S&P drops Rating on Bank of America to Sell/Hedge Funds turn Bearish

Ugly day today folks! I had to throw this up here tonight. Bank of America(BAC) has been dropped to a sell rating by S&P.

Why in the hell is Bank of America buying Countrywide? This deal is a disaster and makes no sense. The only explanation that I can think of is the Fed is orchestrating it.

I think there is a chance BAC still walks away as conditions deteriorate.

Here is the link

"NEW YORK (MarketWatch) -- Standard & Poor's Equity Research on Friday downgraded shares of Bank of America Corp. to sell from hold amid worries about the mortgage portfolio the bank will inherit when it acquires lender Countrywide Financial Corp.on July 1. "We take unfavorable note of the large Countrywide option-adjustable rate mortgage portfolio that Bank of America will inherit, since we believe this portfolio has yet to be stress tested," S&P said in its action. The agency also said it expects BofA to "significantly" increase its loss provisions to reflect a weakening U.S. consumer and predicted a dividend cut. S&P cut earnings estimates for 2008 for the bank by 51 cents to $2.16 and reduced its target price by $9 to $24"

Hedge funds fear worst recession Since the Great Depression

And I thought I was bearish. Take a look at some of the quotes from a hedge fund conference below.

Here is the link to Bloomberg discussing the conference:

"June 20 (Bloomberg) -- The credit market contagion that led to record losses at some of the world's largest financial institutions may be far from over, according to hedge fund managers gathered in Monaco this week.

``It's all bad news on the horizon,'' said Maria Boyazny, who oversees a $3 billion fund that invests in other hedge funds for Siguler Guff & Co. in New York. ``This correction is going to be a long one. It's a recipe for disaster for credit markets.''

Edward Altman, a professor at New York University's Stern School of Business who has tracked defaulted debt for nearly 40 years, said an impending wave of defaults could be the worst on record in the U.S., at 16 percent of corporate debt.

``It may be the worst recession since the Great Depression, that's not impossible,'' said Altman, who estimates default rates on U.S. corporate debt have tripled so far this year from record lows last year. ``There's a lot of negatives out there.''

The U.S. recession will be deeper and longer than the previous one because of the drop in home values, said Max Holmes, founder of Plainfield Asset Management, a $4.8 billion hedge fund in Greenwich, Connecticut. He bought distressed assets in the previous three U.S. recessions and lived in Houston during the region's real-estate bust in the 1980s.

``This is a major, major event, it's going to take a while to resolve itself,'' said Holmes, who reckons the U.S. slipped into recession in December. ``In the last recession the banking industry was healthy, this time it's very, very sick.''

``We have a lot more wood to chop,'' said Alberto Musalem Borrero, head of research for Tudor Investment Corp., the $18 billion hedge fund manager founded by Paul Tudor Jones. ``I wouldn't be surprised to see another $600 billion in losses.''

Quick Take:

My oh my how the mood has changed on the street. Can anyone remember the ridiculous chatter cheering the Fed as they bailed out Bear Stearns?

They threw all of that liquidity at the financial system and what do we have to show for it? $136 oil and a 7% annual inflation.

Thanks Ben! Keep up the great work.