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We were talking the other day about the ABX Index, and how the ABX BBB- had fallen below a record close of 48.64. Well, that ABX BBB- now stands at 43.5 cents thanks in large part to Bear Stearns, which just announced that the value of two of its hedge funds’ holdings are pretty much worthless.
Assets in one fund, worth $638 million at one time, are worthless. Assets in the other fund, worth $925 million at one time, lost 91% of its value since the end of April 2007. That only strengthens my long-held bearish position. Here it sits, the nation’s fifth-largest investment bank, making bad bets on the home mortgage market.
Listen, I could care less what the talking heads, or even Hank Paulson’s cheerleading would have you believe. The truth is there is no bottom yet. And we don’t expect to see one best-case scenario, until spring 2008 at the earliest. Until then, we see further credit erosion and much further high-risk mortgage deterioration.
And we’re not the ones who think so. Finally, after months of denying spillover, Bernanke threw in the towel during his Semiannual Monetary Policy Report to Congress, and said:
“…conditions in the subprime mortgage sector have deteriorated significantly, reflecting mounting delinquency rates on adjustable-rate loans. In recent weeks, we have also seen increased concerns among investors about credit risk on some other types of financial instruments. Credit spreads on lower-quality corporate debt have widened somewhat, and terms for some leveraged business loans have tightened.”
Another risk, says Bernanke (as referred to by Examiner.com), is that the housing slump could turn out worse than expected, “sapping consumer spending and possibly causing overall economic growth to be weaker.”
Funny… I’ve been saying this since early 2007. Just look at my Sector Alerts and Chart of the Day reports at TaipanFinancialNews.com.
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