Remember August 2007, Remember August 2015

How Bear Stearns lost its way

Two hedge funds run by its asset-management division have gone belly-up. On Aug. 5, Cayne dumped his heir apparent, the much-admired Warren Spector; Cayne and his new No. 2, investment banker Alan Schwartz, are defending Bear's reputation -- and trying to persuade the Street that the firm can weather the credit storm -- even as they quietly seek an equity investment.

Bear got into this jam in part by coveting its neighbor's business. At Bear, trading and handling money for clients has always been the main game. The firm made a steady profit as Wall Street's back office.

The businesses "weren't very sexy," says Michael Holland, chairman of the eponymous money management firm, "but they looked really good when things went lousy for a lot of their competitors."

For a long time that was enough. Particularly under the leadership of the legendary Alan "Ace" Greenberg, Bear's disciplined trading culture made it the "Sparta of Wall Street," in the words of Bernstein analyst Brad Hintz.

The current hedge fund blow-up struck me as more of a non-story, temporary hype that fades as pricse march higher. It's still early in the story, but if it does get some legs remember how a fund blow-up in August 2007 was ignored by most investors too. A tell will be if as in August 2007, the Fed surprises with some emergency move: Fed cuts discount rate

The Federal Reserve, reacting to concerns about the subprime lending crisis that's rocked financial markets in recent weeks, Friday cut its so-called discount rate half a percentage point, to 5.75 percent.

Another possible corrollary is the LTCM blow-up in 1998 that came at the end of the Asian/ emerging market crisis. However, for now markets seem to be taking it all in stride.

ZH: Archegos? Argh, Chaos More Like

I noted yesterday that the expected market turbulence caused by the Archegos sell-off was not representative of the underlying structural issues that will guide markets going forwards. I stick by that claim, but even so what a messy day it was. Some individual stocks got hit hard, and US bond yields were up, presumably due to the need to sell anything to get liquidity, while the USD see-sawed. Archegos? ‘Argh, chaos’ more like.

I do not expect imminent trouble either, except potentially an ongoing tech sell-off. That said, I am now operating under the suspicion that the Nasdaq bull market is over and increasingly thinking the markets have more than priced in a re-opening boom. Moreover, evidence that the world is still trapped in the post-2008 disinflationary world keep showing up. In short, while Archegos doesn't strike me as a big deal, lots of other things have my Spidey-sense tingling.

And as I was compiling this post, I came across this fresh piece of evidence over at Slope of Hope: Something Weird in the Neighborhood

Typically, the Equity PCR 10MA only reaches its UWBB after a decline. It’s so unusual, it prompted me to look back through my entire historical pics back to 2004. The ONLY other instance I could find was in 2015 at this extremely bullish juncture (sarcasm).

Click through to see the chart and indicator he's talking about.