Credit failure mode

It's often a bad idea to invest based on the drumbeats of daily news. A few weeks ago, the press was filled with gloomy stories about the decline of the dollar and a possible crisis; people were advised to hold more stable currencies and buy further into emerging markets (which, BTW, look a little bubbly at the moment.) Since then the dollar has strengthened and a flood of exports and reduced domestic consumption have started to reduce the current account deficit. So much for following the Common Wisdom.

One might look at the slew of stories about falling house prices and further troubles in banking and credit the same way, but one would be wrong. What very few people understand (outside of a minority of professional bankers and economists) is that the daily news stories reflect the increasing likelihood of a serious collapse of credit; every few days the ECB or Fed tries new ways to inject money into the system to get credit flowing again, showing that they see the hazard.

( This bond is naked! - much more risk ahead )