Sunday, March 16, 2008


Crash Alert

After quick look around and the fact that the biggest damage is being done in the opaque credit markets I thought it would be prudent to throw up the crash alert. Why?

Sell stocks while the selling's good.

This is where the rubber meets the road. Much of the seized collateral consists of illiquid asset-backed securities carried on books at prices assigned by computer models, not the market. As soon as they are actually priced by the markets in these fire sales, any similar securities held by other funds are then automatically re-priced to that new lower level -- slashing their value as collateral. In this way, funds that might otherwise be innocent bystanders are dragged into a lethal vortex, as collateral is being downgraded and new margin calls are generated at breathtaking speed. Indeed, the acceleration of this downward spiral in the value of collateral has caught everyone by surprise, precipitating the latest phase of the panic. [Emphasis added.]

I consider myself fairly well plugged in but the bad news is coming so fast that it is prudent to assume there is more coming. I have been anticipating the end of the great asset bubble(s) for so long I am not about to underplay its effects on the world economy. Good Luck.

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