Market Summary: Tues. June 3, 2008

Lehman Brothers and General Motors were the two stocks that caused the market to be lower today. If it wasn’t for a better-than-expected factory orders number, we would have seen 2+% declines in the major indices.

As the market rebounded in April and May, news – especially bad news – from the financials was essentially non-existent. In the last few weeks, the financials have come back to the spotlight amidst new liquidity rumors. The most frightening one is Lehman Brothers because its business is so similar to Bear Stearns’ business. David Einhorn, a billionaire hedge fund manager, has been short Lehman and has been coming on CNBC talking about how Lehman will take larger-than-expected write-downs when it reports earnings.

Rumors circulated today that Lehman borrowed funds from the Federal Reserve’s discount window. But Lehman came out and said it did not access the lending facility. Remember, just days before Bear Stearns’ collapse its CEO said the company’s liquidity position was adequate. Well, this story sounds eerily similar. Maybe that’s why the $2 put options for Lehman traded over 1,000 contracts on the day! Shares of LEH closed the day at $30.61.

The Wall Street Journal also reported that Lehman will be raising $4B of additional capital through an equity offering; Lehman did not dispel this rumor, though. LEH finished the day down over 9%.

The automakers, specifically General Motors (GM), also weighed on the markets. The

Asian automakers, Honda and Toyota, had their May sales increase 3.7% while the American automakers, GM, Ford, and Chrysler, had their May sales decrease 21%. With gasoline at $4 per gallon, consumers are switching from SUVs and trucks to more fuel efficient sedans. GM announced is will close four of its truck plants and it is considering selling its Hummer brand. When GM’s CEO made his comments around noon the markets began to sell-off.

Oil continued its slide ending the day $3.45 lower. I am very cautious on all commodities now; I’m least cautious on natural gas, though. I feel there is too much downside risk thanks to possible government intervention. The Commodity Futures Trading Commission (CFTC) is already looking into price manipulation for crude oil and other commodities that soared last year. When crude oil spiked to $135 per barrel, the news stations led their broadcasts with oil-related stories. Today, the carmakers are already feeling the pain and I expect it to spread even further. The consumer has already cut back and I expect demand to decline. I have also heard rumors that China and some other countries might stop subsidizing oil (should lower global demand because prices will not be kept artificially low). I’m letting all the speculators unwind their positions before I make any moves.

DJIA 12,402.85 -100.97 (-0.81%)
Nasdaq 2,480.48 -11.05 (-0.44%)
S&P 500 1,377.65 -8.02 (-0.58%)
NYSE Composite Volume 1.29 bln

2-Yr Bond 2.45% -0.06
10-Yr Bond 3.92% -0.06
30-Yr Bond 4.63% -0.05

Dollar Index 73.240 +0.311
Crude Oil (July) 124.31 -3.45
Nat Gas (July) 12.221 +0.252
Gold (Aug) 885.50 -11.50