's Warren Buffett (only the wealthiest man in the world), just mandated that one of their portfolio companies stop insuring any assets above the FDIC limit of $100,000. That should tell you something--get any amount over that limit out of there--now! Bank deposits, money markets, etc. are NOT the safe haven you thought they were. Check the capital reserves of your bank (banks are required to have reserve requirements to cover bad loans) to measure how healthy they are. I predict hundreds, if not thousands of banks will fail going forward. Heck, the biggest ones are failing before our eyes--expect this to cascade to other major money centers, as well as smaller regional banks. The Federal bailout programs may save some, but if they let big commercial banks like WaMu go under, and big investment banks like Lehman fail, should we have confidence that the local bank around the corner will be saved?

I hate to be an alarmist, but I can't in my conscious NOT give my opinions. As always, seek professional investment and tax advice from your investment advisor and tax advisor. But please, do your own research as well, because they are human and not infallible.

Looking further out, I predict General Motors will be insolvent within 18 months. Shareholders will be slaughtered. Their manufacturing costs are too high relative to their nimble competitors, and their obligations to fund the pension fund and healthcare will drive them to bankruptcy. Instead of building hybrids in the face of $5 a gallon gas, they continued to build gas-guzzling SUVs.

In between banks failing and American industry icons going under, everything else is Jim Dandy. :-) The economy will recover, but it's going to be a long time before things get better. I'm thinking we bottom out in 2010, which means we've got a few more years of pain.

Keep a cool head, stay the course, and tell your loved ones how much they mean to you.

Lehman and Merill Lynch this morning....

I wrote this in response to a concerned client:

XXXXX, on the contrary. These firms (investment banks, commercial banks, and insurance companies) invested in mortgage-backed securities, thinking they were safe. Little did they know it was just another asset bubble bursting.

Life insurance companies are more conservative by nature, investing premium payments in short- and long-term bonds, and in the case of indexed products, are linked to stock indexes like the S & P 500. With your contracts, if the S & P tanks, you are still guaranteed a 1% floor--which isn't much, but it's better than losing 15% or more, which is what your current stock portfolio is doing. They are able to guarantee the 1% due to options trading, much like they cap you at 15%.

Expect a big loss in the stock market this morning, as this is really, really bad news, but not something I didn't warn you all about several months and years ago. I predicted the real estate bubble, and it's coming to fruition as well. While the more expensive neighborhoods of the bay area are holding up, expect high-end prices to start declining. Manhattanites continue to brag their real estate market has held up, but do you really think that will continue, now that hundreds of billions of dollars are vanishing? Not only are Wall Street bonuses going to disappear at the end of this year, but many investment bankers will be lucky to have jobs. Having a consortium of banks to band together to raise money to prevent the next disaster is akin to gathering 10 cancer victims into a leaky boat--a few will get tossed over the side. First Bear Stearns, Countrywide, now Lehman and Merrill Lynch. Don't forget insolvent Freddie Mac and Fannie Mae, who only hold trillions of dollars of mortgages (70% of all US mortgages). Check out their share prices--they've lost over 90% of their market cap, which makes the tech bubble look like Disneyland.

Expect more big losses and layoffs--it is going to be a bloodbath--the biggest since the Great Depression. Insurance companies were the only ones standing in the aftermath of the Depression, as thousands of banks failed. They set premiums based on actuarial data, not based on speculative lending practices. Banks use 10:1 leverage, which works great in a growing economy, but is terrible in a downturn, as bad loans mount. Expect Washington Mutual to fold, too--unless they get bailed out. It amazes me that people still think banks are safe, despite pervasive evidence to the contrary. How many more banks have to fail before people get it? In any case, insurance companies are forbidden by law to implement that type of leverage.

The VC market has dried up as well--last quarter was the first time ever that there were no IPOs. The liquidity crisis is spreading up and down the food chain--couples with high FICO scores and sizeable assets are having trouble getting financing. Cash is more important than ever, so curb your spending and hoard it. Don't mess around this time, this ride is going to be hell.

In summary, this is EXACTLY what should be doing in a severe downturn, where every asset you turn to is dropping like a Thai thunderstorm downpour. The next 2 (or more years) will be very difficult, and when the last bulls finally turn bearish, basically giving up all hope and expecting the world to end. hopefully we will reach a bottom. Real estate agents and stock brokers have been preaching to me their respective markets will turn around for the last two years, and given their polyannish outlook, I know this hellstorm is going to last longer. They're like Colonel Klink in Hogan's Heroes--whatever they say will happen, do the exact opposite.

If you had to pin me down, the meltdown recovers in 2010, which means you can expect a climactic abyss in stock markets late 2009. THAT will be the time to nibble at good companies who got thrown out with the baby wash--the companies themselves are solid, but the financial hurricane took them down unfairly Pick the winners of each struggling group: Goldman Sachs will be a screaming buy in a couple years, but don't try to catch a falling knife--it'lll cut you. Wait till they bottom and bounce off the bottom a couple times. It's better to be late when bottom-fishing (buying), and it's better to be early when selling.

Of course, I could be wrong and too optimistic on the recovery time, at which point, all bets are off. Just to give you an idea of how bad it is, Warren Buffett of Berkshire Hathaway just sent a directive to one of his portfolio companies, a reinsurer who guarantees funds above the FDIC limit of $100,000 for banks. They lost a mint in guaranteeing losses when IndyMac went under recently, so the reinsurer just notified thousands of banks they are no longer guaranteeing accounts above $100,000! Do you think wealthy depositors are going to react to that?

As an aside, the formerly venerable Lehman firm was the preemiment fixed-income (bond) banker who got themselves in trouble with junk offerings years ago. Buffett actually stepped in and helped bail them out at the time. Obviously, he's not bailing them out this time. These subprime mortgages are the latest cyanide, only this time the Kool-Aid is a lot more toxic. You thought I was a doom and gloomer earlier, and it turns out I understated the magnitude. And unfortunately, it's going to get even worse.