Experienced fishermen know that sometimes the fishing is good -- and sometimes, it ain't.

Bloomberg reports on Mark Fishman, a famed bond trader previously with SAC Capital. His main fund, Sailfish Capital Partners LLC, has lost about half its assets since July because of soured investments and clients pulling money, according to two investors, cited in the article.

Fishman, 47, Sailfish's investment chief, left SAC in March 2005. After losing more than 12% in August, clients pulled about $400 million from Fishman's Multi-Strat fund this month alone, cutting assets to $980 million. Bloomberg cites increased mortgage defaults and credit markets seizing up as two reasons hampering performance at Sailfish.

I wrote recently about former Fed Chairman, Alan Greenspan, joining up with a leading hedge fund. Maybe Alan's looking to catch a few bond-trading fish to join him.

Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

Sometimes when the sky feels like it is falling, there's nowhere to hide. I don't actually believe things are crashing but the sentiment is decidedly negative and it's hard to get finance people to smile these days.

We read about investors who have made the decision to cycle out of equities and put more allocation towards fixed income. Given the fact that yield on the 10-year treasury is 3.89%, investors had been looking more towards junk rated bonds to get any form of yield.

Just this morning, Bloomberg has an article about default rates on junk bonds. Moody's Investors Services, the credit rating agency, now expects "the global default rate on high- yield, high-risk bonds, which finished 2007 at a 26-year low of 0.9 percent, will jump more than fivefold by the end of 2008."

The same Bloomberg article quoted Moody's analyst, Kenneth Emery as saying, "The high-yield default rate will increase to 4.8 percent this year and reach 5 percent by the end of 2009 because a weakening economy and ratings cuts will cause more issuers to miss their interest payments."

Bloomberg says that the percentage of issuers with debt trading at distressed levels rose to 11.5 percent, the highest since July 2003. To emphasize how things are worsening, just a year ago, the rate was 4.2 percent.

If it smells like junk, looks like junk and tastes like junk, well...

Zack Miller the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author holds a long term stock position in GOOG.

MAJOR PAPERS:

• Bear Stearns Companies Inc (NYSE: BSC) says that its two hedge funds tied to subprime loans are basically worth nothing, reported the Wall Street Journal (subscription required).
• An "error in judgment" is what Whole Foods Market Inc (NASDAQ: WFMI) chairman and CEO John Mackey called his anonymous blogging about his company and rival Wild Oats Markets Inc (NASDAQ: OATS) in an apology, reported the Wall Street Journal.
• SEC chairman Christopher Cox wants Congress to tighten its oversight of the $2.4T municipal bond market, the result of increasing complexities in the bond market and lax leadership at a number of firms, reported the Wall Street Journal.

OTHER PAPERS:

• Kohlberg Kravis Roberts is planning to offer $24M to acquire Macy's Inc (NYSE: M), according to Women's Wear Daily (subscription required).
• The U.K. Times reported that Barclays plc (NYSE: BCS) has deided against raising its bid for ABN Amro Holdings (NYSE: ABN).
• Honda Motor Co. (NYSE: HMC) is increasing its production capacity in North America and in other places, in order to meet growing demand for its fuel-efficient cars and to maintain momentum for global growth, reported the Associated Press.

Lehman Brothers Holdings Inc (NYSE: LEH) reported a 27% increase in 2Q profits, generally good results. However, the deteriorating subprime business and drop in bond prices and higher interest rates are beginning to show up in results.

"This is the beauty of having a diversified business mode," Lehman Chief Financial Officer Chris O'Meara said in an interview. "We're in a strong market environment with interest rates low, equity valuations staying strong, and activity levels continue in trading. We're optimistic."


Take the Lehman Brothers executive's optimism with a grain of salt. Much of the money made in the early part of this decade by the large investment firms have been from mortgage-related and other leveraged loan products. When the mortgage market began to roll-over, many mortgage trading companies went out and purchased subprime portfolios before the full impact of the subprime meltdown was felt. If one was extremely cynical, it could be suggested the mortgage trading operations were buying up loans to mask a slowdown in performance. But that has never happened on Wall Street before. Ha! Ha!

Expect more trouble in fixed income results for the big investment firms. Bear Stearns Companies Inc (NYSE: BSC) reported some of the strongest results in the mortgage market during the past five years, therefore, this stock is particularly worth watching.

How frequent are ultra-volatility days -- those during which the market moves 3% or more? More common than one might think.

Tom Dyson in Daily Wealth defines notes that ultra-volatile days -- or UVDs -- have occurred 115 times in the S&P 500 since 1950, or an average of two per year. Between 2002 and 2003, the S&P 500 had 21 UVDs. Over the same period, the Nasdaq experienced even more -- some 51 UVDs.

Says Dyson, "UVDs really aren't that extraordinary. And because they aren't, there's no need to change our investment strategies because of them. These things happen."

In fact, he notes, the only reason the press is making a big deal out of this one is because it had been a long time since we last saw one. The last UVD was in March 2003, nearly four years ago.