On a dinghy in a sea of debt

So here we are, on dinghy in a sea of debt and derivatives and no land in sight. As an approximate $250 billion worth of M&A activity is still in the pipeline, news that financing for Chrysler and Alliance Boots, two of the highest profile private equity deals on the dockets essentially shatters the myth of the “LBO-put.” And folks, this is it. You couldn't get through even 2-minutes of market commentary without a strategist, portfolio manager or LBO pirate proclaiming "liquidity" as being the primary catalysts for stocks to continue their upward trajectory. This is leaving and frankly, there isn't a good fundamental reason for owning a broad basket of stocks anywhere, at current valuations amidst a backdrop of slowing world growth. And this week's "set back" feels a bit more acute than what we went through in late February when the first wave of subprime issues roiled markets. Take a look at the leveraged bond funds that trade on the NYSE. Even as Treasury rates fell like a rock this week, usually good for fixed income and often very good for leveraged bond funds, many of these funds were actually being purged. Folks, leverage is getting unwound and I sense that this last week is just the beginning. Given the duration of this re-leveraging process of the world's financial system that began in late 2001 after 9/11, the untold amount of debt and levels of derivatives backed by even more leverage, makes it utterly impossible to get one's arms around the situation. The fact that the White House hastily assembled a coffee klatch consisting of its economic advisers, including Hank Paulson, yesterday for public viewing and emceed by Dylan Ratigan of CNBC America, was odd and felt more like hand holding than anything else. Doesn't it take a death in the family for strangers to offer you their hand? Still, CNBC and its ilk continue to site the copious amounts of reserves resting in “sovereign funds” as being earmarked as a prop for the world's overvalued, over leveraged paper assets. Just don't tell China that they've already lost roughly $750-million or 25-percent of its $3-billion investment in shares of private-equity group, The Blackstone Group (BX), which it had purchased from funds in its "sovereign fund" just last month. If I were China, I might begin to wonder if there isn't something else we could do with these funds. It seems possible and probable that China is soon going to grow weary of being the lender of last resort for the debt-binging U.S.A. They already own a slug of U.S. Treasury debt that only loses money, year after year, due to the wilting value of the U.S. Dollar. Regardless, the week was a shot over the bow for the leveraged crowd.