What to make of the Bear Stearns meltdown.

This is not another Long-term Capital Management is it? On the surface, it sure doesn't seem that way. As far as we know, there was no involvement by the Federal Reserve Board or any public officials behind the $3.2 billion cash infusion that Bear Stearns will provide its two troubled hedge funds. So in a sense, the woes of Bear's High-Grade Structured Credit Strategies fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund (the one in really bad shape) actually signifies some progress. But there are worries that perhaps this is the tip of something larger. There are some dependencies and exposures, perceived or real. Note the cancellation of Bear's Everquest IPO, which bought some subprime exposure from the two funds. You have to wonder what will happen to the entire CDO market. It may well be that others are in the exact same position.

Our take on this news: Who cares about Bear Stearns? If you believe in the free-markertplace, let the market take care of itself. Let Bear Stearns go under entirely!

How the rich feel about mutual and hedge funds.

If you're rich, the financial services would like to know how you feel about mutual funds and a host of alternative investments. There have been several attempts to figure it out. A study by Prince and Associates, for example, suggests that the uber-rich scorn mutual funds and even exchange traded funds. In fact, they found that the richest do not invest in mutual funds at all, preferring hedge funds and direct investments in startups. dailyii.com, however, notes that the finding is at odds with a survey by the Spectrum Group that found even the wealthy don't truly "get" hedge funds, and that less than 10 percent owned one. These are not necessarily inconsistent. The top 10 percent could easily account for the bulk of individual money invested with hedge funds. But to complicate matters, Advisor Perspectives has found that, according to their database anyway, the very wealthy continue to hold mutual funds. It all comes down to how you slice the data. Interesting.

Our take on this news: Survey after survey shows what they want. There is NO pattern in the way individuals invest their funds.

Goldman heading for major crisis?

Liquidity is a huge issue at Goldman Sachs--given its highly leveraged structure. So does it deal with the potentially escalating chances of some sort of market meltdown? Bob Berry, a mathematician from Cambridge University, monitors 18,000 computers that constantly report on various market exposures, setting limits based on prevailing conditions, according to Forbes. Another unit monitors counter-parties for their ability to pay. Another unit assesses the likelihood of disasters along the lines of avian flu or a military attack. And then there is the firm's Fort Knox. Goldman has more than $50 billion in government securities of the U.S. as well as Japan and Germany. That in theory could be converted into cash, enough to keep the firm running for at least three months even if it had no receivables.

Our take on this news: Who didn't know of the crisis? Duh!

More on Bear Stearns fiasco

Is Bear Stearns' 10-month-old High Grade Structured Credit Strategies Enhanced Leverage hedge fund now officially dead? It sure seems that way. The latest is that Merrill Lynch has balked at a plan that would require Bear Stearns to inject up to $1.5 billion into the ailing fund in return for agreements that the likes of JPMorgan, Citigroup and Merrill would not demand further collateral for about a year. Merrill didn't go for it and has put about $800 million in bonds held by the fund at what will likely be firesale prices. So this spells effectively the end of the fund. It does not appear that the Blackstone Group intends to go forward with any plays, if it ever intended to at all. Perhaps we're seeing a shift in power that will play out as other credit-oriented funds hit rocky roads. Lenders will certainly have the upper hand and be in a position to dictate favorable terms going forward. You have to think that big lenders might be considering the collateral positions at other funds with preventative medicine on their minds.

Our take on this news: Let hem go under.

Private equity vs. the shorts

It's odd that short-selling is so popular all of a sudden. Short interest on the NYSE topped 3 percent of shares in May. That's the highest level since 1931. It's gotten so competitive that just finding the shares to borrow is proving very difficult. Some might read this as a classic bull sign. They might be right. Another way to see this is as a sign of a classic bull-bear battle. In this case, according to Business Week Online, the battle pits the many shorts, including individual traders, against many private equity funds out there. My guess is that shorts will end up covering soon enough. Most pure short-sellers have been driven out already. Private equity may push out the fashionable shorts. There will be a market top at some point, which will make some short sellers look good--the ones that survive to that point anyway.

Our take on this news: The shorts deserve to be hit!

More on Goldman's hedge fund.

Goldman Sachs' hedge performance has generated some unusual headlines as of late. Now comes news from Financial News Online that inflows to the gilded firm's alternative investment funds amounted to zero in the second quarter. Alternative investment, of course, has been a super success. In 2006, Goldman reported inflows of $32 billion. That came after a terrific performance year. Is this reason to worry? Well, as for the flagship Global Alpha fund, Goldman's CFO David Viniar said that redemptions have been slight. The word is that the fund was down at least 6 percent through May. Last year was a down year--almost 10 percent. Of course, the fund gained 50 percent in 2005. The firm seems to be planning new products that they hope will generate inflows.

Our take on the news: Continue those redemptions and get out of Goldman's fund and every other one you're in!

Bear Stearns' problem in hint of what to come?

The saga of Bear Stearns' High Grade Structured Credit Strategies Enhanced Leveraged Fund is worth following--and worrying about. Recall that Merrill Lynch has given the fund a lifeline of sorts by agreeing to delay the sale of $400 million in securities held as collateral in the Bear Stearns fund. A sale, of course, would have effectively spelled the demise of the fund, which had sold off $4 billion in securities in low-rated bonds, many tied to subprime mortgages. The sale was apparently made to meet some margin calls related to short bets that did not pan out. So Bear Stearns has bought itself some more time here. You have to wonder if we're in for more of this kind of intra-bulge bracket bargaining. Bear is not the only one that will face a rough time. There are fears that all this will ripple through the industry. Stay tuned.

Our take on this news: The hedge fund industry isn't just in trouble, it is in serious trouble. There will more situations like this in the future and will require new regulations for the industry to follow. If they folow the new regulations, history shows that the industry violates regulations on a regular basis.