For years, greed has been the underlying force in the markets. Now fear is replacing it.
Once underway, fear is an even stronger force. While central banks try to hose down the market's fear-flames with money, it doesn't change the liquidity problem. Lenders fear to lend and borrowers fear to borrow. Money "in the system" is of no real help. Someone has to borrow it. Who will?
We're back to being unable to push a string. We're into the very early beginnings of the unwinding of the derivatives hurricane long forecast by Jim Sinclair and myself.
Only the innocent will fall for the line that two failed funds from Bear Sterns and one European bank fund were the only real problem, which caused the main central banks to massively push money into play, and repeat it and repeat it.
Shallow thinking. Into play they hope. The money just sits there waiting, hoping, to be used.
The modern financial world runs on credit, so if fear rises to a level where fewer are willing to lend -- and fewer are brave enough to borrow -- the situation can get a lot worse before it starts improving. In my opinion, we've entered that twilight zone and it will get worse and we'll see a torrent of foreclosures over next 12 to 24 months. The "other shoe" will be falling for a long time, so investors should stop waiting for the markets to "calm down."
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