As the news is so the news goes. But who was talking about the news before the news was? Yep, That’s me. And my name is Mr. Volatility.
If you have any questions please refer to this post from June 10th on the agetblog. This was a well scripted little drama. It just so happens that the script was written before it was being written. Lehman could not survive because they chose a very dangerous path. The path of negative progression. It works until it doesn’t. That’s why there are table limits in Vegas my friends. Negative progression works - until it doesn’t. Not one institution that is at all tied to anything to do with banking or finance is immune to this.
The risks underneath Lehman are massive. The risks underneath Fannie Mae (FNM) and Freddie (FRE) are massive. And Bear Stearns. And Citibank (C). And so many more names - especially in the commercial REIT sector. These stocks are not going to zero, they are going into the negative. No one knows their true price. I would guess that the prices of the stocks should be valued at about -$2,000. Lehman just went from a closing print of $3.65 friday to -$2,000. Or -$20,000. Or -$200,000. Get it? Imagine every single share of Lehman (LEH) is worth -$2,000. This is probably a best case scenario.
I think Lehman has about 387 million shares outstanding. Let’s go back to grade school when we learned how to spel (I know) arithmetic by repeating A Rat In The House Might Eat The Ice Cream. 387 mill shares outstanding times -$2,000 per share = about 774 billion. Yes, that it is what they are worth (by whatever estimates you want to use). But remember, the estimates may be marked to market or they may not be, so the Party may actually be the Counter-party. Clear. Not even. Bottom line - no one can tell you how much risk they have. And they are all going down together. Lehman is likely worth minus 774 billion.
Do you see what I see? Have you been reading me? This is the point when an asset shifts to a liability. It is the point of volatility. If you are positioned correctly you are going to be set free. Oh, I almost forgot, the bill. 774 billion. Guess who has to pay it? Are you looking in the mirror? That’s you. It’s me too. Gains for a few, losses for many. The same thing plays out over and over in any market. The majority of money always flows to the minority of hands. Remember, though, that is only the Lehman bill. There are many others and many more to come.
Individuals should not feel bad. I am stunned at the amount of mutual funds that own these equities. Professionals? Come on. Leverage is not tough to understand. These equities should not have been owned. Nor should they be owned. By the Way, how about this post here about GM? Dear wall street, please go back to the basics and rebuild your models. They are not functioning like they are supposed to. They worked, until they didn’t. GM will suffer the same thing as Lehman. It is a hedge fund with risk controls that are extremely improper. I can’t wait to read the letters from mutual funds talking about recourse. Let me give you some recourse here and now. If you own these things and are claiming they have “value” you are going to look foolish at some point. There is never value in a common stock when assets shift to liabilities. They shift when too much leverage is used. The recourse is to sell those names in the most orderly fashion you can. Your recourse has to be proactive, not reactive. Reactive recourse will sink you. Always.
Insurance was cheap. People didn’t want it. Now insurance becomes really really expensive really really quickly and not only do they need insurance, they have to have it. They will have to pay any price that they can. If they can even buy any at all. Sometimes when you get to the window to buy the insurance, no one is willing to insure you anymore. Talk about the party and the counterparty having a strange interlude the night before. Neither feels good in the morning. Because neither knew who was who. Now the party has to be looked at and reviewed. Remember, though, everyone was not sober. There will sure be a few sides to this story.
But look at this as an opportunity, through the eyes of Mr. Volatility.
Think in terms of insurance. Where is the cheap insurance here? Who is the next to go under? Go buy one share. That is a call. On the class action lawsuit. Cheap call. Long dated. Risk- tiny. Reward - potentially bigger than you can imagine. Sweet!
For some, this will be a career launching trade. That is if you are on the right side. As Jesse says, there is only one side of the market and it is not the bull side or the bear side, but the right side.
Are you on the right (short) side here? This will play out again. It always does. Same game, new players. Nothing changes in the market, just the participants.
As for me, it will be what it will be. But I hope I am building credibility. Because this is just another trade to me. My style is always full. Of volatility.
On that note, I will leave you with the text that I sent in an email to my brother on June 6th this year.
-I have been a full time market observer and trader since 1996. I have never seen the underpinnings of our system on such shaky ground.-
Peace.
Thursday, April 9, 2026 
