Tanking crude

For years I have been saying that speculation has been behind much of the runnup in oil prices (and other commodities, more recently). It is no coincidence, then, that the drop in oil started almost to the day that the CFTC announced it would be investigating possible manipulation in the market. The media has yet to acknowledge this. Their new phrase of the dayis, "Demand Destruction." Demand destruction is nothing new; it has been happening for more than year, yet the price of oil and gasoline have been kiting higher. Dissuade speculators from buying oil--or ban them altogether--and oil prices will fall fast and sharp. That should be obvious to all by now, but, sadly, it isn't.

More on Lehman

One gambit that could work, would be if Lehman aggressively bought back its shares using borrowed money from the Fed. Lehman's very survival depends on crushing those who would like to destroy it. It's a bold and risky strategy, but it could work. At this point, that may be Lehman's only hope. In addition, what is happening to Lehman now--this siege by short sellers like David Einhorn--should be a lesson to other firms that might be next on the short-sellers' list of targets if Lehman goes under.

I'm back posting

Yesterday on Fox Business we had a discussion about whether or not the purported problems at Lehman could cause it to be the next
Bear Stearns. Several of the panelists pointed out that Lehman now has access to the Fed's discount window--where it can borrow directly--and this precludes a Bear-Stearns-style demise. However, they are missing the point. Merely borrowing from the discount window is not a viable business activity. Lehman must have clients and customers and other, real, business activities and interests in order to earn money with which to pay employees and pay back the loans taken from the Fed. If not, it still risks going out of business. If short-sellers succeed in driving down Lehman's stock sufficiently painting it as a "failed firm" or one that carries risk for anyone that does business with it, it can fail.