This credit contraction is still young, yet we already have the spectacle of a full blown seize up in the money markets which has central bankers flummoxed. Normally, you expect this sort of panic after a few major financial train wrecks and weakness in the real economy.
One can cheerily assume that all is for the best in this best of all possible worlds. that in our tightly-coupled, information suffused, low trading cost environment, things happen faster in the past,. What we are seeing is simply a compression of events that might otherwise take longer to play out. Sharp spike down, fast recovery, and if you aren’t a subprime victim, back to life more or less as before.
Albert Edwards, Dresdner Kleinwort strategist (and the man who coined the phrase, “The Great Unwind”) has the opposite view: that the fast trajectory down (at least in the credit markets; equity investors haven’t given up their faith) is due to the fact that the cognoscenti know that more is yet to come."
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