John Mack Hit With More Flak

The defining moment of John Mack's career is upon us. Will he be able to pull out of the nosedive or will he parachute to earth?

The CEO of Morgan Stanley (MS-NYSE) watched his stock plummet Thursday; the timing is curious given that the restrictions against shorting financial stocks were lifted Thursday, and a swarm of killer bees descended from Hedgistan to exact a little revenge for Mack's recent lobbying efforts that put a serious hurt on the hedge fund community over the past month:

Short-sellers, those investors who wager against stocks, took renewed aim at the firm. At midnight on Wednesday, regulators lifted a temporary ban on short sales. Mr. Mack had angered many hedge funds by lobbying for the restriction. New York Times

Of course the timing could not be worse for Mack as he tries to nail down a capital injection from Japanese bank Mitsubishi UFJ. And if that is not bad enough the ratings agencies are rearing their heads at an inopportune moment, with Moody's putting their debt on review for a possible downgrade just as Mack tries to seal the deal with the Japanese.

Not all Equity Strategists are Created Equal

There are many decent technical analysts on Wall Street (Jeff DeGraaf take a bow) and seers like steel analyst Michelle Appelbaum have thriving research businesses. But many of the equity strategists at the larger brokers are struggling to make sense of this market, which unfortunately is nothing new.

And they keep flip flopping:

Citigroup Inc.'s Tobias Levkovich cut his Standard & Poor's 500 Index forecast by 19 percent to 1,200, turning him from the most bullish U.S. equity strategist tracked by Bloomberg to the most bearish.

The new projection represents a 20 percent gain from today's close of 996.23 through the end of the year. Levkovich, 47, said the credit crisis and a slowing global economy made his previous forecast of 1,475 unreachable. The S&P 500 has plunged 36 percent since its October 2007 record under the weight of almost $600 billion in subprime-related losses at banks and an increase in borrowing costs. Bloomberg

The market is keeping him up at night, and he is turning to junk food during the daylight hours, carbo loading before Vikram Pandit hands him the inevitable pink slip:

Dick Fuld Surfaces, Sells a Few Shares

History is unlikely to be kind to Dick Fuld. And while he might not be moving to Hooverville any time soon, perhaps his name will some day take on a meaning similar to Hoover, who like Fuld was out of touch with fast moving events, and ultimately made a series of decisions that left a lifetime of work in tatters:

``The past several months have been extraordinarily challenging, culminating in our bankruptcy filing,'' Fuld wrote in a memo distributed internally yesterday. ``This has been very painful on all of you, both personally and financially. For this, I feel horrible.''

Fuld sold shares that were worth $247 million a year and a half ago for less than $500,000 this week after he failed to find a buyer for his firm.

The 62-year-old CEO sold 2.88 million Lehman shares in the last two days at a price of 16 cents to 30 cents, according to a regulatory filing today. He still holds 503,744 shares, the filing said. Bloomberg

Much like Fuld, I clearly underestimate the fact that the firm could implode in the fashion it did. The recent sale of the capital market operations to Barclays Capital, the ongoing auction of asset management operations and the world headquarters in NYC will raise approximately $10 billion.

Fuld also turned down Korean investors who would have pumped in as much as $5 billion for a controlling stake in the firm; they were far apart on price.

Big Mack Attack

Regulators and the powers that be are digging into their bag of tricks trying to keep us afloat-JPM apparently put out a note earlier pinning hopes for a rally on massive short covering as the new naked shorts rules go into effect.

John Mack at Morgan Stanley is also on the offensive, trying to circle the wagons and buy some time. He does not want to end up like Dick Fuld, and for good reason.

September 17, 2008
To: All Employees
From: John Mack

I know all of you are watching our stock price today, and so am I. After the strong earnings and $179 billion in liquidity we announced yesterday - which virtually every equity analyst highlighted in their notes this morning - there is no rational basis for the movements in our stock or credit default spreads.

What’s happening out there? It’s very clear to me - we’re in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down. You should know that the Management Committee and I are taking every step possible to stop this irresponsible action in the market.

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