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To: UnBelievable who wrote (16951)	9/8/2000 9:41:48 PM
From: patron_anejo_por_favor	Read Replies (2) \| Respond to of 436258

Doug Noland in Prudent Bear, spells out the mechanics of the imminent crash of 2000: prudentbear.com Ironically, in the midst of unfolding global financial tumult, the financial stocks continue a very strong rally. During the past six weeks, the bank stocks have rallied about 20% and the brokerage stocks 25%. At the same time, we remember all too clearly a similar financial sector rally right into the Russian collapse and LTCM debacle. It is as if approaching storm clouds only work to energize and embolden the financial sector to more aggressively protect its turf. As written above, great efforts are made to perpetuate the bubble – to maintain power. All the same, it is now our view that going forward the great U.S. credit bubble will find itself in the most perilous position since 1998. The weak link is today, as it was in 1998, is the highly integrated global derivative markets. In 1998 it was the dislocation in Russia that proved the catalyst for widespread financial dislocation and near financial meltdown. This time around, it appears that the catalyst may originate in the currency or energy markets. If we had to venture a guess as to how this may develop, we suspect that the current dislocation in currency derivatives leads to dislocation in the closely tethered interest-rate swaps market. Tumult in the swaps market would then quickly impact the highly leveraged credit markets in Europe and the U.S. A bout of deleveraging would quickly lead to a problematic dislocation, perhaps in junk (telecommunications) bonds, mortgages, and/or agency securities. If, as we suspect, credit market liquidity evaporates for the Telecommunications and technology sector, this would prove quite problematic for technology stocks and the stock market generally. At the same time, the highly overleveraged mortgage finance sector (mortgage-backs and agencies) is an accident waiting to happen. As the week came to a close, there were clear indications that stress was building, and that the probability of a problematic scenario is increasing. Which leaves us with one other key aspect of credit bubble dynamics: while extraordinary efforts are made to perpetuate the boom, when things falter they falter big and ugly. Stress is allowed to build - it holds, it holds, it holds and it holds, that is until the dam breaks. That is the nature of highly leveraged markets, derivatives and credit bubbles. They all exacerbate the upside, but result in abrupt and spectacular dislocation and illiquidity on the downside. This is precisely why we spend so much time discussing financial fragility.