Someone accused orlando of being negative. I am bearish - but...

Someone accused orlando of being negative. I am bearish - but that doesn't mean I have anything against the markets - quite the opposite - as a bear, I want to know the best entry point - no ones wants to get suckered into a dead cat bounce.

The $60 Trillion number sounds big and scary. It definitely isn't as bad. Think of it like insurance. A lot of people have insurance that we pay for. The sum total of all insurance contracts is probably in the trillions. A catastrophe like Katrina hurts insurance companies, but hopefully the result is net neutral. Thus, even though we have $60 Trillion, so long as it is close to net neutral, no problem, but....

The real issue is when we have some companies that have made really bad bets. With one collapse (such as Lehman), they may find they need to pony up a lot of cash and not collect much. Now imagine just one of the companies goes busto. "Sorry guys, I know we were meant to pay out on a default, but we don't have the cash". Now other companies that were relying on that cash to pay out their claims have an issue. Sure, they *were* going to be net neutral, but now that have bigger liabilities because they can't make their end of the bargain. The real worry is that this could cause a chain reaction and before you know it, the whole thing crumbles like a house of cards. Ironically, these derivatives were meant to reduce systematic risk. Instead, they could end up amplifying it although know one knows. I guess this is why Buffett, who has the business intuition of a savant, thinks they are financial weapons of mass destruction - a perfect analogy as when they trigger, it could cause a nuclear reaction.

In my opinion, this had the potential to get very ugly - especially if we had countries standing off against one another and sticking by their companies. The fact that the G7 has stuck together and are prepared to go all the way tells me governments around the world will not let the system go down. CDS's will be regulated going forward - but the existing unregulated CDS's will not be allowed to blow up. I will be very surprised if CDS's trigger the next downward leg.

What will cause the downward leg is that fact that money is being lost and the people who have defaulted and those who will default in the future will not pay back their loans. This money is lost from the system. Without a willingness of consumers to borrow and a tightening from banks to lend, I still see deflation on the cards no matter what governments would like to happen. This is why I believe the bear market isn't over yet - but I am willing to agree it could be over, I just need confirmation before I stick more money into the markets.