Zero Liquidity

``There are securities which simply can't be priced because there is no trading in them,'' Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in Bedford Hills, New York, said in an interview today. ``There are no bids for them. Asset-backed securities, mortgage loans, especially subprime loans, don't have any buyers.''

BNP Paribas announced that it was halting withdrawals on three of its funds with investments in the sub-prime market. The reason for this is that it would be unable to cashout redemptions in these funds. To cash out redemptions from a fund normally you would have to sell a percentage of your portfolio. Unfortunately, for BNP, and more unfortunately for the unitholders in its funds, those assets are essentially worthless. The quaint euphamism "total lack of liquidity" is the equivalent of saying "absolutely worthless".

This is the point in markets where greed really does turn into fear. If you are an investor in any of these funds it is the first one out who stands a chance to recover all or part of your investment value. Whereas "Cash is Trash" has been the motto for investors over the last five years it is rapidly becoming the very opposite.

Is this a healthy market correction driven by an overdue re-rating of risk; or the small of smoke before the house burns down? Watch closely.