Riskier financial assets including corporate equities opened as weak as expected this morning, but I believe these assets will stabilize before long for a number of reasons, shown below. Current conditions emphasize yet again the challenges that investors face in investing from the bottom up and why knowledge of the macro situation is essential today.
This is the basis of my brand new book, Investing from the Top Down.
1) Market participants have had ample warning on Lehmanand have likely already taken the precautions they felt were necessary to guard against risks Lehman's potential failure might pose.
2) This weekend's deliberations by the nation's top financial firms will help cushion the blow. For example, the International Swas and Derivatives Association (ISDA) on Sunday between the hours of 2 p.m. and 4 p.m. orhestrated a so-called netting trading session enabling transactors in credit, equity, foreign exchange, and commodity derivatives to "reduce risk associated with a potential Lehman Brothers Holding Inc. bankruptcy filing." The banding together of counterparties on Sunday almost certainly extends beyond the derivatives market into other vital areas such as the $4 trillion repo market, where dealers go to obtain the short-term financing they need to carry their securities positions.