Monetary Disorder - Yep, That's What It Is.

Now, we don't want to jump on the "the world is finished" band-wagon too quickly, but truth-be-told, there are some significantly compelling arguments out there that are and have been warning us of the down side risks out there. Most notably, the banking system. Not just here at home in America, but world-wide.

Seems that the Fed is fighting a systemic virus with antibiotics like TAF and lowering the discount rate as quickly as possible. Problem is... antibiotics don't kill viruses. The only way to survive a viral attack is to wait it out and hope the damage isn't too great.

Of course, this kind of announcement from the Federal Reserve would spark darn near a riot in the credit markets and the stock markets here and abroad. Traders want the market propped up. As "Fernando" said "It is always better to loook goood than to feeeel good", and that's what the markets want. It's quite apparant they don't feel good.

For now, the media will continue to splash headlines touting the expertise and fundamental prowess of those who would make our "Subprime Headache" go away, but I leave you with the following excerpt from Prudent Bear... one which is both compelling, factual, believable and frightening. You can view the entire article here.

Bold is my emphasis, italics my add:

"Well, I believe the dam broke in January. The leveraged players were hit with losses from all directions. Their long positions were immediately slammed with simultaneous bursting Bubbles round the globe. Meanwhile, a rush to unwind positions led to upward pressure on the heavily shorted sectors, only compounding the leverage speculating community’s predicament. Last year fostered an extraordinary dynamic of ballooning “crowded trades,” and January saw the bursting of this multifaceted Bubble. In other words, traders are betting heavily against this market, but over-speculation on the dips is killing them. They are getting caught with their hands in the cookie jar.

The leveraged speculating community has suffered the occasional tough month – last August providing a recent case in point. Each time, however, performance quickly bounced back. In true Bubble fashion, each quick recovery from a setback emboldened all involved; industry fund inflows not only never missed a beat – they accelerated. Yet a strong case can be made today that this (historic) Bubble has now burst – that last year was the “last gasp” before succumbing to New Post-Credit Bubble Realities. I don’t expect performance to bounce back, while I do foresee a flight away from the leveraged speculating now beginning in earnest. With “crowded trades” unraveling virtually across the board, marketplace risk is now escalating significantly for leveraged strategies in general. Systemic liquidity issues and dislocated market conditions have created an environment where there is seemingly no place to hide. The bubble has burst in earnest, and there is no trade out there that is a comfortable place. Hedging and even arbitrage are not effective, no one "trusts" the market.

Importantly, a leveraged speculating community “unraveling” would prove a death blow for myriad sophisticated trading strategies and risk models, with enormous ramifications for systemic stability. There are unmistakable “Ponzi Dynamics” involved here worthy of a few Bulletins.

Going forward, I expect a foundering leveraged speculating community to be At The Heart of Deepening Monetary Disorder. The initial victims appear the fragile global equities market Bubbles and the U.S. Corporate Credit market. Forced deleveraging of hedge fund corporate debt and derivatives is in the process of creating a massive overhang of securities to sell, (see... market crash) in the process profoundly curtailing Credit Availability and Marketplace Liquidity throughout. The ramifications for our finance-based Bubble Economy are momentous. As an economic and financial analyst (as opposed to “fear-monger”), I feel it is imperative to highlight that it is more “technically” accurate to categorize the unfolding scenario in the historical context of an economic “depression” rather than “recession.” This is certainly not shaping up as a short-term inventory-led economic adjustment or “mid-cycle” slowdown. Instead, we have now entered the very initial stages of what will likely prove a deep, prolonged and arduous adjustment to the underlying structure of our Credit and economic systems. "

Yep... you read that correct. The observation has been made that this all smells of severe depression. Something Main Street either won't tell you, or is afraid to.