Tuesday, June 10, 2008

I Love This Guy

Finkle is Einhorn, Einhorn is.....oh wait, that's another master of his domain. This Einhorn is founder of Greenlight Capital, a hedge fund that has been taunting the elite of Lehman for a year now. Even after raising $6 billion yesterday, he was resolute in his assessment that their books smell like home cookin'. "Lehman is raising $6 billion that they said they didn't need to replace losses that they said they didn't have," Einhorn said. "Since the credit markets actually improved this quarter, such losses primarily reflect losses that might have been taken in prior quarters." A "preliminary" analysis of the firm's pre-announced results and conference call suggests there are still unrecognized losses on Lehman's balance sheet, Einhorn explained." Exactly. Sounds suspiciously like Bear, doesn't it? We're well capitalized and have no liquidity problems. However, we're going to give away $4 billion in shares at a 12% discount to raise money. Yeah, that's consistent.



What's driving me nuts is the pricing on the LEH puts. Had I bought the 1/09' 30s, I'd be up about 20-25% in less than a week. My way out of the money puts have showed dead volatility this week, fluctuating less than the day I bought them and the stock merely went down $1, not $5. But we're holding out for a crash and burn scenario. More Lehman bashing below, including Dick "after the fact" Bove, who said that LEH has had to sell their best assets to raise cash, and deleverage out of those. This only leaves illiquid assets and less leverage. How are they going to make money going forward? LEH got downgraded by every other major yesterday. They all still have price targets well above current levels. One analyst even changed his tune from sell to outperform in a matter of 3 days.



My other financial shorts are making quite a run these days. COF briefly dipped into the $43s today, and I'm holding on for bigger profits. We'll talk again when it finds the mid $30s.



NCC has been all over the news today. After plummeting into the low $4s yesterday, it is back near $5 on the admission that they've had to sign supersecret govt. agreements to stop acting like idiots. My strangle was in the money yesterday, but I'm again holding on for bigger returns. I've already proved to myself and hopefully to you that my theory was correct on my first strangle play, now we're going for a decent return. Homerun is unlikely with the call probably being finished.



Let's not forget diesel. While Cummins has been treading water, Eaton has been soaring. More importantly, Bloomberg ran an article yesterday that said diesel futures were at a 15 year high. Furthermore, Conoco (homerun) has said that it will make more from diesel in North America than gas for the first time ever this year. Ditto Valero.

Don't forget my other recent reco, FCX. Up $7 (6%) since I mentioned it, calls up quite a bit more....
http://www.marketwatch.com/news/story/lehman-may-still-have-unrecognized/story.aspx?guid=%7BA6B789D8%2DB6F0%2D44D6%2D9DA1%2D67B6956D5FB2%7D&dist=hplatest

http://www.cnbc.com/id/25060628

http://www.marketwatch.com/news/story/national-city-wants-keep-public/story.aspx?guid=%7B047C1BB0%2DF9BC%2D4600%2DB803%2D032FB21D4E32%7D

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNHgN9bJ.jLg&refer=home

7 comments:

Tiger Coach said...

Ax... Another good post. I love the LEH play here...22.5s is good as I believe regardless of who is "supporting" the company or what analyst has rated it a buy, there is still a period when the dirty laundry must be aired. Since I am late to the party...I will look to buy on the bounce... (KO monies have not made it to my Schwab acct yet...!@#$%%)

Exit strategies... Have you evaluated exit strategies on your positions?

Inflations/Deflation arguments?

AX said...

Thanks, TC. Exit strategy is two-fold. May just hold on until stock takes serious plunge (by that I mean under $20). Another option is to sell if it goes down another few dollars, take profit, wait for a bounce, then reshort at better prices.

Inflation is here for a long time. Fed has screwed up and the real cost of goods is much, much higher, while salaries stagnate and purchasing power decreases.

NCC took a blip yesterday, but my thought is play to win. Could've cashed out for a mild victory Monday and I believe you would've done even better. But I'm holding on til' we breach $4 I think.

Tiger Coach said...

Ax... Back to a deflation argument as I have discussed with Boom and Doom...more out-of pocket expenses on the medical and prescription side are deflationary in that is affects the over overall monies that are available for spending...

I am looking to increase positions of the PUT side of COF and maybe BAC...credit cards will be the next credit story of Wall Street...
I spoke with a CFO yesterday who still believes credit is way too available. C underwrites credit for his company. A SS# and name that matches automatically earns a $2500 line of credit...beyond that, they need an address... And people are wondering why the financials are shorted...

AX said...

We'll have to disagree on deflation as I think we're near double-digit inflation now if not above. Credit will suffer tremendously 2nd half of year despite temporary rebate check bounce...

Tiger Coach said...

Ax..hopefully you're right on the inflation side of things...in your secnario the financials take a CONSIDERABLE beating!!! Cash Reserves will become the major concern for banks as credit standards will become a growing concern...!!!

I am considering a "tweener" on COF at 1/45s...(i have 50s and 40s) then I will hope like heck the bottom drops out!!!

Gas said will peak at 4.15... I say closer to 5.15 understanding that inflation...and a weak dollar will continue to put a squeeze on the consumer!!!

BD

Creditmall.org said...

This should be the last retail results with positive numbers from the stimulus check...

AX said...

I agree, credit. 2nd half will be ugly. Will post my LEH results this weekend, and why being wrong can be ok...