LEHMAN BROTHERS AND MARKET COMMENTARY

THIS AIN’T MY FIRST RODEO. IN RECENT WEEKS IT FEELS AS IF IT COULD BE.

This morning, September 10, 2008, Lehman Brothers made a call to once again reassure us that all is well. Well, maybe not well but OK enough to keep them going for awhile at least. The stock fell below 8 yesterday to a 10-year low – a drop of 45% for the day. (Today, September 17th, Lehman is 17 cents per share.)

Today Lehman has announced a $3.9 billion loss for the quarter and has cut the dividend from 68 cents annually to five cents. We wonder why five cents instead of zero cents.

We think this is the end of Lehman Brothers as we have known it. Lehman Brothers was founded in 1844 in Montgomery, Alabama by Henry Lehman, an immigrant from Germany. Six years later his brothers, Emanuel and Mayer, joined him and they named the business Lehman Brothers. They were brokers who traded cotton, the cash crop of the time, and opened an office in New York in 1858. All of this occurred before and during the Civil War. After the War the brothers moved to New York and helped establish the Cotton Exchange.

Lehman was the firm I joined when I first came to Wall Street in 1960. Headquarters were on One William Street, and Lehman’s sales force for the world was eighteen of us at that time.

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Last night OPEC agreed to a 520,000 barrel per day cut in output below the official July output target of 28.8 million barrels per day. This meeting was in Vienna, the usual location, and the next is scheduled for December 17th in Algeria. With all their money we do not understand why they would change the venue from the luxury of Vienna to the sands of Algeria.

The Financial Crisis is far from over as on Monday, September 8th, the Government announced the bail-out of Freddie Mac and Fannie Mae, the largest in world history.

It is estimated that these two “companies” own or control between 60% to 70% of all U. S. mortgages. They had to be bailed out because of the enormity of the implications of their failure. Because their approximately $6 trillion of debt, no one is sure how much this will cost the American taxpayer. Low estimates seem to be around $300 billion, but we will have to wait and see.

At this time when the stock markets are impacted by enormous and irrational selling caused by forced liquidation of hedge fund positions and of other very highly leveraged investors, the thing to do is to have patience, hold on to shares of excellent companies and wait for the dust to settle. We will not be buying aggressively even with stocks at these levels until we can see stabilization and some clarification of the extraordinary issues with which we and the rest of the world are dealing.

John W. Hamilton
September 10, 2008