No Sugar Tonight ~ The Risk Averse Alert

Saturday, November 01, 2008

No Sugar Tonight

A question was asked me in comments to "401(k) Guidance From Warren Buffet, Jim Cramer, and Me" and I thought you might appreciate my response.

I was asked what do I see as catalyst for the stock market to move higher? The reader was concerned about high P/Es and the ongoing real estate collapse...

My answer deferred to a report CNBC's Matt Nesto presented on Friday, October 31, 2008.

Listen, this past week's Volkswagen short-squeeze (must read) and its impact on the German DAX Index probably is a useful case study in high-probability bullish catalysts. Let this sink in.

During the stock market's October collapse reports by CNBC's Bob Pisani from the NYSE floor frequently cited a market trading solely on "technicals" ... a market disassociated from fundamentals. Get used to this. It's the new mother nature taking over ... the new splendid lady come to call ... the trend ... your friend ... and she's gettin' us all.

I believe the mountain of Wall Street liabilities created under the rubric of "Structured Finance" (whose spread could not have been so wide-reaching without OTC derivatives originating in City of London offshore financial centers) are built upon a collapsing physical economy. Absent any concerted global reorganization geared to increase the productive capacity of sovereign economies, the current attempt to maintain the viability of derivatives-based securities ultimately will prove futile. No piecemeal attempt to address this will have any lasting impact.

Let this sink in, too.

We find ourselves operating in the midst of a new paradigm. So, put away "business as usual" thinking whose applicability once had a place in the past. It no longer offers predictive value in a highly-geared environment lacking the capacity to generate real wealth enough to honor all financial claims.

What we have now are conditions extraordinarily conducive to, first, chaos, then, blackmail. Such is financial and economic reality under the spell of a bunch of bungling monetarist monkeys...

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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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