Look up, dear reader. There, over The Sound Of Cannons headquarters, in rural America- is our Crash Alert flag...flying proudly. Why bother? The stock market looks healthy. The problem in the housingmarket is "contained" in the subprime sector. And M3 is growing at 13% perannum - the fastest rate in 30 years. With all that new money coming intothe system, how can prices do anything other than float higher?But the risk of loss is always at its highest on the precise moment thatmost people judge it of least concern. Most likely, there will be no crash tomorrow...nor the day after. But there are some things you are better offpreparing for, even though they may not happen for a while. When money and credit are free and easy, people become free and easy withthem. They begin spending more than they should...and investingrecklessly. Eventually, there is a shock...a tipping point...a moment ofdesperate reality, in which people feel the ground give way beneath theirfeet. They look down and panic. What kind of a shock? It could be almost anything. Sometimes it is awar...sometimes a bankruptcy...sometimes a market shock - such as a suddenincrease in the price of oil...or the collapse of a stock market. Theninvestors, as if they shared a single mind, begin to worry not about thereturn ON their money; they are concerned about the return OF their money.What could cause a shock today? Any number of things.1) The Chinese stock market is getting hit hard. Its CSI 300 Index is down17% in the last three weeks. Brokerage account openings have dropped bytwo-thirds. Could global hot money...and local cold cash...turn bearish onChinese shares? Could Chinese officials say something particularly stupid?Could the market fall another 20%...50%? Could this trigger a worldwideequity sell-off? Yes to all those questions.2) The dollar is in trouble. On Wednesday, it hit its lowest level againstthe pound (GBP) in 26-years. It is now near its lowest level ever againstthe euro (EUR). Trillions worth of dollars now sit in foreign vaults -while reserve managers openly talk of diversifying away from greenbacks.Foreigners don't have to abandon the dollar en masse to knock itdown...all they have to do is to let up on their purchases ofdollar-denominated assets - such as U.S. Treasuries. Could it happen?Could the shock cause a crash in major financial markets?Why...yes...again.3) All paper currencies are dangerous. The dollar is not the only papercurrency in the world whose supply is growing rapidly. Practically everycentral bank is printing up its own money in vast quantities - trying tokeep up with the U.S. brand. This is why the world has so much"liquidity." It's why so many assets are rising in price so steeply. Butcould investors suddenly become fearful of so much monetary inflation?Could consumer prices shoot up...as asset prices already have? Could theworld's people want to get rid of their paper currencies in favor of otherstores of value - notably gold, as The Wall Street Journal warns in anarticle entitled "Money Meltdown"? And could this lead to a worldwidecrash? Yes...yes...yes.4) A Milan-based bank, Italease, has just seen its derivative portfolioblow up. So has Bear Stearns (NYSE:BSC). Large lenders are gettingskittish of complex debt instruments...just as more deals than ever beforecome to market. So far this year $1 trillion in deals have been done inthe North America - a rate of deal-making nearly 50% higher than the yearbefore. What happens if the wheeler-dealers don't find the credit they'relooking for? What would investors think if even one of these mega-dealsblew up badly? Reports Bloomberg: "The world's biggest bondholders have had their fill ofleveraged buyouts..."TIAA-CREF, which oversees $414 billion in retirement funds for teachersand college professors, is boycotting some debt offerings used to financeLBOs. Fidelity International, a unit of the world's largest mutual fundcompany, and Lehman Brothers Asset Management LLC, the money-managementarm of the third- biggest bond underwriter, say they're avoiding debt frombuyouts."You cannot do fundamental analysis and believe that those arecreditworthy companies," says an analyst."More securities than ever have the lowest rankings, with CCC ratingsassigned to 26.5 percent of the new debt, according to New York-basedFitch Ratings. That compares with 15 percent in 2006 for debt that Fitchsays has a 'high default risk.'"Traders demand 3 percentage points in extra interest to own U.S. junkbonds rather than government debt, compared with a record low of 2.41percentage points on June 5, Merrill Lynch & Co. index data show. That'sthe fastest increase in spreads since April 2005, just before GeneralMotors Corp. and Ford Motor Co. lost their investment-grade creditratings."Meanwhile, the Bank of England raised its key interest rate on Thursday bytwenty five basis points to 5.75 percent - another six-year high. This isthe fifth time this year. The ECB's Trichet held steady this month buthints that rates will go up in the future. Elsewhere, banks are likely tohike rates too. And watch out if the Chinese decide to do some serioustightening.Could there be even bigger blow ups waiting to happen? And could theycause a stampede for the exits? Anthony Bolton, Britain's most successfulfund manager, worries about it. So does the Bank of InternationalSettlements. And so do central bankers in Madrid, London and who knowswhere else. And if the pros stop lending so freely, mightn't it trigger acredit crunch...and a crash? Why, yes...now that you mention it.5) The great millstone of housing debt continues to grind America's middleand lower classes. The LA TIMES: "Slow job growth and declining home prices are causingfinancial problems for more Americans, who are falling behind on consumerdebt, including home equity loans, at the highest rate since 2001, theAmerican Bankers Assn. said Tuesday."Credit counselors said consumers were paying the price for recklessattitudes about debt fostered by years of easy credit, particularly in themortgage market."'It's a monster we all created,' said Todd Emerson, president ofSpringboard, a nonprofit consumer credit management organization inRiverside."Let's see, Chinese companies depend on consumer buying fromAmerica...which depends on U.S. consumer spending...which depends onconsumer credit...which depends on mortgage lending...which depends on asecondary market in mortgage backed securities...which depends on risinghousing prices! But housing prices aren't rising; they're falling. Could housing prices go lower? Could lower housing prices cause consumersto stop spending so much? It seems so. The sale of light motor vehicles inthe United States dropped 3.4% month-to-month in June to a seasonallyadjusted rate of 15.6 million units, according to Northern Trust's PaulKasriel. A number of retailers have lowered sales guidance as buyerstighten their belts. Could an attack of consumer thrift one day swarm over financial marketslike Japanese bombers over Pearl Harbor? Your guess is as good as ours,dear reader.Will there be a crash on Wall Street today? Will the Chinese economicbubble find its pin? Probably not quite yet. But we will keep our eyesopen anyway...and keep our ear to the ground for you.