Shocker

A Bear Stearns analyst was cheerleading for the ABX index while Bear Stearns and its related funds had massive bets on it.

As the market for risky home loans was beginning to implode in February, Bear Stearns Cos. analyst Gyan Sinha hosted a conference call for 900 investors, telling them they had little to worry about. Unfortunately, there was a lot to worry about.

Two weeks after his prediction, a closely watched part of the ABX, a popular index that tracks securities made up of subprime, or risky, home loans, would hit a new low. Yesterday, amid warnings from rating companies Standard & Poor's and Moody's that hundreds of bonds backed by mortgage loans may be downgraded soon, that same portion of the index hit its worst level ever.

For years, Mr. Sinha, 43 years old, has been one of the most respected mortgage analysts on Wall Street, garnering top rankings from investor trade magazines, and has been renowned for a string of savvy calls. But in the wake of two embarrassing mortgage-related hedge-fund meltdowns at Bear, Mr. Sinha, the firm's top analyst covering asset-backed securities, is getting a bit of a beating.

"It's time to buy the index," he told clients on the Feb. 12 call, according to a participant. Based on Bear's models, "the market has overreacted," the participant says Mr. Sinha added, to events like the early-February announcements from British bank HSBC Holdings PLC and mortgage lender New Century Financial Corp. that losses from risky-mortgage defaults were mounting.

Even then, some found the assessment over the top. "When you read the research [Bear] put out, you can think of one of two things," says independent housing economist Thomas Lawler, who poked fun at Mr. Sinha's bullish view in his own market commentary on Feb. 13. "One is, they weren't getting it as fast as others, or two, they were really trying to talk the market back up. I don't know which."