As mentioned yesterday, as reported by the Wall Street Journal investors in the two Bear Stearns (BSC) highly-leveraged hedge funds have been mostly wiped-out. The firm said that its more highly-levered fund was worth nothing and the “safer” fund was worth less than a 10th of its value from just a few months ago. In the past few months, the portions of the index that tracked especially risky mortgage bonds with junk-grade ratings had been falling. But now, the portions of the index that track safer mortgage bonds, with ratings of triple-A or double-A, are also falling sharply. The question I have is: Do the prime brokers that have huge lines of credit extended to this leveraged cabal of gunslingers really have a handle on their own exposure? And as it concerns the dark matter of the CDO and derivatives market, how vulnerable, now, are the counter-parties of all of this stuff? I honestly don’t believe anyone knows. You may think you have insurance on a lower tranche of the ABX should it fall further, but not if it’s backed by a counterparty that ends-up like of those Bear Stearns hedge funds. Both Yahoo (YHOO) and Intel (INTC) released disappointing numbers last night. Coupled with news of the crashing Bear Stearns “un-hedged” hedge funds, most of today’s trading over in the U.S. felt like it could be a trial run for that point in time when reality finally intrudes on the bull’s celebration of speculation, delusion and denial. Gold silver and oil all were up strong today. The gold mining stocks even got into the action and feel like they may finally be leaving their recent well carved-out base over the past 12-months behind them. Back to beloved tech---Intel lowered its expected “cap-ex” budget for 2007 from $5.5-billion to $4.9-billion adding more question marks to the wisdom behind yesterday’s huge breakout for the semiconductor cap-equip manufacturers. Gross Operating margins could only be described as atrocious. Even as Revenues for the quarter, year-over-year, increased from $8.009-billion to $8.68-billion, Gross Margins were just $4.075-billion versus Gross Margins of $4.171-billion for the same quarter a year ago. No growth in the thing that really matters. Of course, helpful to achieving what sounded like a solid 44-percent growth in Net Income was a 16-percent tax rate this quarter versus last years 29.4-percent. The glaring item on its balance sheet raising question marks was the “Other Current Assets” item growing to $1.269-billion from just $0.464-billion three months ago; which can probably be attributed to its factoring some accounts receivables which, in turn, was probably a function of some good ole’ fashion channel stuffing near the end of the quarter. After a few quarters of improvement, Intel appears to be back at its old tricks of feeling compelled to playing the financial engineering game so as to make the “headline” numbers look respectable. Coincidentally, Dutch-based, ASML Holding (ASML) saw its new orders down almost 70% year-over-year. The stock actually was positive during the pre-market before closing down. Lastly, according to Semiconductor Equipment and Materials International, bookings for semiconductors were $1.65 billion in June, which was essentially flat with May's 1.64 billion and down from $1.78 billion in June 2006 said in a report today. We should soon be a approaching a day of acknowledgment that we’ve once again been sold a bill of goods on another failed recovery for the gluttonous semiconductor industry….Also, the U.S. Bureau of Labor Statistics released their useless data on consumer inflation, the Consumer Price Index (CPI). The Pound Sterling broke through the $2.05 level for the first time in 26 years. United Technologies (UTX) was the latest company to express concerns that the housing slump has turned out to be worse than expected as it has taken quite a toll on its air conditioning business. Notice how the slide in sentiment as it concerns homebuilding has moved into the “acceptance” stage of being pretty serious. Unfortunately, I believe we remain well entrenched in the denial stage as it concerns how subprime and the CDO/derivatives markets ultimately affect the world’s financial system. And on the heels of these “toxins” descending back to earth will be the junk issued over the previous 12-months that has fueled the private-equity boom. Given as much, it’s easy to see how we might witness three waves of credit crashing upon itself….After being lower most of the day, the major U.S. indices closed at or near their daily highs. The S&P 500 closed lower 3-points and 0.6% from its all-time intraday highs. The bull’s declare this to be representative of “durability.” Given the clear and emerging threats, I can only conclude this to be a near record-setting level of complacency and denial.
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