We Don't Know What We don't Know

"We don't know what we don't know'" said Don Rumsfeld.

What we do know is that the young men and women "managing" all this leverage have never been through the opposite of an up market, like we have right now. When markets close and go no bid they are not sure how to react. Too many people are thinking Fed Chairman Bernanke will bail this situation out...he will not and can't...rest assured...

This will not end until a major private equity group, a major broker dealer and several of the major hedge funds go under. The founders will spend the rest of their adult lives trying to sort through the legal ramifications of their undoing.

The untold story here so far...is that the $400 trillion of notional "contracts" written in derivatives has been a farce....worthless paper sold to people who thought this was going to protect their wealth....notice how no one has said "I'm ok..I'm protected...remember we hedged our speculations."

SO the question of the day is where are we now?....We believe this market will capitulate something like the autumn of 1987. The market has rolled over...caught everyone sleeping and feeling they would be ok...Our hint that the Chinese buying into the Blackstone group was correct in calling the top....of the leverage boom. Now the great unwinding has begun and it will be a lesson for a new generation...

To some extent the US equity market has discounted this finale...but for the time being it will be the only source of liquidity for those leveraged in debt. Long term this is incredibly healthy...astute market observers will look to relative market strength in the correction and make proper new buy entries and hold the correct stocks through the storm.

Thousands will lose jobs and hundreds their companies....

Over capitalized companies that are well managed and in the proper growth spaces will more than survive...they will thrive! Those "accredditied" investors stuck in the lock downs will have a very hard time for the balance of the year and into next as they work through their cash flow issues...remember as Will Rogers said, "It is not the return on the money; it's the return of the money."

Danny Boy seen here is ready for dinner.