Banking on Collapse ~ The Risk Averse Alert

Thursday, December 10, 2009

Banking on Collapse

No solid case against equity can be diminished by modest delay in the bear's reemergence. Indeed, many months more could pass before any doubt at all might be raised about the likely fate generally awaiting common stocks. At the moment not one shred of objective evidence diminishes the probability the stock market stands at great risk of collapsing.

Come to find out, the old man of the Dow Theory — Mr. Richard Russell — agrees:
I haven’t liked the stock market. I can’t tell with any certainty at this time, but
this bear market rally could be in the process of topping out. If it is, I think we’re
in for a vicious collapse. Remember, rallies in a primary bear market are
movements against the main force or tide of the market. In other words,
during a rally, the bear forces have been held back. When a bear market rally
breaks up, the market tends to make up for lost time. That means the declines
tend to be rapid, violent and vicious. As I said, I can’t tell with certainty
whether the advance from the March low is breathing its last. But if it is —
watch out; it’s not going to be pretty.


The fact of the matter is nothing yet has developed challenging a technically-grounded view recognizing how over the past decade equity is being distributed from strong hands to weak.

Listen, if what the likes of BAC pulled this week (and what the likes of C and WFC are proposing) does not further confirm truth about an ongoing distribution, then there never was risk investing in equities. The operative word here is risk.

Clearly, BAC's record secondary offering is transferring risk from strong hands (the U.S. Treasury) to weak (equity funds). Given [still fundamentally fragile] circumstances, that is quite a leap.

Such reality plainly reveals a trading environment that's largely technically driven. The big banks — insolvent many times over — simply are taking advantage of structural arrangements in a manner much like strong hands on the NYSE have been doing since 1998 through promotion of wildly popular ETFs.

Yet underlying this trend facilitating distribution remains a fundamental condition foremost conducive to fraud and chaos. How this fact which over recent years has been made all too plain is lost in our contemporary culture of greed!

Then again, though, a short-sighted mindset has for decades become ingrained among an investor class crowded with players who simply cannot fathom the possibility of collapse. How does the saying go? Fool me once, shame on you; fool me twice, shame on me!

How few there are who apparently learned a thing from last year's experience...

Fast Money
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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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