Sunday, September 14, 2008

Must Read

If you don't read Doug Noland's Credit Bubble Bulletin every week, you are missing out on some of the most original analysis of the financial system out there.

Too Big to Suffer a Loss
by Doug Noland of Prudent Bear Funds
...The last thing the crippled leveraged speculating community needs right now is dislocation in the CDS marketplace. Again, the attention this week was on Lehman, while I believe a much more unwieldy facet of today’s crisis mounts with the bursting of the historic hedge fund Bubble. Perhaps Sunday we’ll read news of BofA acquiring Lehman – and perhaps the markets will rally big on such news. But such a transaction would have little if any impact on crisis dynamics that have engulfed the leveraged speculating community. The various markets – global equities, real estate, mortgages, energy and commodities, currencies, CDS and risk assets generally – have all become an absolute and unmitigated mess. Money is being lost in waves; scores of favorite trades are being unwound; redemptions are gathering pace; and the ugly side of Ponzi Finance Dynamics has taken firm control.

Importantly, there is today no magical cure – no government bailout – that is going to rejuvenate robust speculator returns. The Credit Bubble burst, and now the speculator Bubble is bursting. As we have been witnessing of late, stock market rallies tend to show their greatest force in the sectors where the speculators are short. Meanwhile, stock market declines tend to see the favored sectors lead on the downside. Worse yet, astonishing volatility throughout the markets has created a backdropwhere it has become too easy to “get your face ripped off.” Repeated government interventions have only exacerbated market instability and
vulnerability....

TEOTWAWKI cometh, and that right soon.

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