WED. JUN. 4 THOUGHTS

In March 2008, sheer panic and paranoia took over Wall Street. The fear of something bad happening became a self-fulfilling prophecy. At the center of this storm was Bear Stearns (formerly BSC). Bear Stearns as many people recall was the brokerage house with the most exposure to mortgages. The stock fell rather dramatically from around 180 to around 100 over several months at which point several investors decided it was worth a shot at buying in. The stock popped for awhile, but began to give way again in early March. Within a week, the stock lost over 90% of its value. What changed in a week? Not much except that the perception became the reality. And the perception was that Bear Stearns would not survive the credit crisis. So, many Bear Stearns clients began yanking their funds from the company and it snowballed. Fear was palpable and the day that Bear Stearns effectively ended its independence (March 17, 2008), the stock market set its lows for the year. Many other brokerage stocks fell with Bear; one of the more notable was Lehman Brothers (LEH). The stock fell an incredible 60% in a handful of days from around 50 to around 20. Three days later, it was back at almost 50 as the liquidity crisis abated. Guess what? Lehman is back down to around 30 on yesterday’s close. This second leg down seems a bit hollower; the fear is not there and Lehman has ample liquidity. But, a force more important than oil prices much less anything else may take hold this summer- the fate of Lehman. That stock will likely be the major indicator as to the direction of the financial system. So, add it to your watch list and track it daily. If everything holds correctly, the stock should not proceed toward 20, but if it breaks 20, it just may follow in Bear’s footsteps. This will lead to “Who’s Next” and could be a very scary time for the stock market. But, again, for now, the new ‘oil’ just may be LEH in terms of what people are watching.

Overnight, Asian markets were generally higher, but the trend reversed in Europe as fears over more writedowns grows. The declines range anywhere from 1%-2% for the bourses as of this writing. Bonds are higher on these fears and oil is down a little more. Futures are down a bit this morning albeit not as much as one would think based on the gloom pervading Europe right now.

LEH- down again pre-open. It traded to 28 already, down 2 1/2 on a "WSJ' article implying the company is going to seek capital from a European entity. Day trading will be treacherous again in this thing with the best plays having already been completed in it before 8AM this morning. Only 'obvious' trade is to buy it thru unchanged on a short covering rush. The much harder idea is if the stock opens at say 30ish (point A), rallies to 30.25ish (point B), and falls back to 30 (A2), short below A2. Numbers not exact...just giving an indication of the thinking. Again, that latter trade is much more dangerous so have a quick trigger out, i.e. if you sell at 29.95 in that example and it gets over 30, get out immediately.

GS/MER- will likely move in loose tandem with LEH.

STT- doing a major share offering at 70. Stock trading above 70 at this writing...best trade in it is to short 69.99 if it trades below 70 because it indicates the institutions/secondary offerers cannot hold the stock up. Conversely, if the stock opens below 70 and goes above, it is a buy at 70.01.

GRO- way up yesterday on not much of substance. If the stock opens higher this morning and the market weakens, it is likely a short at unchanged.

GES- up on decent earnings. Not great, but decent yet the stock is showing impressive strength. A-B-A2 again. If say the stock opens at 41, falls to 40.60, and rallies to 41, buy it at 41.

ROYL/ROSE- small energies up a lot yesterday; if they open a little lwoer and get positive, buy them.

SINO- has been bludgeoned since the day after its IPO. It is down 50%. If the stock opens up a little (say 13.25), goes to unch and holds, and gets back to 13.25, buy it. numbers not exact...again, A-B-A2.

Morning earnings- HOV, VIP, VOL, WSM. Afternoon- ADCT, CMTL, FCEL, FIF MATK, PSS, SBLK

Not a lot news-flow wise...be careful today.

Good luck.