As you may know, there might actually be consequences to spreading totally unfounded rumors about firms that may or may not actually be experiencing some level of financial difficulty. How are you the reader expected to know which rumors are ok to spread overtly and which require the use of special clandestine services tools like a hoarse whisper outside of Dick Fuld’s office?

Fortunately, DealBreaker has initiated coverage of several Collateralized Rumor Securities and Collateralized Gossip Obligations (CRS and CGO instruments respectively). Of course, since we underwrite both the underlying rumorous assets and these securities our ratings are entirely unreliable and hopelessly inflated, but that shouldn’t stop you from using a lot of leverage to buy them up. After all, you can diversify across multiple tranches and multiple instruments. We should point out that if you need something closer to cash you can invest in our Auction Rate Secrets (ARS) instruments too. We maintain a good liquid market for them or their rates reset. Really, it will be fine.

Rating / Description

- Investment Grade-
AAA / Very Reliable
AA / Reliable
A / Mostly Reliable
BBB / Might Be True

-Speculative-
BB / Sketchy
B / Countrywide Sketchy
CCC / Unlikely
CC / Really Unlikely
C / Heard it From The Iraqi Minister of Information
D / Heard it From A Lehman Conference Call

BRK AIG (Berkshire in talks to buy AIG): BBB

BCS LEH (Barclays in talks to buy some of Lehman): AA

Disclaimer: The Federal Government in NO WAY guarantees these instruments or their underlying assets. No really, not at all. Seriously.

At the end of last week we saw something of a bear run at Lehman Brothers, with traders pushing the stock down 6.2% on Friday. Options traders bought heavily in out of the money puts, including some heavy buying in some really far out of the money options that bet the stock will drop at least another ten dollars.

This morning both Bank of America and Sanford Berstein slashed their earnings estimates for Lehman. Many investors now expect Lehman to post a loss for the quarter. The price of default protection on Lehman debt blew out to 246 basis points.

Some are now saying that Lehman will have to engage in another round of capital raising to shore up its balance sheet and reassure investors that it won’t face a liquidity crisis. At the more extreme end of the bearish outlook, some are saying that Lehman might already be talking to the Federal Reserve about emergency measures.

“With the sinking dollar, my bet is that these guys are already talking to the Fed in a similar bailout that was fashioned for Bear Stearns,” an anonymous market watcher tells Christopher Cruden, the founder of Swiss hedge fund Insch Capital Management.

That’s some pretty wild speculation coming from a totally unknown source. But these are wild times, and unknown sources have made some pretty spectacular and spectacularly right calls in recent months. We just thought we’d pass it along.

Update: A spokesman for Lehman categorically denied the wild speculation.

Commodities slumped across the board today. Most market watchers are saying that aid for the mortgage markets encouraged some investors to move money from commodities to bonds. But commodities traders had more on their minds than bonds today, as rumors of additional margin requirements made their way across trading desks via instant messaging and phone lines.

What sparked concern was a rumor that the futures exchanges or regulators—or maybe both—were considering raising margin requirements for “non commercial” commodities traders—especially non-com energy traders. Non-commercial traders speculate on the price of commodities but do not ever take delivery of the commodities. Amaranth was a non-commercial trader, while Exxon-Mobil is a commercial trader.

The Commodity Futures Trading Commission, which is charged with overseeing trading in futures contracts, does not set margin requirements. This responsibility falls on the exchanges, such as NYMEX and the CME, which are viewed as having a better, ground-level view of the market’s volatility and risks. Spokespeople for the CFTC said they had no plans to begin regulating margin requirements.

A move to increase the margin requirements for non-com traders could be aimed at diminishing price-volatility, and might reduce commodity prices. This, in turn, might be viewed as aiding a faster recovery as investment dollars would be re-directed at areas of the economy that fuel growth. What’s more, it might tamper—or at least obscure—inflation fears by reducing prices in things like oil and gold.

The exchanges rarely distinguish between commercial and non-commercial traders, however. Market watchers DealBreaker contacted were skeptical that they would put in place such a distinction now. One economist also said that the move could actually fuel volatility, at least in the short term, by obscuring efficiency-creating arbitrage in the markets.

Shares of MF Global Ltd dropped sharply in trading today, reaching a new low. The stock is at $7.26, down $10.09. The stock opened lower and continued to slide for the opening 45 minutes. Trading volume is way up.

Officially, there’s no news with respect to MF Global. Unofficially, rumors are circulating that a major European investment bank is rumored to have shut off MF Global with respect to trades in which MF Global acts as principal. Nothing has been confirmed.

A last minute change in a software industry group’s meeting has raised questions about whether famed and infamous tech stock analyst and Silicon Alley Insider founder Henry Blodget may have a highly placed enemy among the traders at JP Morgan.

Shortly after noon today, the New York Software Industry Association changed the location of its monthly meeting from JP Morgan’s headquarters at 270 Park Avenue to 277 Park Avenue, a building that is also occupied by JP Morgan and is directly across the street. An email from the NYSIA said the meeting was being moved “due to a flood at the JPMorgan HQ at 270 Park.” But a JP Morgan spokesperson denies that there has been a flood at the building. Others at JP Morgan also said that they hadn’t heard anything about a flood.

So if the flood hadn’t occurred, why was the meeting being moved? JP Morgan Chase didn’t offer any further comment on the subject, and NYSIA did not immediately return our call. But some of the emails recipients have begun to speculate that the meeting may have been moved because Blodget, who was accused of securities fraud in connection with his stock recommendations in the 1990s and was scheduled to speak at the monthly meeting, could be persona non grata at 270 Park Avenue.

“I’d wonder if maybe some high-up didn’t want Blodget around,” a person familiar with the situation told DealBreaker.

The meeting has been moved from one JP Morgan office to another, which might imply that it is a very particular group or person within JP Morgan who has declared the premises off-limits to Blodget. Although a variety of units within JP Morgan Chase are scattered throughout it’s various Park Avenue offices, the 270 Park is home to a large number of its traders while 277 Park is home to many investment bankers. So does some high level trader have a problem with Henry Blodget?

Our research couldn’t produce a credible account of who might be feuding to Blodget or why. Many in the securities industry, however, still resent what they see at Blodget’s role in besmirching their business. Blodget’s first book, The Wall Street Self-Defense Manual, did not paint Wall Street in a particularly flattering hue.

Neither Henry Blodget nor JP Morgan Chase could be reached for comment on this important question irresponsible speculation.

Rumors are swirling that Alopex Capital, the equity volatility arbitrage hedege fund manager founded by ex-Goldman Sachs and Soros trader Peter Van Dooijeweert is shutting down. The Global Vega Fund (no relation to Vega Asset management) was apparently seeded by Tudor Investments in 2003 and in a document filed with the SEC in April 2006 the company listed only $226 million in assets under management –although people we spoke with list current assets significantly higher.

Looking for info from anyone who knows anything. Alopex could not be reached for comment.

—DealBreaker contributor A. Barber.

“Investing in a buggy whip after Henry Ford created the Model T was not going to be fruitful no mater how good a buggy whip it was.”

Back to Basics (Part Three) - Potential [ThinkBlog]

Shares of mortgage insurer MBIA are halted, news pending. The company is widely expected to announce it is raising new capital but rumors persist that it may be darker news. What are you hearing?

Update (thirty seconds later): Oh, never mind. They’ve announced. Warburg Pincus is buying a $1 billion stake.

Update (30 minutes later): Of course, there was darker news. Word of this investment comes with news of that the mortgage insurer faces significantly higher losses from a decline in the value of securities it guarantees. Here’s a link to the Bloomberg story.

We’ve just heard, as we sometimes do, that Greenwich Capital laid off a bunch of senior guys last night, and will be moving on to the peons this morning. 2.5 months from bonus time—ballsy! As always, we would appreciate if anyone who can definitively confirm or deny the allegations would do so now.

A bunch of people have all told us, “Word is Goldman has laid off about 250* in ABS, CDO, cash from jr-md level,” or something to that effect, this morning. Think it’s true? KNOW it’s true? Guess it’s true? They’re all pretty much the same to us. Don’t hesitate to call.

*And, according to one, “it’s not going to be reported anywhere,” because the first rule of being fired from Goldman Sachs is, you don’t talk about being fired from Goldman Sachs (or Blankfein’s bald spot, which is a sensitive topic).

The rumor about Syndicated Leveraged Finance analysts at JPMorgan, currently in training, being rounded up and told “there will be people leaving this group” has been given not necessarily legs but perhaps (very small) feet. While out for sushi last evening, our dinner companion received an email that read:

I won’t send this to her directly but since I know you’re out to dinner with BL, feel free to pass along that I’ve heard the same rumor about the SLF guys. Good, I say, less JPM dicks at Snafu when I get my drink on at five. Don’t put my name on that. Describe me only as being “in the know” and “an employee of Barclays.”

And another, less crazy tipster writes today:

Confirmed JPM analysts rumor, though I’ve heard the senior guys are also planning on cutting non-first year analysts.

Want to get something off your chest pertaining to Jamie Dimon’s toy soldiers but feeling similarly gripped by paranoia? Shake it off and let us know.

Blind hedge fund guessing game: Which multi-billion dollar multi-strat hedge fund manager, located far from Wall Street and Greenwich, is rumored to be “blowing out” its arbitrage positions this morning as all eyes are focused elsewhere this morning? What prompted the selling-off is unclear, but it has tongues wagging.

Talk continues on Wall Street about the rumors that spread in the early hours this morning that a major US investment bank had or was about to file for Chapter 11 bankruptcy protection.

“We’ve heard vague talk a US investment bank is in trouble,” a source tells Thomson Financial, which first reported the story.

While a bankruptcy of a major investment bank is not beyond the realm of possibility, we’re skeptical on this rumor. If this was real, we would expect that there would be even more rumor-wine leaking from the grape vine than there has been. Even Thomson sounds a skeptical note about the report. “Another dealer said he had heard that a banking group has filed for Chapter 11 protection, but pointed out that any such news would be on the SEC website,” Thomson writes.

But if there’s one thing that has us wondering if there might be something to this story, it’s the full-court public relations press coming from our nation’s capital this morning. Treasury Secretary Hank Paulson went on CNBC this morning, before meeting with Federal Reserve chairman Ben Bernanke and Senator Chris Dodd. Cue shots of Bernanke walking through the halls of the Capitol building. Pan to Dodd press conference. Why all the pomp and circumstance unless something is very, very wrong?

Wall Street outlook down on talk large US bank filed for Chapter 11 protection [Thomson Financial via Forbes]

Today might not only be one of the most violently volatile days on the market. It’s also one of the most rumor swept. We’re hearing more rumors with more names attached than anyone could possibly check or even keep up with. We threw some of the most talked about hedge fund names at you earlier, and so far a few people in the know have helped us cross some names off our list. But there are more names out there.

For now we’re keeping these additional names off DealBreaker’s screen. Why? Simply because the rumors are flying too wildly and it is becoming too hard to track down whether it’s just people lashing out at their enemies, panic or people who want to make money by floating rumors that benefit their positions.

But it’s safe to say that the grapevine is spilling more rumor-wine than it has since we launched this site in the Spring of 2006. More, even, than anytime since the internet stocks popped.

Does this rumor bubble indicate that there is a panic, which many will take as a contrarian signal to buy? Are panicked posts from celebrity and media gossip sites like Gawker the inverse equivalent of the shoe shine boy asking for stock tips? Barry Ritholtz says that bad quantitative facts trump the feeling that negativity is too high. In short, he says that just because people think the sky is falling doesn’t mean the sky isn’t falling.

“We want to know what you think,” the man used to say on WPIX news. And we do. Drop us a line at tips@dealbreaker.com or leave a comment below.

Unprecedented volatility and record trading volume is one sign of capital markets gone wild. Another one is when the central banks fire up the printing presses and start pumping liquidity into the markets. But perhaps our favorite is the increased volume of rumors.

We hear rumors all the time, and most of them we don’t publish. But with all the uncertainty in the capital markets, widespread rumors themselves can move markets regardless of their accuracy. In short, while they might not necessarily be true themselves, they start creating their own truth.

Hedge fund stories have been flying faster than we can check them. All of these are totally unconfirmed, unsubstantiated and even unchecked stories that have been making the rounds of Wall Street email inboxes. Exercise the greatest of caution while reading below.

Quant Bloodbath Continues: Here are the whispered latest whispered numbers. AQR’s Global Stock Selection HiVol fund said to be down as much as: -33%. Tykhe’s results as of yesterday: down 27%. Rennaissance’s new fund, Institutional Equity Fund, down 8.7% as of yesterday. Caxton shutting all of its quant strategies.

Bloodbath, Bloodbath, Bloodbath: They keep going. DE Shaw is said to be taking serious losses, some are saying as much as 20%. SAC is supposedly running “running algorithms in reverse” to profit from the confusion.

Merger Arb Bloodbath: Rumors and price movements in big buyout targets suggest that a huge event driven, merger arbitrage fund is selling off it’s positions. No names yet.

Internal Subprime Investigations: Several Wall Street banks are said to have set their internal financial control and risk management teams to work to get a better handle on subprime and credit derivative exposure following the move by

Goldman De-Listing: Has the Goldman Sachs Total GTAA Strategy Fund been delisted from the Irish Stock Exchange? That’s what we’re hearing.

Still not had enough? Check out FT Alphaville for even more rumors.

We’ll make this an open rumors thread. Post what you are hearing in the comments section below. Or email us at tips@dealbreaker.com.

We’re hearing rumors that Caxton Associates is blowing up. Caxton is one of the largest hedge funds in the world with around $16 billion under multi-strategy management so this would be huge and, as they say, unlikely. Some are saying it’s because of the move SEPR has made of over the past few weeks (Caxton’s largest equity position had been SEPR), others that it’s the very fashionable credit situation. Right now, all just hearsay. Maybe funds this large don’t blow up. Maybe Caxton was already a red giant, and will contract into a white dwarf under a sea of redemption requests after some significant losses. Only then will it be ready for a supernova. Heard anything? You know where to find us.

Update: Caxton denies any such rumors. According a friend o’ DealBreaker, there was a “larger than normal liquidation in order to reduce risk,” the main fund is down 3-4% mtd and Caxton “made money today.” Make of that what you will.

Rumors have been swirling around about two separate hedge fund meltdowns. According to one set of rumors a multi-strategy hedge fund facing impending doom due to leveraged bets in credit derivatives. Entirely different sources have mentioned a major meltdown from natural gas bets. DealBreaker calls to some of the usual suspects could not confirm the identities of the allegedly troubled funds.

And we’re not naming the names being whispered because life is hard enough without getting called out on DealBreaker as a meltdown candidate when things might be going just fine.

Both rumored meltdowns are plausible given recent market movements. The credit markets have been rocked by a level of volatility unseen in recent times. Earlier today Bloomberg reported that many large financial institutions believe that hedge funds are using too much leverage to finance credit derivative investments, according to a Fitch
Ratings survey of 65 banks, insurers and money managers.

Natural gas futures prices are flat to down, and the spread between summer-winter season is narrowing. The spreads in future contracts fell from $2.50 to pennies in two weeks. Similar movements in the markets for natural gas futures helped bring down Amaranth last year.

If you’ve got a likely candidate for either rumor—natural gas or credit derivative blow-up—feel free to leave a comment below or email us at tips@dealbreaker.com

Derivatives Banks Concerned by Hedge Fund Leverage Bloomberg]

[The following is an imagined conversation based on a real event. After the Times ran its exposé on men in their 40s who don’t let their 20-something girlfriends come out to the Hamptons for the weekend, John Ivers, 42, got himself and the 19 people with whom he went in on a sweet 4-bedroom summer share in the Hamptons kicked out of their house*].

Ivers: Brosef, it’s Ivers.
Guy Ivers went to college with 85 years ago, ATO brother: Who is this?
Ivers: Ivers, man, Ivers! 2 minutes, 30 seconds ATO record setting keg stander-Ivers!
Guy: …Jeff…?
Ivers: John, brah, John!
Guy: Right. Hey man. Been a while. How are you?
Ivers: Not good, brah, not good at all.
Guy: What’s the trouble?
Ivers: The Times did a story on me being, more or less, AWESOME, you know, ‘cause I told that girl I’m dating she can’t come to the Hamptons because it cramps my style vis-à-vis nailing other chicks, etc, and Summer Share Ivers doesn’t do girlfriends, whatever, and the owners of the house I guess saw the article and were PO’d cause it’s not supposed to be a shared house and to make a long story short I have no place to stay for the rest of the summer and to, more importantly, hang my paddle…you know what I’m talking about.
Guy: Yeah, can you actually hang on a sec?
Ivers: Okay.
Guy: Sorry, kids.
Ivers: Kids? You gotta watch that shit, man, if they’re under 18 it gets risk-ay.
Guy: Actually I meant my children. I have 2 of them, 5 and 7.
Ivers: You dog!
Guy: Right.
Ivers: So brohamster, what I need is for your to tell me where you beach house is and when I can make a copy of the keys.
Guy: Yeah, actually I can’t do that, I just go there with my family, and my wife would probably have a problem.
Ivers: Brohamster, we’re bros! We’re brothers! This is not cool man, NOT COOL!
Guy: Yeah, I gotta go, but good luck with the house Jeff.
Ivers: You’ve changed, broheim.

Earlier: DealBreaker PSA: You Could Learn A Lot From This Guy

*Which we were told by quasi-reputable sources over the holiday. Any of the homeless 20 want to comment? John? You know where to find us.

Canceling conference appearances may be the latest pump and dump scheme, or just blowing off JPMorgan. Shares of Palm, maker of wireless handheld devices like the Treo, shot up more than 4% on merger speculation created by CFO Andrew Brown’s “back troubles.” Always a euphemism for an impending takeover or unveiling a new wireless megadevice, Brown used his “back trouble” to get out of speaking at a JPMorgan tech conference in Boston. Palm quickly issued its “No, Seriously” press statement, insisting that Brown was not only experiencing back trouble but was “at the physical therapist right now.”

Palm (Nasdaq: PALM) shares have recoiled slightly, trading down over three quarters of a percent in morning trading.

Skyrocketing Health Costs at Palm, Sort of [WSJ Deal Journal]

We’re starting to hear chatter about a hedge fund meltdown. The outlines are still vague. Multi-strategy fund. Something like $3 billion under management. But nothing more.

There are way to many hedge funds that fit that description to get anywhere with just that information. So we’re opening up the comments for random guesses, rumor mongers and, who knows, maybe some actual intelligence.

Keep in mind that these stories come and go, sometimes never amounting to anything.