Rumors

Here’s an excerpt from a NY Times article on rumors in the market place.  

Psst! Hear the Rumor of the Day?

"’I will hurt the shorts, and that is my goal,’ Richard S. Fuld Jr. fumed.

It was April, and Mr. Fuld was blaming short sellers, one of the most maligned tribes on Wall Street, for spreading rumors about Lehman Brothers, the troubled investment bank he runs. Shorts bet against stocks, and Lehman, they were whispering, looked like the next Bear Stearns.

Mr. Fuld must have been irate again last week, when Lehman’s stock price plunged 11 percent in the space of three hours for no apparent reason. The shares opened that June 30 morning at $22.25, drifted higher — and then took an abrupt turn around 1:30 p.m. Lehman closed that day at $19.81, its lowest level since 2000.

This time, the rumor du jour wasn’t that Lehman was going to be forced into bankruptcy. No, this time the talk was that Lehman was about to be sold to Barclays, the big British bank. It was eerily reminiscent of Bear Stearns’s fire sale to JPMorgan Chase in March. And when it comes to Lehman, the shorts have bet right lately: the stock has lost almost 70 percent of its value this year.

The rumor turned out to be wrong, as rumors often do. But this one even had an exact price: Lehman would be sold for $15 a share, traders buzzed all afternoon, in what would amount to a “take under” — Wall Street parlance for when a company sells itself for less than its market value.

Maybe a few people were whispering, but many more seemed to be listening. Talk that Barclays was buying even reached Lehman’s trading desks, where the rumor whipped around the office and then reverberated across Wall Street again. Panicky Lehman employees started calling friends outside the firm to find out what was going on inside the firm. One Lehman executive said, “Even my mother-in-law called me.”

Rumor-mongering, of course, has long been the stock in trade of some on Wall Street. Billions of dollars a day are bet on “whisper numbers” and overheard lunchtime chatter. Information is the coin of the realm. Some of it is legal. Some of it is not. Just ask Ivan Boesky.

But amid the desperation of a bear market — and the pervasion of technology that allows traders to communicate virtually untraceably — the art of the rumor has become increasingly powerful, even democratized. Absurd rumors can have legs, like the Lehman-Barclays one, which Richard Bove, an analyst at Ladenburg Thalmann, said “ranks up there with the moon is made out of green cheese in terms of its validity.”

Traders, outfitted with cellphones, regularly bypass their recorded, corporate phone lines — and compliance rules — to tip off friends at other firms, often by text messages. (By the way, let me debunk a popular myth: some phone companies save text messages, so you’re not free and clear.)…

In mid-June, Merrill Lynch may have been a victim of the rumor mill too. Its stock fell 3.6 percent as speculation flew that Merrill Lynch might announce big write-downs before announcing its earnings. Of course, that rumor proved false too. But is it just a coincidence that the rumor spread on a Friday known as a “quadruple witching day” — when lots of Merrill Lynch options were expiring?”…  Read more.