IT SEEMS almost inevitable that after the Great Crash and the Big Rebound, regional stock markets are moving down the slippery slope again.
Traders have been wary of being suckered into another dead cat bounce, no matter how powerful it may appear to be. As it turns out, they are right.
The past two days of sharp price rises had offered investors with a great selling opportunity if they have the sense to grasp it. And I am sure many of them did.
One other observation: The regional stock markets are almost uniform in their percentage falls. Hong Kong down 5 per cent, Singapore down 3.2 per cent, Mumbai down 5.5 per cent.
Another telling sign: The Japanese yen has appreciated against regional currencies such as the Singapore dollar.
All these signals suggest that hedge funds are hard at work together, getting out of emerging market equities and changing the sales proceeds back to Japanese currency in order to pay off their massive yen loans.
So what is the trigger for the latest sell-off ?
Well, the big banking crisis in the developed world may be temporarily over, after governments from Germany to the United States raced to prop up their tottering financial giants with a slew of capital injections and guarantees on bank borrowings.
But the damage caused by the great dislocations in the global banking system over the past two weeks has already spilled over to the broad economy.
Going by the selling pattern, investors are bracing for a severe recession ahead. The dreaded R word is on almost everyone's lips.
Going forward, banks have to wean themselves from their over-reliance on the interbank markets to fund their loan commitments. There will also be strong pressure on them to protect the taxpayer cash injected to shore up their wobbly capital base.
This can only mean one thing – they will have to scale back their lending and shrink their bloated balance sheet, as they weed out the weak borrowers.
Translated into layman's terms, it means a sharp economic downturn ahead. Companies all over the world will experience difficulties getting working capital loans. As they fold up, people will be thrown out of work, and this will dampen consumer spending.
The behaviour of investors on Wall Street last night was a give-away. The Dow Jones was only down 0.8 per cent, but the Nasdaq, which tracks technology stocks, fell 3.5 per cent.
It can only mean that while investors were applauding the US government’s move to secure the major US banks, they were also worried that spending on IT will be cut back, as the banks are put on a slimming diet.
There will be less to spend on everything tech - iPods, Microsoft software packages and advertisements on Google – and profitability will be affected.
Recession seems almost guaranteed.