In thinking about current market trends, it occurs to me that the market may be at a fundamental turning point. To profit from the change, consider investing in energy services and selected Asian equities.

For years I have been railing against the rapid growth in borrowing to buy assets which have risen in price. I rail against this because of my experience dealing with the aftermath of such cycles of borrowing to buy assets which rapidly appreciate in price.

In the early 1980s, I consulted to the FDIC – helping it build a system to track the bank assets it acquired from banks in Texas and Oklahoma which lent too much money to finance oil and gas drilling as well as commercial real estate. At the end of the decade, I worked with Bank of Boston helping it to clean up the aftermath of too much lending to LBO firms and commercial real estate developers.

What happened in both cases was that asset prices rose initially without excessive lending. However, when reports of profits made from buying low and selling high spread from the country clubs to the newspapers, more people wanted to jump into the game. And banks – happy to earn fees for financing the deals – lent money to people so they could also participate in the money making.

Since the lenders got bonuses based on the revenues they generated, they were less concerned about whether the borrowers could pay back the loans. There was no evidence of a problem when the loans were made. They were making big bucks and default rates were low. So why not ramp up the lending even more? Unfortunately, in so doing, they lent money to people and deals which had a lower prospect of paying back the debt.

And then something happened. A deal went bad. Other lenders got nervous. Banks started to increase their reserves for bad loans and turned on their borrowers – looking for reasons to force them to pay back their loans immediately.

The resulting credit crunch threw assets on the market at a cheap price as lenders foreclosed on their collateral when they found that many of these borrowers could not come up with the money.

Timing the top is always a challenge but clearly the pattern has repeated itself in the last several years. The rapid growth of the housing and private equity businesses have been financed with cheap debt. The subprime mortgage business has been collapsing since last fall and The Bear Stearns Co.'s (NYSE: BSC) is taking a hit due to its hedge funds which invested in securities backed by these weak credits.

In the last week, several examples of credit tightening in the private equity business came to light. For example, according to the New York Times [subscription required] U.S. Foodservice, a unit of Royal Ahold postponed a planned sale of $650 million of senior notes on Wednesday; the securities were intended to finance a proposed buyout of the company by KKR and Clayton Dubilier & Rice.

Simply put, the adjustment of the private equity industry may lag that of subprime mortgage industry. But that adjustment seems to be happening.

Meanwhile, in the first half of 2007 the stocks in The Cohan Letter have returned almost twice (+11%) the S&P 500 (+6%). Two categories of companies seem to be doing well – those related to oil exploration and production – an offshore drilling company has boomed -- and those benefiting from growth among the U.S.'s biggest lenders – Asian companies – a Korean steel company and a Chinese education company have done particularly well in recent months.

Maybe investors are shifting their funds from the industries adjusting downwards – the Blackstone Group, LP (NYSE: BX) IPO currently trades below its offering price -- to these growing ones.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.