I EXPERIENCE a sense of deja vu as I survey the carnage in regional stock markets today.

I had a commentary published yesterday in which I made the observation that the global credit crisis resembled a guerrilla war. 

It is tough to figure out who the enemy is or where he is going to hit next. Even though the global financial system has been drenched with plenty of liquidity, each time a financial fire-storm is doused, an even more intense blaze erupts. 

This morning, there was that familiar sinking feeling that we had to get ready for another wild swing back into the red again.  

Overnight, the exuberance on Wall Street had evaporated, as the glee which greeted last week’s bailout of troubled lender Citigroup was replaced by fear that none of the actions taken so far by the US Fed had stopped the giant US economy from spiraling into recession. 

Regional bourses predictably went into a knee-jerk selldown. Tokyo’s Nikkei has fallen 4.6 per cent in early trade, while Hong Kong’s Hang Seng has slipped 4.3 per cent. 

The Straits Times Index, which hadn’t gone up by a big margin in the first place when Wall Street was in a celebratory mood last week, is down 1.6 per cent as I blog. 

Wall Street’s 680 point plunge – which rivaled October’s selldown in ferocity – marked the end of the longest bear market rally since Lehman Brothers collapsed in September.    

Still, I am not surprised by its demise. 

Last week’s rebound in share price was partly caused by short-sellers covering back their positions after a slew of positive news - Citigroup's bailout, European economic stimulus measures and China's interest rates cut - pushed global stock markets higher. When they were done with their purchases, prices would have to fall back to their naturally depressed levels. 

More and more traders are also coming to the conclusion that the structure put in place by the US government for bailing out Citigroup is flawed and may create new problems. It is an issue which I hope to tackle in a future blog entry.

This explained why there was such a ferocious selldown of financial stocks last night. 

European banks were whacked by a 30 billion euro bailout of a German lender BayernLB, while worries over growing credit card defaults in the United States were giving investors fresh jitters over US financials. 

Investors are also having to come to terms that it may not be a bed of roses in China either. Its latest purchasing manager index data is dreadful, suggesting that its mighty manufacturing sector is shrinking. 

And if the strength of a currency is a barometer of the faith which investors has in a particular country, then China must be suffering an crisis of confidence right now, after the yuan posted a record one-day fall against the US dollar yesterday.

I recently wrote that every step we took going forward would be a step towards recovery. It will be a long and difficult road ahead alright, full of pot-holes and unexploded minefields in the financial system.