Illiquidity

I am a faithful follower of Gary Smith's blog Between the Hedges. I admire him for being so disciplined, he reviews the situation before and after closing of the Stock Exchange, and he is consistently bullish, which the market has confirmed till now. He is a chartist but the blog almost never uses technical terminology. He says: If I have an edge — and some days I’m not too sure — it’s only because I stick to a methodology and repeat it day after day without fail. He is also very calm and cold. I love to read him and my Brent put speculation is based on his estimate. I would like to be cool and methodical as he is.

He dismisses the subprime crisis. But the American mortgage business issued loans totalling $1,300bn – the equivalent of 10 per cent of US gross domestic product. Last week, after previously playing down the fallout from the subprime mortgage lending crisis, Fed chairman Ben Bernanke finally admitted that losses to the financial system could total up to $100bn. If experience is any guide, this estimate will also prove to be on the low side. One only need contemplate that subprime and Alt-A loans (those made to people with only somewhat better creditworthiness than subprime borrowers) might in the end have to be written down on average by 10 per cent to arrive at a total cost of the crisis more in the order of $250bn. The problem is not this amount, but the general unwillingness to extend credit that uncertainty generates, which will stop speculation and harm the stock market.

I have to think. Sunday morning will be critical on TASE.