Yet another Monday where the title of this entry is appropriate. As anyone who has followed this blog over the last year knows I have been very wary about the banking sector for a long time now (including Lehman, see my entries on Dec 10 2007 and on March 18 2008).
Today, however, the obvious shock is that Lehman Brothers has actually filed for bankruptcy (That BoA buys Merrill Lynch almost disappeared in the news flow…)! It doesn’t matter how likely this has seemed over the last couple of days, seen more long-term this is at least as shocking as the take-over of Freddie and Fannie. Lehman has been around even longer than these institutions, more than 150 years! That is longer than the light bulb, penicillin, the Otto-engine, Marx, Keynes.....
Now the time has come for the investors to show their true colors. Is this a buying opportunity (in a couple of days) or is it the start of the end of the correction in all sorts of markets? I saw an obvious trade two years ago (selling all kinds of risky assets, and buying treasuries). That was one of those opportunities you couldn’t miss (it is rare that all markets behave like Icarus at the same time (and flies that close to the sun). This time it is different. It is much less obvious that the markets will continue down (particularly in the US). I am still a pessimist, however, and I think I will stay at the sidelines for yet a while. Perhaps I should even short one of the major players in the CDS market!! That’s where I suspect some of the major crises will appear over the next couple of months (see my entry Will the hurricane calm down before it reaches the CDS market? on January 22 2008).
But things change quickly these days and one should not expect to be able to enter exactly at the bottom…… Caveat emptor!
