So are you part of the crowd that believes Treasury Secretary Henry Paulson when he says that the subprime mortgage slump has been contained? If so, maybe you should pay a little attention to what is taking place over at Bear Stearns (NYSE: BSC) where troubles there are pointing to signs that things are not only worsening, but are spreading across many areas of the market.As Douglas McIntyre pointed out earlier this morning, Bear Stearns, which had two hedge funds collapse last month due to the subprime mortgage crisis, was forced to block investors from pulling out their money from a third fund today.
The subprime market has been creating a ripple effect of problems since the start of the year, but today's development is a big sign that these effects are working their way into other areas of the credit market as well. According to a Bear Stearns spokesmen, Russel Sherman, the fund in question today, The Bear Stearns Asset-Backed Securities Fund, has less than 0.5% of its assets ($900 million total) linked to subprime loans.
If we can believe Mr. Sherman that the fund is only exposed to the subprime market in less than 0.5% of its assets, then what seems to be the problem here? More than likely, we are seeing the signs of weakness leaking out of the subprime mess into car loans, credit card payments, and other forms of consumer debt.
For now, the fund is not closing, it is merely preventing investors from pulling their money out. Does that mean that there really is no money left in the fund as McIntyre hypothesized in his earlier post? I would tend to agree with him on this point. Bear Stearns claims that the fund is "well positioned" and can ride out the current market weakness, but you really have to wonder.
Would they really prevent investors from pulling money if it was indeed still there? That is the $900 million dollar question today. Optimists out there can believe the company's statement, I for one, am a skeptic.
With all the negative news that Bear Stearns has had to deal with over last month's fund closings, and their subsequent filing for bankruptcy protection yesterday, you would have to think that the company would have avoided today's bad press if things were really OK as they are "pretending" them to be.
I hope I am wrong. I hope that all of you who have invested in this fund will, at the least, get your money back. I really do. But I definitely would not be betting on it at this point.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
Would they really prevent investors from pulling money if it was indeed still there? That is the $900 million dollar question today. Optimists out there can believe the company's statement, I for one, am a skeptic.
With all the negative news that Bear Stearns has had to deal with over last month's fund closings, and their subsequent filing for bankruptcy protection yesterday, you would have to think that the company would have avoided today's bad press if things were really OK as they are "pretending" them to be.
I hope I am wrong. I hope that all of you who have invested in this fund will, at the least, get your money back. I really do. But I definitely would not be betting on it at this point.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
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