The CFC short is working out. I actually doubled down a few days ago above 38, and closed the extra position this morning at 37. I'm still riding the original short as the market freaks out over the Bear Stearns asset-backed hedge fund collapse.

Bear Stearns did a pretty stupid thing, going out and buying bad mortgages from bad lenders and then using lots of debt to leverage it up. The outcome was obviously foreseeable. The question is how badly the blowup will affect the broader asset-backed market and how many other funds will have to dramatically restate the value of their assets. Asset-backeds can be thinly traded and hard to price, so many funds may be pricing their holdings too optimistically.

Say they're pricing an asset-backed at 70, but they have a cash crunch and need to sell. The best bid they can get is 65. No big deal, right? A 7% drop in value. Ah, but here's where leverage comes in. These dumbasses have leveraged up their portfolio 10-1 or 20-1. A 7% drop in asset value means a 70% or 140% drop in the fund. Game over! Thanks for playing!

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