Why it's still not safe to go back in the water

If you think the tide has turned, think again. With affordable credit in short supply and the change in the lending climate likely to last for years, the markets won't be bouncing back any time soon.

Once Bear Stearns had been rescued, they thought it was safe to go back in the water, citing the bank's collapse as typical of the sort of event that signals a market bottom. However, to call that March 2008 level a long-term bottom is akin to saying the tide has stopped going out long before it has finished turning. In the same way that waves come in even when the tide is going out, so stock markets ebb and flow within the major trend.

The direction of the developed world's stock markets is unerringly down. Why would that not be the case at a time of credit contraction when banks will not lend so readily, if at all, to those they lent to before? The change in lending criteria that has taken place will last for years. There were many propositions that banks previously supported which now they wouldn't touch with a barge pole. It is totally impossible for banks to revert back to those previous, deeply flawed, lending practices. Readily available, affordable credit lubricates the economic engine, no economy can get up to speed if credit is in a state of contraction which it is.

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