Morning Market Update

Lehman Brothers (LEH) preannounced Q3 financial results and provided details on a strategic restructuring. The company reported a net loss of U$3.9 B (U$5.92) per share, well below what the street was expecting. The investment bank made significant mark-to-market adjustments in its residential mortgage and commercial real estate positions. Lehman also disclosed details of a strategic restructuring to strengthen the company's capital position. As part of that plan, Lehman intends to spin-off to its shareholders, the vast majority of the firm's real estate assets into a new, separate public company; it also intends to sell a majority stake (approximately 55%) in a subset of its Investment Management Division; and reduce its dividend from U$0.68 per share on an annual basis to U$0.05 per share. The stock has been volatile since the news was released trading in a range of $7 to $9. Significant risks remain and we caution investors considering speculating on a recovery.

1. Goldcorp (G) CEO Kevin McArthur said gold is halfway through a long term bull market, and prices should surge to $1500 an ounce in the next 18 months. "It's a fire sale, and commodities are bearing the brunt of this…we are in a long term bull market. These bull markets in commodities last about 16 years, and we're only seven or eight years onto this one."

2. A new Financial Accounting Standard Board rule to be adopted this December could create a new obstacle for M&A activity in the financial services industry. The new rule will force acquirers to mark the target firms assets to market at the time of acquisition. The accounting change has been noted as a sticking point in recent discussions involving the potential acquisitions of Washington Mutual (WM) and National City (NCC).

3. The European Commission lowered its growth estimate for European GDP to 1.3% from 1.7% previously. They are now also predicting a recession for the German economy, which accounts for about 30% of aggregate demand in Europe. Economic growth has stalled in the recent quarter as manufacturing and services activity contract. The Commission also signaled it could lower its 2009 forecast, due out this November.

4. Credit Suisse initiated coverage on Yum! Brands (YUM U$38.01, Neutral, Target U$42) and Burger King (BKC U$24.11, Outperform, Target U$32). Yum! Brands is the largest fast food operator in the world with more than 35,000 outlets in more than 100 countries. It's flagship chains include KFC, Pizza Hut and Taco Bell. Credit Suisse is maintaining their Neutral rating on McDonald's (MCD U$63.19, Target U$64).

5. RK Capital Management LLP, the metals hedge-fund firm co-founded by Michael Farmer, lost as much as 30% last month according to an investor with the firm. Red Kite Metals, the company's biggest fund, dropped by approximately 40%, bringing this year's loss to as much as 7%, according to the investor. Some commodity hedge funds have managed to fare better this year, with Touradji Capital Management LP, a New York-based firm that manages $3.5 billion, returning 6% in August, leaving it unchanged this year, according to an investor.

6. BHP Billiton Ltd. has said the outlook for metallurgical coal is strong. "The outlook for the metallurgical coal market is strong with robust demand from key growth markets." Dave Murray, president of the company's coal division said. The company also said that its venture with Mitsubishi Corp. had completed the $2.4 billion acquisition of the New Saraji coal project in Australia.

7. Benchmark European thermal coal derivatives fell to more than a three-month low this morning. Fuel for delivery to Amsterdam, Rotterdam or Antwerp with settlement next year declined $6, or 3.5%, to $165 per tonne.

8. FedEx Corp, is up in premarket trade after announcing last night that first-quarter profit would exceed its forecast. The company announced that earnings for the quarter ended August 30 were $1.23, beating expectations of $0.80 to $1.00. The company reaffirmed its full year profit forecast of $.475 to $5.25 per share.