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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (21262)	8/16/2007 3:33:00 AM
From: Elroy Jetson	Read Replies (2) \| Respond to of 218774

The so called "liquidity squeeze" is simply the credit market returning back to normal. As many others have suggested with very good reasons, risk had become horribly mis-priced. It seemed normal to investors to lend home owners 125% of the value of their home and to invest in areas of the world they knew nothing about. Suddenly they know better and are pulling back. As an example, many investors in Brazil were investing simply because it was going up - and they leaving quickly. Others who had better reasons to invest there, have to pull back because of losses in other areas. Its simply a sudden loss of confidence which will get worse, and this confidence will take years to restore. Its what economists call the business cycle. Leverage (ie liquidity) increases along with rising confidence - then something happens which causes a sudden loss of confidence, resulting in reduced leverage (ie liquidity). As I told you a number of months ago, which I'm sure you remember, the worst thing that can happen is that a nation like Brazil, or their businesses, or consumers take on a bunch of loans denominated in the lender's currency. Then when the loss of confidence occurs, the lender's currency rises quickly making repayment of the loans very expensive. Its happened to Brazil many times before and most recently happened in Asia during the "Asia Crisis". This "credit crunch" is not occurring among banks, but started and is centered in the investor funded credit markets. The "credit crunch" is a return to normal conditions. What was abnormal was the ten year period of time leading up to today.