No end yet to the misery

For a few days it looked like what Daniel Gross of Newsweek calls the "Great Global Market Freak Out" might be over. But it isn't.

After a few days of relative tranquillity the bad numbers started coming again and the markets reacted accordingly: my very publicly claimed favourite index, the Nikkei (which I am not feeling that friendly towards any more), managed to lose 4.7% on Tuesday alone and the FTSE 100 lost 2.63%. It is now down 9% this year.

It's a pretty depressing time to be a fund manager, so I wasn't altogether surprised to find, when I convened this month's round table (the full transcript will be out next week) that most of our participants were miserable. So much so that they no longer asked each other how bad things were. They know that. Now they just want to know how long the crunch will last and how it will end.

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I don't think there is anyone left a few property promoters aside who doesn't now see that most of the world is caught in the grip of a really nasty credit crunch, and one that is causing almost all economies to slow significantly (the Gulf might be one exception). It is, said one participant, as though what happened in Japan in the early 1990s was a dress rehearsal for what is happening to the rest of us now. That's a frightening thought. Why? Because if it is true it begins to answer the how long' question. It has so far taken the Japanese banks 17 years to rebuild their balance sheets and get back into a position where they can once again should they care to lend money out.

You might think that our own credit crisis and consequent bear market can't possibly last that long. But why not? What are we doing differently from the Japanese? We're cutting interest rates, but so did they a lot. The US is planning a massive spending binge but the Japanese did that, too: that's why every river across the country is concreted over, every stream is crossed by a suspension bridge and every village has its own concert hall.

And we're doing exactly the same as them when it comes to dealing with our over-extended banks. Northern Rock is a bankrupt bank. If it wasn't being supported by the state it would collapse. You can't get much more bankrupt than that. But it is still operating it is still taking new deposits, for heaven's sake. And you think all those big banks, busy announcing losses of a couple of billion here and a couple of billion there every month or so aren't getting a tad worried about their capital bases? Of course they are. But they won't fail western governments just aren't into that kind of brutal capitalism these days, no more than the Japanese were in the 1990s. So they won't let them.

Back in the 1990s, when I worked in Tokyo, I honestly thought that some of the really awful banks knocking around would have to fail and I remember advising local friends to take their money out of them and head for Citibank. If I still believed that bad banks ever went under I might be doing the opposite today. Instead, I just believe that this credit crunch is going to be with us for a really long time.