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[Tor]

Warren Buffet said "Only when the tide goes out do you discover who's been swimming naked." As the US housing tide recedes, the skinny-dippers are racing up the beach to find their beach-towels. But this is not a crisis driven by the US sub-prime mortgage debacle. The housing slump guarantees this is a generalised mortgage crisis. Sub-prime has just been exposed first. Buy beach towels. ► Things are beginning to get a bit testy for equity investors. You can almost hear the bear beginning to growl. In these circumstances it's best to be prepared. Hence when booking a summer tour of the Canadian Rockies I found the official Canadian Mountain Guide contains some valuable tips which investors might also find useful when it turns nasty. ► How to avoid an encounter in the first place: 1 Larger size groups are less likely to have a serious bear encounter (ie have a diversified portfolio). 2 Make noise. This lets the bears know you are coming and gives them time to get away. Shout loudly every few minutes (ie don't become complacent. Assume a bear market might be just around any corner). 3 Watch out for fresh bear signs: paw prints, droppings, diggings (ie check the technicals to see if a bear market is close). 4 Keep your dogs on the leash at all times (ie make sure your risk managers keep a close eye on your traders). 5 Use extra caution during berry season from late July to mid September – when I am there! (ie seasonality matters. The equity market is typically more vulnerable in the third quarter). ► There are two types of bear attack, defensive and predatory. What you do depends on which kind, as indicated by the bear's behaviour. If you accidentally surprise a bear it sees you as an immediate threat and feels it must fight. This is a defensive attack and is most common. If the bear makes contact play dead. Showing submission will probably end the attack. Lie on your stomach with your legs apart, so the bear cannot easily flip you over. Cover the back of your neck with your hands and keep your back-pack on (ie anchor the portfolio by buying government bonds and defensives). ► But get this! Defensive attacks rarely last longer than two minutes. If the attack continues beyond that, it may have shifted to a predatory attack. In this case fight back!! (ie watch the technicals to see if an ordinary common market correction - where you buy on dips - is turning into a full blown bear market where you should sell the rallies). ► If the bear behaviour is predatory. The bear stalks you along the trail and then attacks. This behaviour is very rare. But if you are actually still alive after playing dead (above) the advice is do NOT play dead! Fight back. Try and climb into a tree, building or car. Use your bear spray. Do whatever it takes to let the bear know you are not about to give in. (ie once you have incurred 20% losses [is that body mass?] - from lying on your stomach with your legs apart sell everything, buy puts, buy vol. And rather than climb up a tree hide under your desk until the bear market is over). ► The market is right to be jittery given developments with Bear Stearns' hedge funds. This is not an isolated LTCM-type complex trade that has gone wrong. These "financial weapons of mass destruction" are widely owned. And the housing market is still sinking… With the financial market impact of the US housing crash deepening, it is notable that we are just approaching, without a great fanfare of trumpets, the 10th anniversary of the start of the Asian crisis. This was ushered in by the break of the Thai baht dollar peg and the currency's subsequent collapse. This entirely predictable event ushered in the full blown Asian crisis, the collapse in commodity prices as global growth dived and the subsequent 1998 Russian default. One by one, the dominos around Asia fell. Another way of describing the event was that it was like a slow motion train crash, with the derailed locomotive pulling carriage after carriage off the tracks (see chart below). [attempted fix of funky truncation by Admin]