Two Bear Funds Nearly Worthless, Investors Told

JohnGaltfla

JohnGaltfla

#NeverTrump
http://online.wsj.com/article/SB118470713201469384.html?mod=googlenews_wsj


Two Bear Funds Nearly Worthless, Investors Told

By KATE KELLY and SERENA NG
July 17, 2007 5:30 p.m.

Weeks after the meltdown of two prominent Bear Stearns Cos. hedge funds that bet heavily on the market for risky home loans, the brokerage has told the funds' investors that the portfolios' assets are almost worthless, according to people familiar with the matter.

The assets in Bear's more-levered fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, are worth virtually nothing, according to people familiar with the matter. The assets in the larger, less-levered fund are worth roughly 9% of the value since the end of April, these people said. The April valuations were not immediately available, but in March, before their sharp losses, the enhanced leverage fund had $638 million in investor money, while the other fund had $925 million.

The two funds have been in the spotlight for weeks after suffering heavy losses in the subprime market. Late last month, Bear helped stabilize the less-levered fund with a $1.6 billion secured loan; the enhanced fund began trying to unwind its remaining $1.1 billion in debt.

Bear disclosed this information to investors earlier today and is expected to make a statement this evening, these people said. A spokeswoman for Bear did not return calls for comment.

These losses, which took more than two weeks to calculate because of the fluctuating values in the market for risky, or subprime, mortgage securities, came amid another tumultuous day for the broader mortgage market. One particularly wobbly slice of the market tracked by a closely watched index called the ABX fell to an all-time low of 44.
 
H

HeliumAvid

Too Tired to ReTire
Well, some of the nuvorich got taken to the cleaners...

GOOD

and phooy on Bear Sterns...

And as a side note, Bank of America is really reluctant to take on any new real estate backed loans... Maybe a trend?

HeliumAvid
 
JohnGaltfla

JohnGaltfla

#NeverTrump
HeliumAvid said:
Well, some of the nuvorich got taken to the cleaners...

GOOD

and phooy on Bear Sterns...

And as a side note, Bank of America is really reluctant to take on any new real estate backed loans... Maybe a trend?

HeliumAvid
Click to expand...

Tip, meet iceberg.

It's about to get one hell of a lot worse than you can ever imagine....
 
Kris Gandillon

Kris Gandillon

The Other Curmudgeon
_______________
It's about to get one hell of a lot worse than you can ever imagine....
Click to expand...

JGF...specifics please...from your perspective...define "one hell of a lot worse" than HA could ever imagine...

And how soon do you see this happening?

Kris
 
H

HeliumAvid

Too Tired to ReTire
John;

You may be right, but all I can say is bring it on.

Anything less than a nuke going off in my backyard I think I am pretty preped for.

ARE YOU?

I can keep going for years if the grid goes down, I can grow food if I have to, I do not have any rabbits but I will fix that soon for meat.

But I also understand that the permabears can be REALLY WRONG, and that can be more expensive than investing prudently. From the time I graduated to not to long ago I split my investments, 1/2 total doomer, and 1/2 with the long term bull. So far the long term bull is up over 15X, the doomer stuff is spoiled, or out of date (like old computers).

The point being each of us need to prep for each world, TEOTWKI and business as usual. Anytime you put all your eggs in one basket you (me) are toast.

Good luck to you, I hope you are able to flee the country. IIRC that is your desired option. Best of luck to you.

Do not let the barn door hit you where the good lord split you ;)

HeliumAvid
 
JohnGaltfla

JohnGaltfla

#NeverTrump
Kris Gandillon said:
JGF...specifics please...from your perspective...define "one hell of a lot worse" than HA could ever imagine...

And how soon do you see this happening?

Kris
Click to expand...

Despite those in denial, which there still are many, Warren Buffett warned everyone about these new financial "instruments" years ago. The question was would the derivatives ever "unwind" or take losses due to bad financial decisions.

Two years ago when I raised the warnings about the real estate market and banking practices, I was told I was a "stupid doomer", "clueless" and my favorite "real estate never goes down."

Of course the stories in the papers, including the great one from the Denver Post if I remember correctly about the banks giving no doc loans to illegal aliens told the entire story.

"IT" was only a matter of time.

The problem is not just that these two hedge funds are essentially insolvent. The problem is your mutual fund, IRA, or pension program (as many states have done) could well be invested in one of these financial instruments. CMO and CDO's are the ticking time bomb.

In a prior show, I covered the danger. The risk of having a financial instrument priced to a computer model, not to the actual market conditions. The stupidest thing I've heard from a trader is that some of these models were based on the Prime rate remaining below 5% for up to 20 years AND inflation remaining under 1.5% for the same duration.

These pipe dreams have to be paid for. We're not just talking about Merrill Lynch, Goldman Sachs and Bear Stearns here boys and girls. We're talking about almost every bank, from the multinationals to the regionals. We're talking about the nations of China and India buying our leveraged CDO/CMO debt instruments in search of yield. The Japanese attempting to play the carry trade with their own currency to maximize returns. And the big, dark, dirty secret:

Our government played with them too. That's right Freddie Mac and Fannie Mae hold a boatload of this crap paper.

Translation:

Taxpayer bailout.

Tax rates will return to the 60% range at the top end by 2010.

And worse, much, much worse, an entire baby boomer generation might well have 70% of their retirements obliterated because some wizkids elected to play video games with their futures.

This will take years to unwind. But as each landmine is tripped on Wall Street, the market will take larger and larger hits. And the big players know this and are freaking out behind closed doors. The word I have is that there are huge short positions and put options across the investing world.

Think about that.

Then remember AQ's recent threats.

Add that into the mix and we're in deep trouble....
 
M

Mugwamp

Inactive
Who Will Get The Last Chair?

Looks like the music is stopping in the ole game of musical chairs. Someone is going to be left out. Wonder if it will be the middle class?
 
Hiding Bear

Hiding Bear

Inactive
The US dollar starting to get dragged down to new lows with the mortgage problem.

I will say one thing - 'they' have done a hell of a job covering up the losses so far, but like Enron, the losses will see the light of day.

TUESDAY, JULY 17, 2007 10:47 a.m. EDT

The 1,200-Point Crash You Didn't Hear
THERE WAS A CRASH YOU DIDN'T HEAR MONDAY. If some classes of subprime mortgages were the Dow, it would have been down 1,200 points.

The ABX.HE, the benchmark index for the asset-backed securities market, was hammered again Monday. But unlike previous plunges earlier this year that were largely confined to the lower tiers of the index, now the upper tranches are falling sharply as well.

According to Markit.com, the Web site of the keeper of the index, the ABX.HE-AA 07-1 (the double-A tranche initiated in the first half of this year) has just stepped off a cliff, falling 3.89 points to 88.17 Monday. Until late last week, it had traded steadily north of 99. If that were the Dow Jones Industrial Average, that would have equivalent to nearly a 600-point plunge. But that wasn't the worst of it.

The travails of ABX.HE BBB- 07-1 are well-known to readers of this space. It has continued on its slide, from the high 90s in January, to below 65 in February -- by which the index caught the attention of the mainstream press, and predictably, it stopped falling. The ABX.HE BBB- 07-1 regained its footing through the spring but broke its previous low in early June and has slid all the way to 45.28, down another 3.69 points Monday.

The next grade up, the ABX.HE BBB 07-1, suffered the biggest hit Monday, falling a huge 4.87, or 9%, to 47.72 -- equivalent to nearly a 1,200-point collapse in the Dow. And the ABX.HE A 07-1 fell 3.01 to a junk-bond price of 69.35, a far cry from the high 90s early in the year.

To be sure, some hedge funds have profited handsomely by shorting the ABX.HE, anticipating by months the meltdown in subprime mortgages that was confirmed by the ratings agencies just last week. Again, some speculators may be prescient, expecting new disclosures, say, from the Bear Stearns hedge funds loaded with subprime-backed collateralized debt obligations, or from some otherwise unknown source. Or they may be doubling down on bets that have paid off big.

Whatever the case, somebody thinks the other shoe is about to drop. On whom, is the question that remains to be answered.

IN THAT REGARD, the stock market is the easiest target, and not only because of the subprime meltdown.

John P. Hussman, the head of the Hussman mutual funds, ticks off a series of instances similar to the current one:

December 1961 (followed by a 28% drop in over six months);

January 1972 (a 48% collapse in the next 20 months);

August 1987 (a 34% plunge in the following three months);

July 1998 (an 18% fall over the next three months);

July 1999 (a 12% loss in the next three months);

December 1999 (a 49% collapse over the next 30 months.)

All these episodes had the common characteristics of a price-to-peak earnings multiple above 18; a four-year high in the S&P 500; an S&P 500 8% or more above its 52-week moving average, and rising Treasury and corporate bond yields.

Hussman adds that July 2007 also fits those criteria. (So did October 1963 and May 1996, which had mere 7%-10% corrections, if you're keeping score.) In any case, he writes on the funds' Web site (www.hussmanfunds.com) that the Hussman Strategic Growth fund is merely fully hedged, not betting on a big decline, but just positioned for risks that have substantially exceeded the rewards when these market conditions were present in the past.

Those valuation conditions Hussman cites -- stretched P/Es, four-year highs, and being far above the one-year moving average -- alone are sufficient causes for caution. The credit conditions also bear special mentioning this time.

In most of the market setbacks Hussman notes, bond yields were getting to uncomfortable levels. That's not the case now. Yields now remain low on an absolute basis. And the ability to replace equity with cheap debt remains the biggest motivator for corporate actions such as leveraged buyouts, mergers or stock repurchases, which have been important factors in sending the popular averages to new highs.

But a tightening of credit -- as indicated in the meltdown in ABX indexes, withdrawal of junk-bond offerings and stiffer terms on new borrowings -- is perhaps more important this time than s mere rise in bond yields in past cycles.

High and extended valuations, combined with more stringent credit, never have been the ideal conditions for equities. And given the episodes cited by Hussman, that's putting it mildly.
Click to expand...

http://online.barrons.com/article/SB118459778293567601.html?mod=djemBF
 
JohnGaltfla

JohnGaltfla

#NeverTrump
Mugwamp said:
Looks like the music is stopping in the ole game of musical chairs. Someone is going to be left out. Wonder if it will be the middle class?
Click to expand...

Middle class and retirees (baby boomers) are about to get the proverbial screwing of a lifetime.

Their retirements are about to be obliterated.
 
JohnGaltfla

JohnGaltfla

#NeverTrump
Hiding Bear said:
The US dollar starting to get dragged down to new lows with the mortgage problem.

I will say one thing - 'they' have done a hell of a job covering up the losses so far, but like Enron, the losses will see the light of day.

TUESDAY, JULY 17, 2007 10:47 a.m. EDT

The 1,200-Point Crash You Didn't Hear
THERE WAS A CRASH YOU DIDN'T HEAR MONDAY. If some classes of subprime mortgages were the Dow, it would have been down 1,200 points.

The ABX.HE, the benchmark index for the asset-backed securities market, was hammered again Monday. But unlike previous plunges earlier this year that were largely confined to the lower tiers of the index, now the upper tranches are falling sharply as well.

According to Markit.com, the Web site of the keeper of the index, the ABX.HE-AA 07-1 (the double-A tranche initiated in the first half of this year) has just stepped off a cliff, falling 3.89 points to 88.17 Monday. Until late last week, it had traded steadily north of 99. If that were the Dow Jones Industrial Average, that would have equivalent to nearly a 600-point plunge. But that wasn't the worst of it.

The travails of ABX.HE BBB- 07-1 are well-known to readers of this space. It has continued on its slide, from the high 90s in January, to below 65 in February -- by which the index caught the attention of the mainstream press, and predictably, it stopped falling. The ABX.HE BBB- 07-1 regained its footing through the spring but broke its previous low in early June and has slid all the way to 45.28, down another 3.69 points Monday.

The next grade up, the ABX.HE BBB 07-1, suffered the biggest hit Monday, falling a huge 4.87, or 9%, to 47.72 -- equivalent to nearly a 1,200-point collapse in the Dow. And the ABX.HE A 07-1 fell 3.01 to a junk-bond price of 69.35, a far cry from the high 90s early in the year.

To be sure, some hedge funds have profited handsomely by shorting the ABX.HE, anticipating by months the meltdown in subprime mortgages that was confirmed by the ratings agencies just last week. Again, some speculators may be prescient, expecting new disclosures, say, from the Bear Stearns hedge funds loaded with subprime-backed collateralized debt obligations, or from some otherwise unknown source. Or they may be doubling down on bets that have paid off big.

Whatever the case, somebody thinks the other shoe is about to drop. On whom, is the question that remains to be answered.

IN THAT REGARD, the stock market is the easiest target, and not only because of the subprime meltdown.

John P. Hussman, the head of the Hussman mutual funds, ticks off a series of instances similar to the current one:

December 1961 (followed by a 28% drop in over six months);

January 1972 (a 48% collapse in the next 20 months);

August 1987 (a 34% plunge in the following three months);

July 1998 (an 18% fall over the next three months);

July 1999 (a 12% loss in the next three months);

December 1999 (a 49% collapse over the next 30 months.)

All these episodes had the common characteristics of a price-to-peak earnings multiple above 18; a four-year high in the S&P 500; an S&P 500 8% or more above its 52-week moving average, and rising Treasury and corporate bond yields.

Hussman adds that July 2007 also fits those criteria. (So did October 1963 and May 1996, which had mere 7%-10% corrections, if you're keeping score.) In any case, he writes on the funds' Web site (www.hussmanfunds.com) that the Hussman Strategic Growth fund is merely fully hedged, not betting on a big decline, but just positioned for risks that have substantially exceeded the rewards when these market conditions were present in the past.

Those valuation conditions Hussman cites -- stretched P/Es, four-year highs, and being far above the one-year moving average -- alone are sufficient causes for caution. The credit conditions also bear special mentioning this time.

In most of the market setbacks Hussman notes, bond yields were getting to uncomfortable levels. That's not the case now. Yields now remain low on an absolute basis. And the ability to replace equity with cheap debt remains the biggest motivator for corporate actions such as leveraged buyouts, mergers or stock repurchases, which have been important factors in sending the popular averages to new highs.

But a tightening of credit -- as indicated in the meltdown in ABX indexes, withdrawal of junk-bond offerings and stiffer terms on new borrowings -- is perhaps more important this time than s mere rise in bond yields in past cycles.

High and extended valuations, combined with more stringent credit, never have been the ideal conditions for equities. And given the episodes cited by Hussman, that's putting it mildly.

http://online.barrons.com/article/SB118459778293567601.html?mod=djemBF
Click to expand...

Great article HB! That sums it all up. But so many folks are ignoring the implications.

When it does catch up to the religious followers of the Dow, it will be a bitch slap hear around the world.

And bring so many things down with it.
 
cory

cory

Inactive
I say that too.

HeliumAvid said:
John;

You may be right, but all I can say is bring it on.

Anything less than a nuke going off in my backyard I think I am pretty preped for.
...

But I also understand that the permabears can be REALLY WRONG, and that can be more expensive than investing prudently. From the time I graduated to not to long ago I split my investments, 1/2 total doomer, and 1/2 with the long term bull. So far the long term bull is up over 15X, the doomer stuff is spoiled, or out of date (like old computers).
...
HeliumAvid
Click to expand...

I see exactly the same problem. The doom-side can have a good run, but overall loses. I cashed out of equities in November 1999. Six weeks later on January 14, 2000, the DJIA peaked at 11,722. The NASDAQ began its plunge a few months later. By my reckoning, the average well-off polly lost over a hundred thousand dollars in 2000 and 2001.

I didn't start buying back in until 2001. Little by little I have eased back into the market and my pension accounts are better for it.

I stubbornly kept my place in the city rather than running for the boonies in 2000, 2001, 2002, 2003, 2005, 2006, each year, there were more and more posts about a real estate bubble. Each year, my place went up in value.

Each time, at each major turning point, the extreme doomside has been wrong. They didn't cash out in November 1999 because they weren't in equities to begin with.

The extreme polly side has been equally wrong. I put up a report from the Post, http://www.timebomb2000.com/vb/showthread.php?t=249234 about pollies losing hundreds of thousands of dollars in a year or two of home ownership.

Like the old story about the two campers who see the bear, one camper is putting on his running shoes,

"I don't have to outrun the bear, I just have to outrun the pollies."

I am way ahead of the pollies.

I'm also doing better than if I did the extreme doom-side thing.

-C The trick is to slide right between the extremes.
 
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