It is becoming more and more excruciating trying to formulate some common sense of what’s happening in the financial markets these days. Ironically, whenever I get closer to what I believe to be true interpretation for that day, the next day negates all rationality and logic. What a difference a day makes.

The credit crisis had an unsettling effect on economies worldwide leading to a dramatic drop in global growth not for this year, but apparently for the next year and may be longer. The year 2008 will go into history as the year everyone wanted to forget or to remember as the year when the credit crunch went out of control leading to a recession that could possibly be a long-lasting one. Hence, no time to relax!

This dismal economic outlook presents enormously tricky challenges to both: Financial strategists and politicians as both have essential interests in finding potential solutions. The problem is however that most share a questionable and shaky credibility. As usual, John Doe ends up paying for all the mess they created. It is a question of confidence, not only in these people, but in the system itself. If banks are not lending each other due to lack of surety for repayment on time, how one would expect the public to trust them!

Over the past two months and since the debacle of Lehman Bothers, so much noise and actions seen around the world with concerted efforts to rescue the banking system and, still, credibility remains in the lost-to-be-found department.

Without delving in the obvious scenarios that covered world newspapers and magazines in the past few weeks, let me elaborate on where we are and what to expect from this bizarre situation.

Frankly and the way I see it, the Federal Reserve Bank has a choice: Either do nothing and let the economy, including major world economies, slide into the worst recession since the 1930s, or just do whatever it can and hope that problem will just go away. They opted to take actions, but the problem is not going away. One should not dismiss the concerted intervention from other central banks that was designed to restore much needed confidence. However, that did not alleviate the fragility of the stock markets and, as a consequence, shares continued to tumble across the trading boards.

Truth is, in my 25 years in private and investment banking; I have never seen such a frightening global scenario where bankers almost giving up on the banking system, more banking breakdowns, failing money market funds, rising inflation, and panicky investors: All happening simultaneously.

Every week we witness few nasty surprises, shocks and wake-up calls. The fear factor is predominant everywhere and the mixed messages we are receiving from the politicians and economists are creating more fear than reducing uncertainty. That explains why investors are more anxious than ever to sell during market rallies and get the heck away from the risk.

So, what’s next?

Let us assume that the trillions of dollars bailout by collective governments will have a positive impact, which I remain skeptical about, when would we see real reversal in this crisis? Timing and, until we grasp the tangible evidence that this is happening, uncertainty and volatility will prevail. Until then, risk-aversion is paramount to prudent investors waiting for the right moment when a turnaround in market sentiments and trends occurs.

Finally, and until then, I advise investors to make sure they have a strategy for actually making money in crashes and bear markets. Work with professional investment managers who combine ultra-conservative investments with hedges to give both relative safety and profit opportunities in their portfolios.

Your decision and action today will determine your future wealth!

(Habib F. Faris {[email protected]} is the CEO and managing director of FinaVestment Ltd., London.)