Lehman and WaMu Need to Go

Today I received a message from my discount broker Tradefreedom Securities (owned by Scotia Bank) saying that they have removed trading on margin for Washington Mutual and reduced the margin from 70% to 50% for Lehman Brothers. It seems that they think they are going to go under and don't want to see anyone with long positions on margin do down with these firms. I can't fathom who would be long these companies on margin, but apparently someone, somewhere is.

In my opinion, Lehman and WaMu need to go before the market can stage a recovery. I am not sure why I think this (I usually want a more justifiable opinion), but I feel that the market needs to see at least one, if not both, of these firms to be bought out in order for people to feel good enough about the strength of financials for anyone to place a bid. I heard a rumour that Goldman bid for Lehman at $11.50 per share on Tuesday. I for one would feel a lot better if Goldman stepped in here. Perhaps they will wait for their traders to short the stock to $2 before launching a hostile takeover this weekend. All here say though, only time tell.

It also seems that Merrill is the target of vicious shorting. It is down as much as 18% today and has set a new 52 week low around $19 (previous $22). I have some put positions on this stock and noticed that volume exploded today on the $15 January put, which traded 17,000 contracts today. Almost 15,000 of this volume came from two purchases, where the ask price of $3.00-$3.05 was paid. This tells me that someone is willing to bet big money that Merrill's stock price has a long way to go down before it recovers. Good news for me :)

Also, Petrobas (PBR) released details of another big oil field off the coast of Brazil. With the price of oil plummeting, PBR is on sale and I plan to buy for the long term as soon as oil starts to show sings of recovery. This is also bullish for Transocean (RIG) who supplies Petrobas with the deep water, harsh drilling environment rigs that Petrobas needs to extract this oil. The supply for such rigs is far outstripping demand (including future production), which will allow Transocean to raise rates. Both are long term buys for me.