Bear Stearns Makes $1 Billion Bet on Subprime Market Decline
Talk about late to the party!
Bear Stearns, which made a disasterous series of sub-prime bets, has found religion. They have now bet a $1Billion that the Subprime market will decline further:
Bear Stearns Cos., the U.S. securities firm that posted its first-ever loss last quarter on mortgage writedowns, is betting more than $1 billion that subprime home loans and bonds will continue to decline.
While I do not expect us to be done with the subprime slime yet, I do get a "Is this a bottom indicator?" sense from Bear on this.
No one firm is a reliable fade. Still, one cannot help but wonder how ironic it would be if they caught leaning the wrong way in both directions . . .
Source:
Bear Stearns Makes $1 Billion Bet on Subprime Market Decline
Bradley Keoun
Bloomberg, Feb. 8 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=ap5RXayJzChk&
Friday, February 08, 2008 | 11:08 AM | Permalink
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» Time To Go Long Subprime? Bear Stearns Shorts It For $1 Billion from DealBreaker.com
Bear Stearns has more than $1 billion of short positions on subprime, up $400 million from the end of November, Bloomberg reports. Of course, since Bear Stearns got the subprime trade so wildly wrong last year, people are already wondering... [Read More]
Tracked on Feb 8, 2008 3:29:07 PM
Comments
where did you hear this Barry? I think they are on the right side of this trade, even if it is late. They probably took the trade many months ago too.
Housing is the key to this whole mess and no way this BIG SHIP will turn around on the very small propeller that is driving it! More pain to come. 4-5 years of unsustainable gains, it will take at least that to correct the problems that we are facing now.
Posted by: UrbanDigs | Feb 8, 2008 11:18:38 AM
I sense a lack of stategery at BSC.
Posted by: Street Creds | Feb 8, 2008 11:19:30 AM
oops..nevermind..see the bloomberg link.
my bad.
Posted by: UrbanDigs | Feb 8, 2008 11:20:14 AM
Off topic but it has to be said - Dennis Kneale = idiot.
Posted by: amok92 | Feb 8, 2008 11:33:26 AM
It's likely a hedging effort on the part of a "late to the party" risk management team.
Posted by: b | Feb 8, 2008 11:51:28 AM
should we take this as a buy signal?
Posted by: semar | Feb 8, 2008 12:05:06 PM
I'm pretty sure 1) they're significantly up on this trade already and 2) this is more of a business hedge.
Posted by: Bearish | Feb 8, 2008 12:33:54 PM
The FT had a story this morning about imploding CDOs needing to liquidate and the way you liquadate a synthetic CDO is to buy CDSs on the debt to close the positions that were opened writing CDSs. So even though it seems the CDS indices can't go any lower, it may be that the will go well below what would be even reasonable to expect from the underlying debt deteriorating.
In other words, they might not be betting on the subprime debt directly, but against the instruments used to insure it.
Of course, that could blow up in their face because of the counter-party risk...
Posted by: Bob_in_MA | Feb 8, 2008 1:06:00 PM
OT: Good story... Ben B. should read this...
"Fed to Make Interest Rates Undulate Relaxingly"
http://www.theonion.com/content/node/30218
Econolicious
Posted by: ECONOMISTA NON GRATA | Feb 8, 2008 1:29:23 PM
I agree that Bear is hedging the rest of the subprime they have not disclosed
On Dennis Kneale--did you see cramer yesterday or the day before when Knele was saying csco was a buy and could not understand why the stock was down--
Cramer quietly reamed him out--which in cramer speak means cramer has written off knele and does not respect him
Posted by: hal | Feb 8, 2008 2:11:22 PM
What a f'in circus. Bear and the other IBS create bad debt and then try to short them. Anyone who thinks breaking down all financial rules was a good idea think again. This whole system needs to service the real good producing economy not this nonsense that we do now. The problem is we cant go back without blowing up the whole banking system
Posted by: Shrek | Feb 8, 2008 2:43:00 PM
"While I do not expect us to be done with the subprime slime yet, I do get a "Is this a bottom indicator?" sense from Bear on this."
NO WAY!! Two million ARMs will reset in the next 18 months. Despite the glut, builders continue to build homes. Realtors are still enticing buyers with kick backs, teaser ARMs and interest only loans. The greed goes on.
Posted by: Pat G. | Feb 8, 2008 5:52:03 PM
the banking system is blowing itself up without our help.
Posted by: rexl | Feb 8, 2008 7:24:43 PM
Bear Stearns did get this call right.
Posted by: Stuart | Feb 9, 2008 12:16:48 AM
How about a $1 billion bet on whether the first to indict Bear Streans will be a state or federal prosecutor?
Posted by: tom a taxpayer | Feb 9, 2008 1:02:18 AM
Counting the Subprime Lender Lawsuits
http://dandodiary.blogspot.com/2007/04/counting-subprime-lender-lawsuits.html
Posted by: saltwater | Feb 9, 2008 4:31:20 AM
