MSNBC is reporting that Bear held a 15% stake in collapsed hedge fund Carlyle, leveraged a mere 20:1 (as reckessly high as that sounds, it's still far better than Long-Term Capital Asset Mgmt collapse). Still, at $22 billion in known assets, that doesn't seem large enough. Does the worry that there are more out there multiply that to the required critical amount?
CNN continues to report a "run on the bank". This is really false and bad reporting. Bear Stearns was NOT a bank.
How much to believe that "Bear had an illiquid balance sheet"? Somehow, that doesn't sound terribly convincing. It's just as easy to bet that it was their clients who didn't have liquid balance sheets ... [that would not point fingers at Lehman, but at ... UBS? For me, that would be sheer speculation].
Whatever the case, it's better if we believe it is related to an insolvency, rather than an illiquid balance sheet and that does appear to be the case.
BUYING OPPORTUNITY
BTW, don't be surprised if some savvy players start to buy at the bottom and the market ends up (or flat) by the end of the week.
Truth be known, the kinds of moves that the Fed is making are historically signs that the market is clearing. Problem in this case, however, is that the economy is not viewed to be on the rebound or even "hanging in there", given soaring oil, etc., so even a lessening of the financial woes is just one less drop in today's pool of tears.
Update: FT says Carlyle was 31:1, not 22:1.
Monday, March 17, 2008
It Looks Like Hedged Funds, Again
