Never Sell Into a Panic

All that changed when mortgages became "securitized" -- put into pies that were sliced into pieces, and sold off to financial institutions that were looking for a stream of income. These slices or "tranches" even received ratings from the bond rating companies on the basis that "pooled risk" minimized the potential for loss.

In effect, the idea was that spreading the risk would lessen the risk of pollution. But just like the bottle of ink, the questionable loans grew inside the mortgage securities, and spilled into the waters of the credit markets. Now it will color the balance sheets and earnings statements of a broad array of institutions, ranging from domestic mortgage brokers already in bankruptcy to large U.S. financial institutions and now global banks.

In fact, the pollution is now being "diluted" by the world's central banks, ranging from our Federal Reserve bank to the central banks of Japan and Canada, which are busy pumping in more credit to the system to wash away the stain of those bad loans that are rising to the surface of credit portfolios like dead fish in a polluted pond.

The immediate impact is to alleviate the crisis. Interest rates on the safest securities are already falling. One day, all this newly created credit will have the opposite impact -- raising fears of inflation and thus pushing U.S. interest rates higher. But that's for later. Right now, it's a rush to the security of the highest quality. And that's defined as short-term Treasury bills and notes.

Having a portion of your investments in "chicken money" gives you the courage and discipline to ride out the volatility of the stock market. Remember, market tops -- and bottoms -- are made by people acting irrationally out of emotion. And that's The Savage Truth.