Thursday, September 15, 2011

What We Were Posting on September 15, 2008

The night before, Sunday Sept. 14, it was apparent that Lehman would fail.
I had been sleeping in the office since Thursday and getting an awful lot of emails from Washington Mutual depositors. I had to go home.
It would have been depressing if it hadn't been so nuts.
I put up this post at 8:23 p.m. Pacific 9/14/08:
One Way or Another We Will Get Through This

I've got to get some rack time but before I head out I'll get a little more personal than I usually do. I have been at the market my entire adult life and have seen the best and worst of human nature. To augment personal experience I have studied and read tens of thousands of pages, everything from popular histories to incomprehensible academic works.

The one lesson worth knowing is: "There will always be opportunity". It may not be easy and it may not be fast but the opportunity is there every morning. The place to start is to PAY ATTENTION. That alone will get you into the second quartile.
Take a look at the first decade of the last century in the chart below:

A forty percent drop from 1901 to1903. A 120% up move in the next two years. Followed by a 50% crash in the next 23 months. Wrapping up with a 60% 13 month run to the upside.
Two Panics, a Presidential assassination and an earthquake.
The conditions are different but we'll get through this.
Chart from Dow Jones Indexes.
They don't call me Pollyana for nothing.

The next day LEH  did indeed file for bankruptcy.
Things that make you go "Hmmm" (AIG; LEH)
Watching Lehman crossing on the tape at two bits. The world's largest property casualty insurer in the $5's. Hmmm.
There's something wrong with our bloody ships today, Chatfield.*
*Comment of Admiral Beatty after seeing 2200 of his sailors disintegrate. Idiot.
He was, of course, promoted, appointed First Sea Lord and granted an Earldom.
We had a couple posts where the Admiral made an appearance:
The Stock Market and the Battle of Jutland

Is Washington Mutual Going to be the Next Bank to Fail? FDIC Would Be Out of Money (WM)

Federal Reserve Accepting EQUITIES as Collateral
10:01 a.m. EDT: What to Look for As the Day Wears On

'AIG could be a much bigger problem than Lehman Brothers' (AIG; LEH)

Fed Adds Most Reserves Since 9/11 Attacks as Banks Hoard Cash
The credit contraction we've seen and will see is massive. The credit card companies are already cutting limits, prime brokers are pulling in unused lines from hedge funds, upside down mortgages that have to be written off, it's in the Trillions, maybe tens of trillions. The Fed, the Treasury, the Bureau of Engraving can't reliquify as fast as we're contracting.... 
I Wouldn't be Too Complacent About New York City Real Estate

Credit Contraction, Deleveraging and the Coming Interest Rate Cut

AIG Seeks Huge Loan As Stock Dives 61% (S&P Cuts by Three Notches)

BOHICA*-Brace for the Tsunami: Fitch, S&P Downgrade AIG (Updated)
Bend Over, Here It Comes Again  

 Washington Mutual, Wachovia: Are Your Bank Deposits Safe? Not Exactly (WB; WM)

UPDATE: We have many, many posts on WaMu. Use the 'Search Blog' box keywords "Washington Mutual" for the list.
Original Post:
When I first came to the market I met a man who watched the near failures of Goodbody and F.I. duPont, Glore, Forgan in the early '70's. This was about the time that the Securities Investor protection Corp. was authorized. He told me that at first he assumed all would be well for retail investors. During the '73-'74 bear market he changed his mind and would only deal with the strongest firms.

What changed his mind? He realized that if a firm were to fail, it would probably be during a period of financial distress. This is precisely the time you want maximum flexibility and although the guarantee was probably good, if there were any glitches in the liquidation or transfer of his account that HE would be the one bearing the risk. He decided to only do business with the soundest firms, even if it cost him extra fees or commissions. He summed it up by saying "You never want to call the firm and have the receptionist answer 'Hello, SIPC'''

In an August '07 post "Liquidity in Business and Markets" and repeated in a Jan. '08 post "I'm Pissed at Merrill and Citigroup" I touched on the story of the insolvency of Krupp, at the time the largest industrial concern in Germany:

'Liquidity is expensive but illiquidity is much more so, because it destroys the very existence of a firm"

I don't remember if it was Johannes or Ernst, it was a long time ago that I read Manchester, quoting one of the Schroeder boys on the insolvency of Krupp. That line has stuck with me. Here's the book.
This has gotten to be a long introduction, on to the links....
Which States are Most Populated by Neurotics?

The next day we found a bit of humor:
Lehman's U.K. Landlord Says AIG Insures Rent Payments (AIG; LEH)

That was not intended as schadenfreude, I was actually feeling for the risk manager who had done all the right things, insured the rent payment, gone to a triple A company only to have it turn into a joke:
Boss, I've got good news and bad news...
Well, the good news is Lehman's rent was insured
The bad news is, the insurer is AIG.
An amazing day.