The Big Picture

« Fannie & Freddie Heading for "Conservatorship" | Main | Blind Denial About Running a Good Business »

About Those Companies Brought Down by Rumors . . .

Friday, July 11, 2008 | 06:45 AM

Here's a question I'm curious about:

We've heard from oh-so-many people how whisper campaigns have brought down so many firms like Bear Stearns (BSC) and Indy Mac (IMB) and Fannie (FNM) and Freddie (FRE) and now Lehman Brothers (LEH).

Why is it that all these rumor-mongerers and shorts are only bringing some firms to their knees? How come they always seem to be the over-leveraged, under-capitalized, unhedged, most poorly-managed companies? Isn't it funny that all of the firms that are the subject of such rumors have so many similar characteristics? Bear and Lehman and Fannie Mae and Freddie Mac and AIG and . . . the list goes on and on.

Why is it never the firms with strong balance sheets, good business models, making lots of profits? Why aren't we terrified that these powerful shorts go after Intel (INTC) or Google (GOOG) or Apple (AAPL) or Berkshire (BRK) or GE or Exxon Mobil (XOM)?

Or is that merely a funny and unexplainable coincidence?

According to Jamie Dimon, a whispering campaign can bring down a firm. Vanity Fair blames shorts and CNBC. If that's true, why not go short Bear AFTER it fell 100? Why not go after a really big firm, with lots of room on the downside to make even more money? Perhaps an alternative explanation is in order.

Yesterday's pasting of Lehman (LEH) was based on a rumor that Pacific Investment Management Co. (aka PIMCO), manager of the world's biggest bond fund, and SAC Capital, one of the world's largest and most actively trading hedge fund, were backing away from the firm. Both came out and reaffirmed that they were still Lehman customers -- but it had the feel to me of a manoeuvre, and not a true and full disclosure.

My best guess: We are likely to find out what the full truth is some time from now. How much does anyone want to bet me that we will find out in a few quarters that each of these firms were cutting back a big chunk of their business with Lehman?

Any takers?

Sources:
Psst! Hear the Rumor of the Day?
ANDREW ROSS SORKIN
NYT, July 8, 2008
http://www.nytimes.com/2008/07/08/business/08sorkin.html

Bringing Down Bear Stearns
BRYAN BURROUGH
Vanity Fair, August 2008
http://www.vanityfair.com/politics/features/2008/08/bear_stearns200808

DealBook’s Andrew Ross Sorkin vs. DealBreaker’s John Carney
NY Magazine, 7/ 9/08
http://nymag.com/daily/intel/2008/07/dealbooks_andrew_sorkin_vs_dea.html

Rumors, subpoenas and the pursuit of truth on Wall Street
Robert Teitelman
The Deal, July 8, 2008 at 11:07 AM
http://www.thedeal.com/dealscape/2008/07/rumors_subpoenas_and_the_pursu.php

~~~

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00e55394cbea8833

Listed below are links to weblogs that reference About Those Companies Brought Down by Rumors . . .:

» BizLinks and Open Comments | 7.11.08 from Loren Steffy
Houston has cheapest gas; prices up slightly in Texas Ex-EGL chief's venture will compete with his old firm U.S. Weighs Takeover of Two Mortgage Giants About Those Companies Brought Down by Rumors . . .funny how they all seem... [Read More]

Tracked on Jul 11, 2008 9:36:05 AM

» Whine on, you crazy Dimon from Loren Steffy
APDimon: got any good gossip?So Phil Gramm thinks we're all whiners and that those tighter family budgets are just a recession of the mind. We're just making it up -- the layoffs, the market decline, the tightening of credit. Just... [Read More]

Tracked on Jul 11, 2008 10:35:14 AM