Previous Columns
9:00 AM EST Wednesday, June 4, 2008: Our Lehman Brothers (LEH) short is paying off nicely. It's hard to see LEH surviving. Once the dodo hits the fan in the financial world, everyone bails. You would, too, if you thought your money at Lehman was in jeopardy, which it probably is. The "run on the bank" dropped Bear Stearns. Today's Lehman news focuses on management's desperate attempts to raise capital. It's selling assets and scouring the world for new capital. Shortly, it will announce a huge quarterly loss. Rumors are flying. Sadly, Lehman is doing a lousy job responding.

Today's Wall Street Journal sums it up:

Lehman Is Seeking Overseas Capital

Lehman Brothers Holdings Inc., facing a sharp decline in its stock that will make it more difficult to raise fresh capital, may look to a foreign land for a strategic partner.

The Wall Street firm has managed to raise capital from a rich base of existing U.S. shareholders, but this week reached out to overseas investors, including at least one in South Korea.

The firm has a long history in South Korea, an effort led by the firm's well-connected vice chairman Kunho Cho. The options for Lehman include the Korea Development Bank and Woori Financial Group. One person familiar with the situation said it is unlikely Korean Investment Corp., an investor in Merrill Lynch & Co., would be an investor.

The news comes during a rough week for Lehman, whose stock topped the New York Stock Exchange's most-active list Tuesday and closed down 9.5%, or $3.22, at $30.61 on the New York Stock Exchange. Tuesday's trading wiped $1.72 billion off of Lehman's market value and the closing price was Lehman's lowest since August 2003.

Tuesday, The Wall Street Journal reported that Lehman, which is set to post one of the biggest quarterly losses in its history, was considering raising fresh capital. Analysts and Wall Street executives believed the capital raise could top $4 billion. Lehman maintains it is well positioned to weather the current credit crisis and said raising capital is simply one of many options it considering.

The Wall Street firm's shares had tumbled nearly 15% at one point Tuesday as investors who feared their stakes would be diluted sold shares and rumors flew on trading desks that Lehman had gone to the Federal Reserve for funds. Lehman said that wasn't true.

But a second rumor, that Lehman was buying back shares, turned out to be true, people familiar with the situation said. Such buying helped the stock pare its losses Tuesday. Still, the stock has fallen 18% in the past three sessions.

It was unclear how much stock Lehman Brothers bought back, but with shares trading at roughly 22% below its book value at the end of the first quarter, the buying could be seen as a vote of confidence by management.

Indeed, over the past year, the announcement of a capital-raising by financial firms has been a buy signal for investors. Yet for Lehman, which has already raised $6 billion in capital during the crisis and seen its stock fall, selling shares may be prohibitively expensive, according to a person familiar with the matter.

Alternatively it could be viewed as a waste of precious capital, though Lehman has nearly about $40 billion in liquid assets on its balance sheet and has access to funding from the Federal Reserve, so short-term capital issues are not a major concern for Lehman.

The New York Times also had a major piece today on LEH.

Lehman Battles an Insurgent Investor

David Einhorn thinks another big Wall Street bank is headed for trouble — and he is not being quiet about it.

For eight months now, Mr. Einhorn, a rabble-rousing hedge fund manager, has pilloried the venerable Lehman Brothers in an effort to drive down the bank’s stock price, which he is betting against.

Lehman Brothers is not amused. In recent weeks, the bank’s chief financial officer, Erin Callan, has tried privately to rebut Mr. Einhorn to nervous investors, who have feared for Lehman’s health ever since Bear Stearns succumbed to a panic. But despite Ms. Callan’s efforts, Lehman’s stock keeps falling: It tumbled 9.5 percent more on Tuesday, in a deluge of selling, bringing its loss for the last 12 months to 59 percent.

The battle over Lehman has captivated Wall Street and left the bank struggling over what to do next. The bank, which is expected to post a quarterly loss of roughly $1 billion in a few weeks, may also raise capital to shore up investor confidence. The bank has sold more than $100 billion in assets in recent months to shore up its finances, according to a person close to the company. That person said new capital would most likely come from a source other than the public markets.

Mr. Einhorn, who runs a $6 billion hedge fund called Greenlight Capital, has been profiting from the Lehman’s growing pain. Critics say he is needlessly fanning fears about the precarious health of the financial industry at the very moment executives are struggling to stabilize their ailing companies. Many on Wall Street still wonder if hedge funds like Greenlight helped bring down Bear Stearns and spread false rumors about the bank, a possibility the Securities and Exchange Commission is investigating.

In an interview on Monday in his Midtown offices, Mr. Einhorn, fresh from his latest round of television appearances, said he was not out to tell Lehman Brothers how to fix its problems. He questioned how the company valued the assets on its books, and whether it was disclosing all the risks it faces. Investors have good reason to question banks: Worldwide, financial companies have suffered more than $380 billion in write-downs and credit-related losses in the last year, laying bare their shoddy risk management. Lehman has been singled out because of the large role it played in the mortgage market and its reluctance to disclose information about its assets compared with other Wall Street banks.

“Lehman has been one of the deniers,” Mr. Einhorn, 39, said.

Mr. Einhorn said he began betting against Lehman’s stock last July, and he has been right so far. But things have not always gone his way. His long battle against the Allied Capital Corporation prompted the S.E.C. to investigate comments he had made about that company, an episode he discusses in his new book, “Fooling Some of the People All of the Time,” which he is busy promoting. And he was a board member and longtime fan of the New Century Financial Corporation, a big subprime mortgage company that filed for bankruptcy last year.

Still, Mr. Einhorn could be a thorn in Lehman’s side for years to come. For six years he has been using a short trade as a way to bet against a rise in the stock price of Allied Capital and MBIA, the bond reinsurance company.

“He’s got a lot of conviction, and he persists in his convictions for a long time,” said Adam Zoia, managing partner of Glocap, a recruiter in New York that has worked for Mr. Einhorn.

Mr. Einhorn instigated the latest dive in Lehman’s stock price two weeks ago when he encouraged other investors to short the stock at a large conference in New York. When Standard & Poor’s lowered its debt rating for Lehman and several other Wall Street banks on Monday, Mr. Einhorn joined the ratings agency’s conference call on Tuesday and asked whether the agency reviews Lehman’s valuations of its assets.

Ms. Callan, 42, spent an hour on the phone with Mr. Einhorn answering questions before his speech. Afterwards, she found herself rebutting some of his assertions to investors.

On Tuesday, Lehman issued a public statement denying market rumors that it had turned to Federal Reserve for cash through a special program put in place after Bear Stearns collapsed. Ms. Callan and other Lehman executives declined to comment on Mr. Einhorn for this article.

It is impossible to quantify Mr. Einhorn’s influence on Lehman’s stock price. But hours before his speech two weeks ago, trading volume exploded for Lehman stock puts, which are options to sell the stock and profit if its falls. That day, more than 200,000 put contracts against Lehman were sold, up 49 percent from recent typical Lehman put trading.

Brad Hintz, the banking analyst at the Sanford C. Bernstein & Company and Lehman’s former chief financial officer, said he could hardly walk a few feet at a conference at the Waldorf-Astoria last week without having investors ask him about Mr. Einhorn’s views.

Lehman’s management has spoken with some analysts about Mr. Einhorn, but they have declined to comment publicly beyond a statement that says Mr. Einhorn “cherry picks” and misconstrues information.

“They’re furious,” Mr. Hintz said. “If you get distrust of your accounting, then it affects the valuation of the company forever going forward.”

Within Lehman, workers are calling Mr. Einhorn’s strategy “short and distort.” Many hedge fund managers talk freely with one another about companies, but they typically shun publicity. Mr. Einhorn, by contrast, is working with a financial public relations firm, the Gordon Group, to promote his book and views on stocks.

“His position on shorting Lehman is only going to get traction and be successful if he can succeed in convincing people to drive down the stock,” said Michael Claes, a managing director at the public relations firm Burson-Marsteller. “That’s best accomplished with media exposure.”

But Mr. Einhorn’s public approach leaves him open to being criticized himself. Mr. Hintz of Sanford Bernstein said in a report on Monday that supporters of Mr. Einhorn’s latest arguments are “piling on” against Ms. Callan. And Buckingham Research Group said his concerns were “just wrong.”

“These recent criticisms also seem will-timed to take advantage of the market’s concern around weak second-quarter results that we expect for Lehman,” the Buckingham analysts wrote in a report.

Lehman, to be sure, will have to explain its second-quarter earnings to be announced in the next two weeks. Ms. Callan has said the bank will take more write-downs and that some hedge trades were not effective.

Lehman, like its counterparts, is racing to use less leverage. The bank had a gross leverage ratio of 31.7:1 at the end of the first quarter, meaning it had borrowed $31.70 for each dollar of equity. Lehman has whittled that ratio down to 25:1 through its more than $100 billion in asset sales, said the person close to the company who was given anonymity because he was discussing a pending financial filing. A small amount of the sales were to two hedge funds set up by former Lehman executives.

Mr. Einhorn likes to point out that Lehman’s management has incentives to be positive since compensation is tied to performance. Short sellers, he said, receive undue skepticism, and he said he thought he would be getting far less attention if he were discussing a positive view on a company.

Aside from Lehman, Mr. Einhorn would not say if he is long or short other financial companies. But Greenlight Capital has twice as much money invested in long positions across its entire portfolio than it does shorts, he said. So a collapse of Lehman that turned into a broad economic panic could hurt Mr. Einhorn, too.

He said he would keep the Lehman trade going until he is proven right — or wrong.

“The faster the better,” Mr. Einhorn said, “but the world doesn’t work on my schedule.”

Ray Kurzweil's wonderful predictions: Ray is a successful inventor who likes to predict the future. Here's a happy piece from The New York Times.

The Future Is Now? Pretty Soon, at Least
By JOHN TIERNEY

Before we get to Ray Kurzweil’s plan for upgrading the “suboptimal software” in your brain, let me pass on some of the cheery news he brought to the World Science Festival last week in New York.

Do you have trouble sticking to a diet? Have patience. Within 10 years, Dr. Kurzweil explained, there will be a drug that lets you eat whatever you want without gaining weight.

Worried about greenhouse gas emissions? Have faith. Solar power may look terribly uneconomical at the moment, but with the exponential progress being made in nanoengineering, Dr. Kurzweil calculates that it’ll be cost-competitive with fossil fuels in just five years, and that within 20 years all our energy will come from clean sources.

Are you depressed by the prospect of dying? Well, if you can hang on another 15 years, your life expectancy will keep rising every year faster than you’re aging. And then, before the century is even half over, you can be around for the Singularity, that revolutionary transition when humans and/or machines start evolving into immortal beings with ever-improving software.

At least that’s Dr. Kurzweil’s calculation. It may sound too good to be true, but even his critics acknowledge he’s not your ordinary sci-fi fantasist. He is a futurist with a track record and enough credibility for the National Academy of Engineering to publish his sunny forecast for solar energy.

He makes his predictions using what he calls the Law of Accelerating Returns, a concept he illustrated at the festival with a history of his own inventions for the blind. In 1976, when he pioneered a device that could scan books and read them aloud, it was the size of a washing machine.

Two decades ago he predicted that “early in the 21st century” blind people would be able to read anything anywhere using a handheld device. In 2002 he narrowed the arrival date to 2008. On Thursday night at the festival, he pulled out a new gadget the size of a cellphone, and when he pointed it at the brochure for the science festival, it had no trouble reading the text aloud.

This invention, Dr. Kurzweil said, was no harder to anticipate than some of the predictions he made in the late 1980s, like the explosive growth of the Internet in the 1990s and a computer chess champion by 1998. (He was off by a year — Deep Blue’s chess victory came in 1997.)

“Certain aspects of technology follow amazingly predictable trajectories,” he said, and showed a graph of computing power starting with the first electromechanical machines more than a century ago. At first the machines’ power doubled every three years; then in midcentury the doubling came every two years (the rate that inspired Moore’s Law); now it takes only about a year.

Dr. Kurzweil has other graphs showing a century of exponential growth in the number of patents issued, the spread of telephones, the money spent on education. One graph of technological changes goes back millions of years, starting with stone tools and accelerating through the development of agriculture, writing, the Industrial Revolution and computers. (For details, see nytimes.com/tierneylab.)

Now, he sees biology, medicine, energy and other fields being revolutionized by information technology. His graphs already show the beginning of exponential progress in nanotechnology, in the ease of gene sequencing, in the resolution of brain scans. With these new tools, he says, by the 2020s we’ll be adding computers to our brains and building machines as smart as ourselves.

This serene confidence is not shared by neuroscientists like Vilayanur S. Ramachandran, who discussed future brains with Dr. Kurzweil at the festival. It might be possible to create a thinking, empathetic machine, Dr. Ramachandran said, but it might prove too difficult to reverse-engineer the brain’s circuitry because it evolved so haphazardly.

“My colleague Francis Crick used to say that God is a hacker, not an engineer,” Dr. Ramachandran said. “You can do reverse engineering, but you can’t do reverse hacking.”

Dr. Kurzweil’s predictions come under intense scrutiny in the engineering magazine IEEE Spectrum, which devotes its current issue to the Singularity. Some of the experts writing in the issue endorse Dr. Kurzweil’s belief that conscious, intelligent beings can be created, but most think it will take more than a few decades.

He is accustomed to this sort of pessimism and readily acknowledges how complicated the brain is. But if experts in neurology and artificial intelligence (or solar energy or medicine) don’t buy his optimistic predictions, he says, that’s because exponential upward curves are so deceptively gradual at first.

“Scientists imagine they’ll keep working at the present pace,” he told me after his speech. “They make linear extrapolations from the past. When it took years to sequence the first 1 percent of the human genome, they worried they’d never finish, but they were right on schedule for an exponential curve. If you reach 1 percent and keep doubling your growth every year, you’ll hit 100 percent in just seven years.”

Dr. Kurzweil is so confident in these curves that he has made a $10,000 bet with Mitch Kapor, the creator of Lotus software. By 2029, Dr. Kurzweil wagers, a computer will pass the Turing Test by carrying on a conversation that is indistinguishable from a human’s.

I’m not as confident those graphs are going to hold up for fields besides computer science, so I’d be leery of betting on a date. But if I had to take sides in the 2029 wager, I’d put my money on Dr. Kurzweil. He could be right once again about a revolution coming sooner than expected. And I’d hate to bet against the chance to be around for this one.

How to buy prescription drugs: Most people get their drugs through insurance. Your insurance insulates you from sticker shock. No more. Once I turned 65, I lost prescription insurance. With my hayfever raging, I decided to try something called Vermamyst, a nose spray. My dentist gave me a prescription. I found a $25 coupon on the Internet. And shopping I went. My local pharmacy wanted $116. Drugstore.com wanted $44. Both prices include the $25 rebate. My local pharmacy wanted nearly three times what Drugstore.com wanted for the identical thing. I wonder how much they've been ripping my insurance company off over all those years when I had insurance.

Please note, I'm not objecting to the original high price of the drug (whatever it is), since I'm a shareholder in too many biotech companies. But I am objecting to enormous local retail pharmacy markups.

Dear reader, what creative solutions do you guys have to buying prescription drugs? Email me, please:

Sticker shock - Part 2: I just got my first bill from Amazon with sales tax added. Yuch. Bye, bye Amazon. Hello, Borders. Yes and No. I checked three items. Amazon was cheaper on two -- sufficiently cheap, even after paying the wretched sales tax to New York. Now there's a new wrinkle. On one item Borders was more up to date than Amazon was. It had a new item, which Amazon didn't. Back to square one. Check. Check. Check.

New airline fare surcharges: American Airlines recently hired a senior "marketing" executive from a leading telephone company. As a result, American's fares have blossomed. Here's one a reader sent me for his upcoming trip:

Oil guru Jim Kingsdale thinks oil is on its way down, for now. He points to media attention as a contrary indicator (see yesterday's column).

Kingsdale's energy portfolio was up 16.6% in May, its largest gain ever. His latest post is on Energy Investment Strategies.

High oil takes its toll on brothels:
In Nevada, business at its 25 legal bordellos is down 25% to 45%, depending on the location. A major reason is diesel. U.S. retail diesel-fuel prices jumped 16.6% in the past week to a record high of $4.50 a gallon. In rural southern Nevada towns such as Indian Springs, diesel has hit $5.25 a gallon. Fueling an 18-wheeler can now cost an independent trucker more than $1,000. Many brothel customers are truckers.

The French Tennis Open continues.
Watch it in high definition (HD). The quality is mind-blowing. The best HD seems to be from DirecTV and shown on my Samsung DLP big screen TV. HD is the only way to watch sports. The Tennis Channel is 455 on Time Warner Manhattan and 217 on DirecTV. ESPN is 209 on DirecTV and 29 and 729 (HD) on Time Warner. Your channels will be different.

As you watch the tennis, You'll notice: 1. How deep they hit the ball. 2. How much they move the ball around, from side to side. 3. How often they run around their backhands. 4. How consistent the better players are. They simply make fewer mistakes.

Old joke -- 1
A little old lady was sitting on a park bench in The Villages, a Florida Adult community.

A man walked over and sits down on the other end of the bench. After a few moments, the woman asks, "Are you a stranger here?"

He replies, "I lived here years ago."

"So, where were you all these years?"

"In prison," he says.

"Why did they put you in prison?"

He looked at her, and very quietly said, "I killed my wife."

"Oh!" said the woman. "So you're single...?!"

Old joke - 2
Two elderly people living in a Port Charlotte Retirement Community, he was a widower and she a widow, had known each
other for a number of years. One evening there was a community supper in the big arena in the Clubhouse.

The two were at the same table, across from one another. As the meal went on, he took a few admiring glances at her and finally gathered the courage to ask her, "Will you marry me?"

After about six seconds of 'careful consideration,' she answered "Yes. Yes, I will!"

The meal ended and, with a few more pleasant exchanges, they went to their respective places. Next morning, he was troubled. "Did she say 'yes' or did she say 'no'?"

He couldn't remember. Try as he might, he just could not recall. Not even a faint memory. With trepidation, he went to the telephone and called her.

First, he explained that he didn't remember as well as he used to. Then he reviewed the lovely evening past.

As he gained a little more courage, he inquired, "When I asked if you would marry me, did you say 'Yes' or 'No'?"

He was delighted to hear her say, "Why, I said, 'Yes, yes I will.' and I meant it with all my heart." Then she continued, "I am so glad you called, because I couldn't remember who had asked me."

Old joke - 3
A man was telling his neighbor in Sun City Center, "I just bought a new hearing aid. It cost me four thousand dollars, but it's state of the art. It's perfect."

"Really," answered the neighbor. "What kind is it?"

"Twelve thirty."

Old joke - 4
A little old man shuffled slowly into the "Orange Dipper", an ice cream parlor in Leesburg, and pulled himself slowly, painfully, up onto a stool.

After catching his breath he ordered a banana split. The waitress asked kindly, "Crushed nuts?"

"No," he replied, "hemorrhoids."

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.
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