The matter is still unsettled. Has the tide turned or not?

We're watching the beer bottles and Coke cans. Floating on the surface, they should tell us what way the water is running. But they seem to be uncertain themselves; caught up in eddies and backwashes, it's not clear which way the trash is going. And the stock market still can't make up its mind.

Subprime mortgages…and the garbage investments derived from them…clearly seem to be ebbing away. And they are taking with them many of the brightest profits, reputations and careers on Wall Street. Many executives have already been set adrift. Hundreds of billions in losses have been booked or projected. The masters of the universe don't look quite as smart as they did a few months ago.

Ah, yes, let us recall the geniuses at private equity. When the tide of global liquidity was at its peak, no boat floated higher. But as Marx observed of capitalism in Das Kapital, we observed of private equity in The Daily Reckoning - private equity would be undone by its 'internal contradictions,' we said.

It didn't make sense. Individual investors can surely outsmart their brethren from time to time. If they get lucky…and do their homework…they might find a company that "the market" has mispriced. But the idea of private equity was that large, sophisticated investment companies could do so consistently. Private equity firms pretended to be smarter than everyone. They could find valuable assets where the millions of other investors had missed them… But their conceit didn't stop there; they then pretended to find ways to improve the businesses they bought - making changes that, somehow, previous managers had been unable to see or unable to implement.

What bread did these private equity geniuses eat? What air did they breathe? How did they get to be so superior that were not only able to spot undervalued companies better than anyone else…but to run them better too?

And for a while, it almost seemed to be true. Private firms bought companies from the public, pimped them up, loaded them down with debt, and sold them back to the very same public market investors.

And then the absurd pretensions turned into preposterous contradictions. Private equity firms turned to public market investors and offered to sell them shares! 'We are so much smarter then you,' they said to the public markets. 'But we will give you a way to participate; we'll let you buy shares in our business.'

What was this? The privateers were going to take the public's money to buy companies from the public markets so they could squeeze the juice out of them and then sell them back to the public. How long could this go on? Not long.

Just as we predicted, as the private equity demi-gods stepped out on the water…they sank.

"If buyout firms are so smart," asked a New York Times headline, "why are they so wrong?"

What they are wrong about is the very thing they're supposed to be good about - making deals. Since the summer, the deals have been coming apart. The buyout experts are no longer buying in. Instead, of buying out…they're walking out, giving up on the deals they thought were so good. Cerberus, for example, is giving up a $100 million deposit rather than have to go ahead with its $4 billion acquisition of United Rentals (NYSE:URI).

"Circumstances have changed," say the private equity firms.

They're right about that, at least. Trouble is, anticipating a change of circumstances is what you're supposed to do in the financial markets. Good deals are supposed to be able to survive changed circumstances…because circumstances are always changing.

Think of the poor turkeys! No, we're not talking about the private equity boys, or the subprime lenders. We're talking about the kind of turkeys with feathers. Things have been going pretty swell for them too. They've been eating well…they live in nice, dry, warm digs…they even get free medical attention. The turkeys' lives have been all upside. Things have been getting bigger and better, day after day. And then, what do you know? This week, the whole picture changes; circumstances change dramatically in most turkeys' lives.

We have a feeling that circumstances have changed in a major way for most investors too. The tide has turned, we keep saying. But with so many currents swirling around, it's hard to know for sure.

While the masters of the universe don't look quite so masterful, the wage slaves are getting swept out to sea. They're trying to keep their heads above water, but their chains of debt are getting heavier and heavier. Auto sales may fall to a 15-year low by the end of 2007. In San Francisco, builders are offering discounts of as much as $150,000.

Meanwhile, on the East Coast, Senator Chuck Schumer says NYC is falling into the "black hole of a housing recession." Manhattan itself still has plenty of money. But the kings of Queens are suffering foreclosures at a rate 69% higher than last year.

The "economy is on the edge," says Business Week.

"The market is trying to sort out a lot of things right now," Capital & Crisis' Chris Mayer tells us. "The subprime worries certainly have hit the financials. There is any number of spillover effects. Many firms tied to housing have seen their stocks crushed. There is a looming slowdown in the U.S. economy. Profit margins are under pressure. And we have all this occurring during a time when the market averages are on the high side, as far as valuations go.

"So the market is rocky as heck, and many stocks in the resulting confusion will get tossed out with the rest. Losses beget losses, to an extent. People pull money out of their mutual funds, and then the mutual funds have to sell things, whether they want to or not."

However, all is not lost, according to Mr. Mayer.

"Ironically, though, this is exactly when you should be willing to stomach the volatility and pick up those overlooked bargains.

"Reading the shareholder letters of successful investors is one of the things I like to do regularly. In the last round, after the mini-meltdown in August, there was a common lament. People pulled their money out of these funds just as the money managers finally found something to buy!

"Fearful investors irrationally sell when prices are down. For the typical investor, it hurts his or her returns. It's why investors usually don't even enjoy the posted returns on their mutual funds. Because they take out the money when the stock market goes down and they put it back in when it goes up. They try to time things, and they inevitably miss tops and bottoms and again and again. Research shows time and time again that the typical investor trades too much.

"I'm not sure what your individual situation is, but I feel safe in giving you the broad advice of not selling a stock just because it is down in price. Likewise, don't buy it just because it's gone up. And remember that times like this get very confusing. The market prices you see are not the rationally well-considered prices of informed and calm participants.

"The dealmakers, those fellows who buy and sell whole companies or big stakes in companies, are not selling today. They are buying. Importantly, they are buying not the market, but specific stocks."

"No, this time I think we're headed down…" We were having dinner with the staff of MoneyWeek magazine. Its editor, Merryn Somerset Webb, was explaining why she thought the tide really has turned. "This time, they're trapped by the dollar. The world has shown it is ready to dump the dollar. They can't increase liquidity they way they used to."

Property in England is going down. Retail sales in the United Kingdom just went down, for the first time in 9 months.

In the past, each time we approached a correction, the Fed has been able to use monetary policy to increase the world's liquidity. They cut rates and made money easier to borrow. Meanwhile, the foreigners were willing to take dollars, hold them, and lend them back to the United States at low rates. Foreign central banks bought up dollars, printing their own currencies to make the purchases. The result was that there was always a lot of cash and credit available.

But everything comes to an end - bull markets and credit expansions too. Until now, when things began to fall, we got a new wave of inflation to lift them up. And each time, the dollar held steady. Sometimes, it even rose. But now, the world has had enough of dollars. When the Bernanke Fed cut rates, global investors signaled that they would leave the dollar and take refuge in other currencies, gold and commodities. Another rate cut will be dangerous.

Oil producers are already discussing, soto voce, pricing their goo in other currencies. The Saudi foreign minister let the cat out of the bag in a private discussion that inadvertently was broadcast to the press room. If the world knew we were talking about abandoning the dollar in the oil market, he said - or words to that effect, it might cause the dollar to collapse.

Well, now the world does know. And in India, the tourist board has gotten tired of watching its dollar receipts fall in value - against the rupee, no less. Henceforth, it said, visitors to the Taj Mahal and other tourist sites must have rupees to gain admittance.

Bloomberg reports that that old sage, Alan Greenspan, says the decline of the buck has no "real impact." Obviously, it depends on how far down the dollar goes.

As near as most Americans can tell, the fall of the dollar is a good thing. The United States is going to enjoy an export boom, say the experts. What does that mean? More on this tomorrow…

Another update on the situation at the Sorbonne. Elizabeth reports:

"It's crazy. Still, we don't know exactly what the protesters are protesting…but they hold meetings and shout down everyone else. And then, they block the doors and get into fights with the students. Yesterday, I got trapped inside, with a group of other students. The two guards wouldn't let us go out. They didn't want to open the doors because they were afraid the protesters would get in. One of the students, an older woman, insisted on leaving. They still wouldn't open the doors. 'What right do you have to keep us in here?' she yelled at them. They ignored her. Then, she tried to push by them. One of them got very angry and pushed her back; I thought she was going to be injured. I have never seen security guards act so aggressively.

"Then, I was trying to get into another class. There, the doors were shut too. But I noticed the professor standing in the middle of the street. We all went to a café across the street and had our class there."

We spent only a couple of days in Ireland. Only long enough to get wet. But here with a brief update:

"Even here in Ireland property prices have begun to ease off," said a friend. "Probably no nation gained as much from the property boom as Ireland. Prices soared. Dublin is said to be more expensive than London.

"Of course, we invented lots of reasons why property was going up so much. It's a small island, people would say. Or, there are so many foreigners coming over, they would say. There was some truth to these things…but the real reason was that we could borrow at much lower rates after we went over the euro. Instead of paying 12% for a mortgage, we were paying only 6%. It's amazing what that will do to property prices.

"The Irish got so used to spectacular property price increases that they don't want to give up on them. In downtown Dublin there are shops that sell property in Croatia and Portugal. If property prices in Ireland aren't still going up…they'll try to find somewhere they are."

Often people are better off being poor. That is the thought we always have when we visit Ireland. Its big new houses are monstrosities. Its shopping plazas blemish and curse the land. Its slick new wine bars - with their Polish barmen and Czech waitresses -- offer little of the charm of its own pubs.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.