Monday, June 25, 2007

Hedge Fund Worries Weigh On The Market

The concerns over the bailout of the Bear Stearns (BSC) sponsored hedge funds is really weighing on the market. There were some conference calls held today that shed additional light on the problems that face BSC right now, and that weighed on the entire financial sector.

Some are classifying this as the biggest bailout since LTCM. Others are saying that it is the biggest test BSC has faced in decades.

The graph above shows that the major subprime indexes have made new lows recently, as the subprime mortgage mess continues to work its way through the system. Last month, it looked like these indexes had bottomed and were turning higher. But the recent news and turmoil among hedge funds is sparking a new round of concerns.

These things can take time to play out. When funds get in trouble, there are plenty of other players that take delight in shooting against them, and trying to profit from their misfortune. Remeber what they said in The Godfather, " isn't personal, it's just business".


At 7:58 PM, Blogger Zach said...

I think you're right about opportunistic players stepping in at some point. In fact, it may be that Bear Stearns is taking on that role. I seriously doubt the company offered to back the hedge funds liabilities to fellow street lenders out of the goodness of their heart. BSC most likely struck a great deal with the creditors allowing them to make a decent profit when the collateral is able to be sold at higher than firesale prices and furthermore they will continue to be able to pitch other hedge funds they have incubated with a straight face if these two do not go under.

At 7:22 AM, Blogger J. Kahn said...


I think those are all valid points, and I would concur.

They def. don't want to see these funds go under, just for the embarassment factor. Not to mention that they are trying to build up their prime brokerage business and better compete with the Goldmans and UBS'.

This event could linger for a couple weeks, but I suspect we won't be talking about it much after that.


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