Troubled Lehman sinks markets

Stocks suffered a monster decline led by financials. Yesterday the banks soared on seat of the pants optimism, today those gains evaporated. Dow dropped 280, decliners over advancers by a very big 7-1 and NAZ declined 60. NYSE volume is medium at 1.7B, however Lehman (LEH) alone accounted for ¼ of total volume. Financials sold off big on shudders about Lehman.

S&P 500 FINANCIALS INDEX


Value ... 283.41 __ Change -20.02 ... ___ % Change ... -6.6%

Lehman talks with the Korean Development Bank are over & now it looks like nobody wants them. Their future is uncertain to say the least. A couple of months ago I went to a financial conference and some said that the gov should have let Bear Stearns go under, the market would have handled the aftermath. Now those thoughts will be raised again. Complicating the picture for a theoretical gov rescue package for Lehman is the current rescue of Fannie Mae/Freddie Mac. Lehman was down almost 50% on over 375MM shares!! The vultures are circling! If they fail, there will be a lot of financial bleeding.

•Lehman Slumps as KDB Negotiations End; Firm in Talks With Other Investors
•Lehman Put on Watch for Downgrade by Standard & Poor's, Citing Uncertainty

Bloomberg TV had an interview with Congressman Barney Frank, head of the House committee on finance. He is comfortable with Chairman Bernanke's handling of FNM/FRE. He also said today's mortgage mess is related to mistakes made by Alan Greenspan (i.e. Frank is a Democrat while Greenspan is a Republican). He had no comments about the LEH because of a lack of knowledge on the situation. However, no comment suggests that he is not interested in getting involved (he is in charge of the committee that the FED reports to). If LEH fails, there will be a lot of bleeding for other financials which explains why their decline is dragging down that index.

Let's not forget about oil. Oil is at new multi month lows. 105 and change was supposed to be an important support price and that was clearly breached today. While lower oil is helpful on the inflation front, it's not all good news. If there is logical reason for its decline, it's based on demand destruction (i.e. weak economies around the world). That thought is not being digested well in stock markets.

CLV08.NYM

.. Crude Oil Oct 08

.. 103.26 ..

3.08 (2.9%)

Lower oil sank the Alerian MLP index falling below 250 (as shown in the Yahoo financial badge on the right). Forget weak chart, this index is under water. I have a feeling that an investment failure could see a lot of these companies sell off in panic selling, leading to excellent buys for the savvy.