Debt Pyramid Threatens to Topple Markets

These that I've named -- and the others I haven't -- take us to the same place: an old-fashioned credit crunch that marks the turn in the credit cycle from cheap, easy-to-obtain money to more-expensive, hard-to-get credit.

When and Where?

I can point to this evidence and these big trends and say "danger ahead," but I can't tell you what catalyst will trigger a turn or on what schedule. India seems likely to hit its tough patch later this year. The Japanese yen carry trade could be unwinding now -- thanks to a legion of currency traders who all read the same technical charts and who have all started to get nervous because the charts show the yen at major support against stronger currencies and in an oversold condition.

But despite my inability to call the timing of this shift, I think you ought to be preparing for it now. The risk is high enough, and the reward of staying the current course low enough, that I think that getting cautious now is just prudent. No need to panic. No need to undo all your positions. I think there's still a good chance that the Shanghai selloff will turn into a bounce and then a limited, seasonal rally running into the spring.

I think this advice from my Feb. 21 column still stands: "If I can't find bargains right now, I'd be perfectly comfortable selling into this rally whenever a stock hits my target price. I'd certainly like to have some cash on hand as we head into the second half of the year."

But this is the time to take action, especially if a rally gives you a chance to rearrange a portfolio without taking big losses. Notice I haven't said a word about the economy. Currently it's the least of my worries.

I just wish Fed Chairman Bernanke would take some time off from reassuring investors about the economy and the short run and start flagging some of the growing longer-term risks from cheap money and complacency about risk. The Fed could even do something about the problem before it bites us all.