Sentinel Management files for bankruptcy - 20-Aug-07 - Generational Dynamics

Generational Dynamics Web Log for 20-Aug-07

Sentinel Management files for bankruptcy

Following its announcement last week that it's clients would not be able to get their money out, Sentinel Management Corp. filed for Chapter 11 bankruptcy late Friday.

You'll recall that when I wrote about Sentinel last week, after it had halted redemptions of shares by investors, I was able to get a copy of their web site's FAQ page before the Sentinel web site went down. The FAQ included statements like the following:

"Sentinel buys only the highest quality and most liquid securities (unless specifically directed by a client to seek higher yield in somewhat lower quality issues). Sentinel will not use derivatives, options, or any other 'financial engineering' techniques to enhance the yield on its portfolios. Sentinel's objective is to achieve the highest yield consistent with preservation of principal and daily liquidity, not simply 'the highest yield'.

But apparently Sentinel did NOT buy the highest quality and most liquid securities. Perhaps they bought AAA-rated securities but, as we discussed in conjunction with the article "Anxious investors mob Countrywide Bank to withdraw their deposits," so-called collateralized debt obligations (CDOs) can be AAA-rated, but worthless. It's quite possible that Sentinel (and Countrywide) purchased these securities entirely because of their AAA rating, which meant that no further investigation was required. Of course, these CDOs are based on millions of subprime mortgage loans that many homeowners will not pay, once the low "teaser" interest rates expire.

Please read my new analysis article that I've just posted, "How to compute the 'real value' of the stock market." This article explains methods for evaluating the stock market, indicating that it's overpriced by a factor of around 250%, and speculates on schedule that will end in a stock market crash some time during the week of September 10-14 or September 17-21.

The situation with Sentinel is highly relevant to the situation. In order for the September 10-21 crash date to be met, it will be necessary for the general level of public and investor anxiety and panic to continue increasing,

Some kind of tipping point was passed about a month ago, shortly after the July 19 stock market peak. Up to that point, bad news made the stock market contine to rise. Since then, bad news is causing the market to make sharp falls.

The Sentinel bankruptcy occurred late Friday, and that may be too long ago to have any effect on investor attitudes on Monday. (Is three days too long? These days, three hours may be too long.)

As I'm writing this (around midday Asian time), the Tokyo Stock Exchange's Nikkei index is up over 4% (having fallen 5.4% on Friday). So at least the Tokyo investors don't seem too broken up about the Sentinel bankruptcy.

It's going to be an interesting week. (20-Aug-07) Permanent Link
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Generational Dynamics Web Log for 20-Aug-07 Sentinel Management files for bankruptcy

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Generational Dynamics Web Log for 20-Aug-07
Sentinel Management files for bankruptcy