Everybody on the bearish discussion boards I read, it seems, blames the government for screwing up the markets by intervening - buying futures, etc. (I find it amusing that many of these same folks then want the same government to intervene in the healthcare system and so forth, because obviously markets can’t handle that). Personally, other than the bumbling Fed’s interest rate manipulations, I do not think that there is any government intervention in the stock market. The recent Bear Stearns debacle serves to illuminate the general lack of understanding and overall stupidity on Wall Street. All they know is that leverage has been working and the solution to any problem is to “do more”. So they just keep pumping, adding more and more assets and the corresponding leverage. The record highs on Google serve to illustrate the willingness of the investing public to do the same thing, speculating that there is always a Future Bagholder to take them out at a higher price.

There was a foreclosure auction in the Bay Area over the weekend, complete with young female cheerleaders and a guy doing the chicken dance encouraging bidders. I am not making this up, it’s in the Chronicle. Also many quotes from winning bidders - seemingly all speculators who bid much more than they had planned, presumably dazzled by the young ladies. The naivete and idiocy exhibited was just mind-boggling. I mean, I can somewhat understand chasing a momentum mania although not well enough to do it myself. But trying to catch an obvious falling knife is really dumb, considering the lack of liquidity and enormous use of leverage in real estate.

The widespread complacency and general lack of, shall we say, intellectual competence, is most likely leading to a nasty accident. Beware. I know I’ve said it before. Well, I’m saying it again. Just because the Tartars haven’t come yet doesn’t mean they’re not coming (see “The Black Swan”).

In the Daily Telegraph: “The Bank for International Settlements, the world’s most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.

`Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a ‘new era’ had arrived’, said the bank.”

Now that makes two of us warning about a coming depression.

An excellent summary of the CDO situation: “….This appears to be the background to the Bear Stearns hedge fund problem today. Recently, US house prices have turned sharply down, so now the lending banks have asked for their money back and the hedge funds haven’t got it. So the collateral needs to be sold. No problem, surely. It’s in the books at a few billion dollars after all.But with its concentration of risk, the equity slice has been hemorrhaging value. No-one is bidding. But that’s not the full extent of the problem. There are so many similar hedge fund loans backed by questionable and illiquid securities at marked-up prices - untested by dealing on the open market - that the lending banks have stopped trying to sell for fear it will accelerate and exacerbate the problem into a full-grown systemic disaster, forcing every similar hedge fund out there to own up, catastrophically, to significant overvaluations in their CDO equity portfolios, too.

There is currently no market for this toxic waste. Everyone is taking a breather. All this came to light Thursday - and amazingly the US stock market went up. But it really could turn very nasty. Everyone with a hedge fund holding in any similar market is powerfully motivated to sell today.”

The major market indexes are all weak today (as I write, anyway), down around 3/4%. But Google is up more than 1 1/2%, over $520 per share. A P/E of around 50, price/sales of 13-14, around 9 times book value, dividends - we don’t need no steenking dividends… need I go on. Just sheer speculation that there is always a greater fool to buy it at a higher price. Just like the housing bubble. Eventually this will fail from exhaustion.

In the meantime, I think of the Google share price as kind of an index of complacency. The higher it is, the more people are thinking that nothing can go wrong. Because Google’s business, advertising, is the first thing that companies cut in a recession. It is too volatile to short or buy puts, have to wait until it starts to head down. But it has a long way to fall.

Reuters: “Brookstreet Securities Corp. on Thursday said it `may be forced to close’ after heavy markdowns in collateralized mortgage obligations, according to a letter the firm sent to investors this week.`Disaster, the firm may be forced to close,’ Brookstreet told its investors in an e-mail dated June 20 that was obtained by Reuters.”

“Brookstreet Securities is a full-service, national network of investment professionals dedicated to serving the needs of sophisticated investors. Our offices are around the corner or down the street. We are nearby to serve our Clients more economically. And we’re here to stay, with time-tested investment professionals who offer their Clients the opportunity to look them straight in the eye when making recommendations about their financial future.”

“Accounts are carried by National Financial Services LLC (”NFS”), a Fidelity Investments® company, Member NYSE/SIPC.”

In other news, Bear Stearns is withdrawing the Everquest IPO. But KKR announced that it will follow Blackstone down the IPO path. The private equity guys are heading for the hills. It has been a great run where massive leverage has created massive profits. Now they want the public to take over for the ride downhill. Note that the first out of the gate was Fortress and their IPO is now broken (trading well below the offering price).

Merrill appears to be having second thoughts about the forced sale of securities from the Bear Stearns funds after receiving “pitiful” prices for some of the riskier tranches of debt. Lehman, on the other hand, has changed its mind and is offering $400 million for auction. Barclays is apparently owed $1.2 billion. Bear Stearns is reported to be considering putting in $3.2 billion to repay the creditors and avoid a sale of the collateral. The beat goes on.