A GDP Groundhog Day Lacking Bid Productivity

If the bad boys about to be spanked should first require conviction, today delivered all the dirt any decent observer could ask for. Yet rallying stocks for productivity gains realized as a consequence of a deepening entrenchment of an arguably fascist labor policy is more than just poor taste. It rather aptly displays arrogant confidence emblematic of blindness to the fact that no productivity gain can offset the financial system's loss of capacity to inflate credit securities ad infinitum.

The name of the game every step of the way higher these past twenty years or so was "Inflate or Die." The game seemed pleasant during its rise, when turtle turd could be securitized and sold to unsuspected saps in Iceland for a nice fee. Yet now in the fall comes fantasy the game should be changed to one called "Controlled Disintegration?" Sorry, but that will be impossible!

You see, unchecked leverage brings its own unique problems. By its destabilizing impact the worst in humanity is encouraged. Today's celebration reveals this tendency in a rather insidious way (with folly made vogue but icing on the cake). Still our crisis is barely begun.

Forget not how a prior day's fright, momentarily brought delight, still is vulnerable to a bigger scare still. This, my friend, is the trend, now applying to both the short- and intermediate-term...






My how quickly yesterday's oversold has become a precarious technical balance. Alas, this also is occuring on the decided sell-side of various McClellan measures ... following a period during which momentum markedly weakened.

Duly note, too, NASDAQ's leadership into the negative. NASDAQ's McClellan Oscillator already has taken out its March '09 low and its Summation Index continues diving deeper under water.

NYSE and NASDAQ McClellan measures, considered seperately and together, reveal technical conditions just as you might expect them prior to the stock market's gassing.




Faith waxes eternal in the Dow 30, supporting the Industrials Average like a champion. Funny how since top these select issues compared to the broader market should be judged relatively more desirable, and held more tightly rather than sold in equal proportion. This holding to the widely held suggests there is a cautiously bullish consensus wary of taking excessive risk.

Now, what do you suppose might become of this consensus were unceasingly building technical weakness across the broad market — weakness still growing — suddenly (and at last!) threatening a nasty bout of price pain? Why I think said consensus wary of taking excessive risk might cause an avalanche!




Standing out today is RSI divergence from yesterday's a.m. peak. Today's monster 15 points in 15 minutes $SPX short squeeze out of the gate failed to generate any significant relative strength follow-through. Oddly enough, too, today's trade seen in relation to its coincident RSI performance bears significant similarity to last Thursday's GDP celebration, this by way RSI held to the buy-side all day.




Yet note how today's volume was lighter than last Thursday's. How can this be? Improving GDP, and now productivity, and this is met with fewer bids? Seems today's reinforcement of last week's positive should have brought greater interest in stocks, not less.

If money talks, then there appears little left to keep the stock market levitated much longer than another minute or two.

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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Treasury Secretary Warren Buffett Anyone?

Any ideas on what Mr. Buffett might haul with those trains of his that could make BRKA's 50x multiple look cheap?

How about right-of-way for the next leap forward — maglev. I want to give his faith in America credit. Billions of dollars do not buy the spirit of consensus making America unique among all nations the world has ever known. Rather we all play a part in this. We are all part of the shape of things to come. This, indeed, is power of a free people.

So, maglev needs nuclear power and a lot of it if it's to go coast to coast. It is assumed all railroads would benefit with this sort of national upgrade built on a crash basis. A full build-out of a nuclear-powered maglev system ensures the gap between Buffett's eternal fair value accruing to BRKA long after he is gone and our nation's gained productive power is so huge as to make a state-of-the-art infrastructure upgrade such as this beneficial to all — indeed, a classic "no brainer."

I mention this because Mr. Buffett's assumed fundamental intent buying BNI is to protect the core value of his BRKA shares for posterity, particularly given present risks. He did in fact once say derivatives were weapons of mass destruction ... and now he is walking the walk ... grabbing core value long likely to serve up cash consistently while the already dead wildcat finance inexorably leads what remains to further fall victim to the global economic plague simultaneously begun with last year's collapse in the exchange of goods and services.

Yet Mr. Buffett also expressed faith in America. And you know, he is not a stupid man. Surely, he realizes this faith, though representing the will of many (if not all humankind), has had its standard-bearers who were instrumental in making this nation's ultimate potential a tangible reality at critical moments throughout its history.

And so imagine Mr. Buffett's legacy were he to become Treasury Secretary, reconstituting the Bank of the United States charged by Congress to cheaply finance projects (loans at 1-2%) necessary for the build-out of standardized, fourth generation nuclear power plants and a national magnetic levitated train grid, serving the good of not only BRKA shareholders and their business interests, but also the greater good of all Americans and their posterity.

This my modest, business-minded proposal, uniquely sensitive to American history, is given in thanks to Mr. Buffett for yesterday roaring load and clear, "This is a serious, serious bear market you stupid box of rocks!"

(Like I said you could see this understanding yesterday in the faces of those closer to the Street. They heard of it the same way I thought of it, and they didn't need to say a word to speak of what they sensed. Their tense commentary said it all.)

On to the stock market's technical condition...




Just a few days ago I thought it likely 5-minute RSI would push up near a buy-side extreme and this would set the stage for a thud...

Wha la!

You gotta like those lower $SPX highs and higher coincident RSI highs. This, again, reads the lower she sinks the more positively the buy-side believes it's time for turnaround. Such fearlessness is prerequisite to building a bull trap ... and this one here is but a tiny sampling of an enormously bigger bull trap built since March '09 bottom. The technical case made over recent months supporting this view has been and still is rock solid.

The extent of this week's comeback advises the Elliott wave count you see above. You see quite typical RSI behavior accompanying each wave in this initial move down from top, right along lines I was originally anticipating (before suspecting a "running correction" was forming in wave ii position). And now ... RSI exceeding its best reading at top — classic 2nd wave behavior — was all the more reason to press my UltraShort ETF position and jump on a couple dirt cheap November OEX 460 Puts, as many of you already know.




From top to bottom ... loving daily $SPX RSI trapped on the sell-side of its balance (i.e. below 50) ... $SPX languishing below its 50-day moving average ... volume's increase as $SPX fell from its recent top and volume's contraction during this week's bounce ... and momentum (measured by MACD) falling to the sell-side of its balance with plenty of potential momentum loss remaining to account for the gassing I believe is coming right up.

(Engaging Word on the Street today ...
that is beyond the first 5 minutes
listening to an incessant voice in my
head saying, "Cisco's John Chambers
was last year and still is oblivious
to the risk of systemic collapse.")

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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In BNI Buffett Agrees Equity Soon is Dead Money

Today, November 3rd, 2009 - a date which will live in financial infamy - the asset class called equity was suddenly and deliberately swapped for a capital-intensive physical asset by the Empire of Omaha. Why?

(I hereby submit a motion recommending that, with ownership of a major American railroad, the former "Oracle of Omaha" from hereon be known as the "Emperor of Omaha.")

Why does not Buffett average his BNI cost over time? Why suddenly grab the whole thing? (And pay a fat premium no less!)

One wonders whether many investment bankers tonight will be doing some serious crunching of numbers, or whether the premium Buffett is offering BNI shareholders is his way of saying, "Don't bother."

And about Buffett's ballpark $35 billion commitment ... in the day when wildcat finance ran full throttle and made for easy profits in core BRKA businesses (not that the two necessarily are related), how many other ways might a sum this great be invested?

Why grab full control over a core physical asset of the U.S. economy, extraordinarily capital-intensive though it be?

Might this be how a billionaire investor best insures his legacy's posterity given the risks present today?

Buffett's equity is currency ... and with that currency there's apparent urgency to secure something likely to possess lasting, wealth-producing value.

URGENCY.

Why not wait for the possibility BNI's shares might go on sale?

Because there's an equal possibility BRKA shares might be marked down harshly, too. And what then might this equity buy? Who knows!

Everything's Zen? Everything's Zen? Buffett don't think so. He's grabbing what he can while his just as grossly overpriced equity still has great currency.

And what did he do to bolster this, his equity's currency? A 50-1 split in BRKB, making it as easy as pie for every living sucker to own a piece! Said suckers are those who believe Mr. Buffett's "faith in America" is his primary motivator for buying all of BNI. Trouble is it's not.

No doubt, BNI likely will help preserve the long-term book value of BRKA. That's Buffett's prime motivation. And this comes aware there might be awful years in the rail business ... and possibly awful years upon awful years to endure. Yet despite this, Mr. Buffett went all in. The prospect of losses, likely or not, plainly is endurable ... because in fact it is reasonable to have faith in American progress.

It is hard to disagree with this position he has taken. Surely Mr. Buffett accepts the possibility of enduring losses should the rail business falter. "Faith" is its faltering won't turn fatal. Seems likely it won't.

I submit that, like me, Mr. Buffett recognizes equity is grossly overpriced and fears his, too, might soon become dead money. This, I believe, is the yet untold story behind today's big news. I would only add that some silent sense of this does appear evident among various observers. The realization that Buffett's move is not necessarily bullish for stocks in general — though largely unspoken — does not appear far removed...

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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CYA

"The big risk we face now is that banks are going to over-correct and not take enough risk ... We need them to take a chance once again on the American economy. That's going to be important to recovery."
—Treasury Secretary Timothy Geithner, Meet the Press, NBC, 11/1/09

Inflate or Die. Even the Treasury Secretary knows this. With this statement, too, is inferred claim that, were the economy to collapse, the cause would be beyond Treasury's power and ability to stop. Here in the trenches this sort of pronouncement is better called "CYA."

So, where is the Congress? Fixing barn doors about twenty years too late, while at the same time fixing to gouge grandma, pretending wild horses long-escaped can be enticed back to the ranch with a fat insurance "industry" bailout. In other words, matching Treasury's CYA ... fantasizing that with revelation pigs can fly, so too can health care "reform."

The Romans may have known how to put on a circus, but did they ever entertain the masses with such a full house of clowns? There's but one way these days U.S. leaders appear ahead of the curve: CYA. They got it down.




And where fanciful thinking meets as luck would have it... wave 2 of iii (of an initial five waves down from top on 10.23.09) might see a lift something like what's drawn above. And if not that, then wave 2 of iii might form another "running correction" like wave ii, but with an even greater downward bias.

Given the trend thus far in this initial leg down from top, a rally lifting RSI toward extreme buy-side readings (near 80) might unfold just prior to wave 3 of iii sweeping upon the scene in a flurry of selling.

The tour of various technical readings presents a picture reminiscent of the latter half of February '09 ... just prior to a third wave of a third wave unfolding (wave 3 of c of B of (B)). Thus, what in some circles probably is perceived an "oversold" condition presently is instead seen revealing the greater depth to which underlying weakness is come, suggesting the floor under the market — weakening for months — has been transformed into thin ice holding far too many capital-starved pigs above.

Any bull, then, should take a cue from Treasury and Congress...

CYA.

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!

Trick or Treat, Wall Street

Breaking news on NASA's search for benevolent life on Mars willing to back the U.S. Treasury!

About halfway through the following video footage comes shocking revelation that, members of team bailout, hoping to avoid terrestrial scrutiny, have taken to the cosmos only to be condemned by a newly discovered life-form for what they truly are...

Bulls make money...

Bears make money...

And now comes the rest of the story.

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

There's an easy way to boost your investment discipline...

Get Real-Time Trade Notification!