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[XLF  Loading...      ()   ] were down as much as 3% on Wednesday on downgrades and mounting concerns of further losses. According to Merrill analyst Richard Bernstein the credit crisis is “far from over.”

“Investors are significantly underestimating both the scope and the extent of the credit bubble and the consequences of its subsequent deflation," he wrote in a note to investors. "The problems are not confined to large institutions that are overexposed to U.S. subprime loans.''

Strategic investor Bill Fleckenstein agrees with that analysis. (You might remember that he’s known for making money by shorting selling.)

“If you take a step back from all the hype,” Fleckenstein says on Fast Money, “the problem in the financials is too much leverage.”

He sees the current credit crisis as a multi-layered issue centered around “mortgages that are larger than the house price, supported by people who can’t afford them.”

If you’re looking for a trade Fleckenstein says, “I would initiate new shorts in financials positions because the process has not played itself out.”

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Trader disclosure: On Aug 13, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AAPL), (MER), (MSFT), (TSO); Seygem Asset Management Owns (FCX), (PCU), (DGP); Seygem Asset Management Is Short (HBC); Macke Owns (MSFT), (WMT), (COST); Jon Najarian Owns (C), (JPM); Jon Najarian Owns (AAPL) Calls, (TSO) Calls, (USO) Calls, (BGG) Puts; Jon Najarian Owns (XTO) Calls; Jon Najarian Owns (FCX) Calls

Terranova Owns (AAPL), (RIMM), (SA), (VLO), (KOL), (NOV), (X), (FCX), (CME), (GOOG), (POT), (EOG), (BNI), (IYT), (XLF), (YHOO), (INTC), (SU), (GS); Terranova Is Long Crude Oil December 2012; Terranova Is Short Crude Oil December 2008-December 2012 Time Spread

Terranova Is Chief Alternatives Strategist Of Phoenix Investment Partners, Ltd.; Phoenix Investment Partners Owns More Than 1% Of (ABD), (ARE), (BRE), (CNTY), (CLB), (OFC), (DLR), (ESS), (EXR), (FL), (IAT), (IGE), (LNET), (MAC), (OIIM), (PSPT), (DBC), (DBV), (SLB), (SKT), (BLV)

Terranova Is Co-Portfolio Manager Of The Phoenix Diversifier PHOLIO; Phoenix Diversifier PHOLIO Owns (IGE), (DBC), (DBV)

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