Morning Notes: Lehman Brothers (LEH), Best Buy (BBY), and Interest Rate Poll

Well as mentioned in the past Lehman Brothers (LEH) "beat" the number, but with it being such a black box it's really hard to tell what is going on behind the curtains. They mentioned numerous times of 'significant markdowns', but those are items that show up on a balance sheet, not a profit and loss statement and with the market's attention span of a 2 year old toddler, all that matters is the headline number. The stock is up premarket. Expect the same from most of these names, other than Bear Stearns (BSC). They have so many levers to pull, and so many things they can pull on and off balance sheets, it's going to be hard for them to miss, despite the turmoil.

From CBSMarketWatch: Lehman Brothers (LEH) before Tuesday's opening bell said it recorded "very substantial valuation reductions" on leveraged loan commitments and residential mortgage-related positions. The losses, which were partially offset by "large" valuation gains on economic hedges and other liabilities, resulted in a net reduction in quarterly revenue of about $700 million, Lehman said. The company said its fixed-income capital markets group saw fiscal third-quarter revenue fall 47% from a year earlier to $1.1 billion, primarily due to lower performance in credit and securitized products.

Best Buy (BBY) reported a nice number this morning - I am not surprised by this. I think if/when the consumer falls, Best Buy (BBY) will be the last to see serious slowdowns. Now that might sound counter intuitive and while I think the demand for high end TVs might be hit - I think for those of us who don't have access to an Apple (AAPL) store nearby, Best Buy's offering of Apple products is a huge boon. Laptops and iPods deluxe - again I keep coming back to laptops. The consumer is moving from desktops to the more convenient laptop. Last, video game cycle is hitting a big upswing, which is shown in the stock of Gamestop (GME). But above all this is a move to an electronic's golden age if you will. Discretionary income is being moved to these items - just think of all the extra gadgets we use now versus even 10-15 years ago. They are now indispensable. And Best Buy is the easiest way for 'common man', especially baby boomer generation, to get to these products. Especially those less tech savvy.

As for our interest rate poll, with just a few hours to go, the " 25 basis points - but this is only step 1 of our 12 step recovery plan" has made a late surge. It sounds like the consensus has moved to 25 basis points on Fed and 50 basis points on discount rate. I opined about a potential 0 basis point Fed fund cut, and 50 basis point cut on discount rate last week. My question is with all this 'great' news - i.e. investment banks that still beat earnings numbers despite this credit dislocation and consumer discretionary company like Best Buy still exceeding earnings estimates, and showing healthy growth, why do we need a cut at all? Oh yeh, to bail out those who took inane risk....

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