Tax & Financial Consulting Services
LEHMAN BROS. CRASHING
WASHINGTON MUTUAL: NEW, DANGEROUS RED FLAG!
WACHOVIA AND HSBC ARE CHOKING
Dear G&G Readers,
I warned you this was going to happen (see 26 Aug 08 newsletter). Now it’s here: Lehman Brothers’ shares are crashing.
The stock closed at 16.20 on Friday. As I write this alert, it’s trading at $7.80, signaling a major new collapse could be on the immediate horizon. If I'm right, this debacle is going to be several times worse than the Bear Stearns disaster of March.
In a last act of desperation, cash-strapped Lehman was in meetings with the state-owned Korea Development Bank trying to sell its profitable Neuberger asset management unit. But those meetings have now broken down. Its last hope for survival seems to be down the tubes.
When Lehman Brothers was founded in 1850, Millard Fillmore was President of the United States. Daniel Webster was still in the U.S. Senate...and Los Angeles and San Francisco were just being incorporated as cities.
In the 157 years since, the firm has survived the Civil War, two world wars, the Great Depression of the 1930s, the inflationary firestorm of the 1970s and 9/11 to become America’s fourth-largest investment bank.
But yesterday, the firm began writing its own obituary as yet another casualty of this great credit crisis. At 7:30 A.M., Lehman released its third-quarter results — and they are gruesome, to say the least. The company, which owns more than $60 billion in mortgages and asset-backed securities — more than the company’s entire net worth and TWO TIMES its market cap — lost a staggering $3.9 billion in July, August and September.
Unsurprisingly, CEO Richard S. Fuld did everything he could to put lipstick on this pig (this is for you Obama fans).
Questions to ponder:
- Will the Fed rescue Lehman just like it rescued Bear Stearns six months ago? Or is this going to be the
government’s first guinea pig in the theory that investors must finally face the consequences of their risks?
- If Lehman is allowed to go under, will it set off a chain reaction of failures on Wall Street? Or can it be contained?
- What about the Fannie-Freddie bailout? Will it really save the housing market? Is it time to pick up historic bargains in real estate and real estate stocks? Or should you continue avoiding them like the plague?
- What about companies whose survival depends on the souring commercial real estate, sinking credit cards and other defaulting loans that are not getting a penny out of this bailout?
- U.S. retailers and manufacturers are ALSO not getting bailed out. What will happen to them?
- Was yesterday’s stock market decline the beginning of a major crash? Or was it just Wall Street’s way of pleading for an even larger federal bailout?
To learn how to protect yourself and your investments, please listen to the Conference Call I did several weeks ago by clicking on the link below entitled “DIVERSIFICATION...Why Gold & Silver.”
During this call, I outline how to diversify your money out of US dollar (foreign currencies), how to hedge against a depreciating dollar (Reverse index ETF’s), and why you can’t go wrong purchasing Gold & Silver (10 year rate of return: Gold – 12.83% , Silver – 13.62%), the US Dollar – as of Sep 08 - has loss 30% of its value this year alone.
But Lehman isn’t alone ...
Washington Mutual told its CEO: “Pack up your desk. You’re FIRED!” Kerry Killinger, the CEO responsible for nearly bankrupting the bank was canned yesterday. At almost the same time, WaMu took the first step towards failure, filing a memorandum of understanding with the U.S. Office of Thrift Supervision.
Unsurprisingly, Washington Mutual stock plunged, bringing its total losses for the year to 70% of its market value.
Wachovia admits to bigger woes in its $122 billion options ARMs portfolio. In a shocking revelation, Wachovia announced that 23,600 of its loans are going bad, and a whopping two-thirds of borrowers with options ARMs are opting not to pay the interest and principal due each month. To survive, lenders are rejecting loan applications like there’s no tomorrow — and killing sales at thousands of companies nationwide.
In response to the hammering they’re taking, U.S. banks are raising interest rates, pulling credit lines, and slashing credit limits for even well-heeled credit card customers. As a result, borrowing by U.S. consumers is falling off a cliff. The rate of credit growth in America just cratered 92% in a single month — from 6.1% in June to a mere .5% in July.
A major problem area: Auto loans. The number of new auto loans granted to consumers cratered 17% in the second quarter. Capital One lost $150 million on auto loan defaults in the last quarter alone. Sovereign Bancorp and HSBC have closed their auto lending operations altogether and are hemorrhaging from their subprime mortgage lending portfolios (sounds like some people are going to lose their jobs soon real soon if not already). If you work for any of these companies or no someone who does, tell them to make sure they do not have their 401K plans vested in the company stock, if so they need to move it fast.
Now, with auto sales at their lowest levels since 1992 — 16 long years ago — GM, Ford and Chrysler have gone to Congress, hats in hand, begging for $50 billion to survive this crisis. That’s more than 33 times the $1.5 billion Washington spent to bail out Chrysler in the 1970s. Meanwhile, the credit drought is also causing earnings to dry up in other industries that rely on credit cards, revolving charges and standard loans to finance customers’ purchases.
The airlines and the entire travel industry is bleeding. Home improvement, furniture and appliance retailers are being squeezed without mercy. High-end department stores, electronics retailers — and every company that manufactures, transports and wholesales these products — are watching sales and profits evaporate.
Put simply, the plague of financial disasters we’ve seen so far is now becoming a pandemic — infecting sector after sector, company after company. It’s setting many of Wall Street’s most widely held stocks up for the same kinds of massive losses that, until now, have been limited to financial stocks.
My analysis: The next phase of this great credit contagion is now upon us. It is absolutely crucial that you take action now to protect yourself. And I am ready to help ...
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Tax & Financial Consultant, RFC
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"A Prudent man foresees the difficulties ahead and prepares for them; the simpleton goes on blindly and suffers the consequences."
Proverbs 22:3 -- Living Proverbs
LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility. G&G Associates gets paid a commission from a membership purchase at www.publicgold.com/gngpreciousmetals.