S&P futures are down about 10 points already this evening on the Bear Stearns revelation that its two troubled hedge funds are not only troubled but pretty much worthless. Remember, this isn't a fund run by some guys in Fairfield County, CT who had a knack for trading and decided to leave their monolith Wall Street firm to start their own fund - this is Bear Stearns we're talking about here. These are supposed to be the smartest guys and most well funded and connected guys in the room, but this stuff still blew up in their faces because they used a different set of risk parameters. I guess they forgot that only Ace Greenberg knows how to do the magic tricks at Bear, and I get the feeling Jimmy Cayne is going to have more time to work on his golf game.
In this 'all is quickly forgiven market' it's more than likely that 14k was not fleeting like Nasdaq 5000+ was, but the sledding is likely to be rough tomorrow if not for a few days. The biggest factor with the subprime prime epidemic is the great unknown of exposure and containment. Who is else is levered and exposed? And as foreclosures pick up as gauged by the meltdown in the toxic subprime OTC sludge, will the consumer be impacted enough to further curtail spending and hurt the economy further (now only growing at less than 2%)?
On downdraft days when these worries surface, we've seen that selling simply begets selling across the board. Will all be quickly forgiven again? We'll just have to wait and see. Heck, with this market we could selloff tomorrow morning, but then Bernanke could say something nice at what used to be called the Humprey-Hawkins testimony, and we'll be at 14k by the end of the day. LOL... no, I don't think that will happen, but never say never.
As I noted in my CNBC options column, plenty of folks have been girding for market volatility as seen in the VIX's ability to hold fairly close to the year's highs even as the benchmarks hit record highs. They're going to get some volatility tomorrow.
Also, Novastar fell 5% after hours: NovaStar deal may not help lender survive: analyst.