Fundamental Stock Market Analysis, Courtesy of the BIS ~ The Risk Averse Alert

Saturday, July 05, 2008

Fundamental Stock Market Analysis, Courtesy of the BIS

June 30 – Bloomberg (Kim-Mai Cutler): “A disorderly decline in the dollar remains a possibility as losses on U.S. assets pile up and the current-account deficit triggers ‘a sudden rush for the exits,’ the Bank for International Settlements said. A plunge in the currency may happen even after its ‘remarkably orderly’ 14% slide against the euro in the past year, the Basel, Switzerland-based BIS said… ‘Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency,’ the BIS said. ‘While unlikely, indeed highly improbable for public-sector investors, a sudden rush for the exits cannot be ruled out completely.’”

July 4 – Bloomberg (Neil Unmack): “Leveraged-buyout loan defaults may be ‘significantly higher’ than ratings companies’ estimates as about $500 billion of debt used to fund the takeovers comes due, the Bank for International Settlements said. Companies bought by private-equity firms worldwide must repay the high-risk, high-yield loans and bonds by 2010... They may find it hard to raise the cash because of a slump in demand for collateralized debt obligations that pool the loans... Investors are shunning structured debt instruments such as CDOs, the main buyers of leveraged loans, after the credit-market seizure caused by the U.S. subprime mortgage collapse, the BIS said. The ability of LBO firms to refinance may be crimped further as banks tighten lending criteria after reporting $402 billion of credit losses and asset writedowns. ‘We’ve come out of an egregiously lax period in lending,’ said Jamie Stuttard, who manages $13bn... at Schroders Plc... ‘We expect an increase in defaults because of the wave of very leveraged LBOs.’”

What is the central bank of Anglo-Dutch monetarism up to? Are moves being threatened in an effort to upset the American apple cart?

Make no mistake about it. The issues highlighted by the BIS reveal the fundamental seeds of growing financial volatility we are likely to see over the next few years.

Dow 3600 is by no means absurd. The "central bank of central banks" is saying so much...

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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.

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