Lehman bankruptcy: How deep is the cut?

15 September 2008

Lehman Brothers has filed for Chapter 11 bankruptcy after Barclays and Bank of America abandoned talks to buy the company (See: Lehman Brothers heads for Chapter 11 as Barclays walks away)

Kirby Daley of New Edge Group sees a lot of action from the Fed and the US government to keep the situation under control and expects global retrenchment. He expects investor risk aversion going forward. He sees outflows from emerging market including India.

Hans Goetti, CIO, LGT Bank does not expect any rate cut by the Fed tomorrow. Risk aversion will have most negative impact on markets, he said. One should wait and see on how the US markets will open, he said. 

Goetti said, ''The Asian markets have already reacted and are lower across the board, which is not exactly a surprise; it's more surprising as to how well they are holding up.'' He believes the risk-aversion will have the most negative effect on volatile markets like emerging markets and feels the US market too would open lower today. He feels the market sentiment is negatively affected and said no matter what the Fed does, it would not turn it around.

Daley said that the market reaction in Asia without the US to follow could be the way it was last week. ''We could see a Black Monday return or we could see investors keep cool heads and try to wait and see how long it will take to let the chip fall and see where we are.'' He sees a risk of extreme reaction towards the downside in emerging markets as well as G7 (Group of Seven) and other markets around the world and said that everything would have to be take an adjustment downward with the uncertainty.

''I do not think investors were prepared for anything as bad as things are in the United States and in Europe. He sees retrenchment around the world, which would mean outflows from India and other emerging markets. ''No one is going to be left unscarred''. However he believes a lot of value will be created.

Ray Barros, CEO, Ray Barros Trading Group expects the Dow to retest its lows at 10,828 and said if it holds at those levels it could form a short-term bottom. "If that level does not hold, then the US markets would be down at least till the middle of October."