A Bear Market

03 May 2007: DJIA 13,241Time for a partners meeting. The news about UBS closing down Dillon Read has a double edge: great, because no one here likes them, but also not so great, because they dropped a bundle on sub-prime, which shows how contagious this problem is. If the Swiss banks can get it so wrong, what hope is there for the immensely less intelligent and risk-savvy American financials?Speaking of which, we are also hearing truly worrying reports about two Bear Stearns funds. Now, we have lots of buddies at Bear including Stanley and what they do in the asset management business is none of our concern until and unless it looks like theyre going to crash and burn. And thats exactly how it looks to us (and quite a few other people in cocktail bars, massage parlors and chatrooms). Quite a few other people, that is, except those who work at 100 F Street, Washington, HQ of the SEC. You only have to look at the name of one of the Bear funds the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund, for Christs sake to realize that it is going to need some very close attention. Talk about oxymoronic.And so it is proving. Were hearing that this fund is going to have its April month-end valuation cut hugely, and Bear is going to have to start throwing a lot of its own money into the pot. As soon as that happens, we get worried. After all, they lend us money and we lend them money. I may love Stanley to death but business is business: the Bear relationship is under scrutiny. Trouble is, I hate all the other prime brokers even more than Bear. The Swiss and the Germans need laxatives; the French are chronically lazy; and the Americans havent yet got the message that were the clients. Ill say that much for Bear: they know how to look after us (and Im not just referring to the on-tap access to top-drawer companions, such as the lovely private dancer Sticky Vicky, or my current favorite, Delta Redd).My partners suggest a compromise. We wait for Q2 results from the investment banks, then decide what to do next. I keep my counsel. What my partners do not know is that I am already planning to short Bear stock. Even as the rest of the market heads north, Bear is going south. June 14, when it reports Q2 numbers, will be an interesting day.---The Podolsky DiariesA cautionary tale for our times: The fictional account of one hedge fund manager's decline and fall from grace - as recorded by his faithful amanuensis, Richard Greensted.

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