Call Me Dr. Doom ~ The Risk Averse Alert

Monday, February 01, 2010

Call Me Dr. Doom

Nouriel Roubini could use a lesson in marketing. Come to find out, he's sick of being called "Dr. Doom." So, fine, I'll take the moniker. The shoe fits, so I'll wear it.

Now, it might not be PC to think a mountain of debt built atop a collapsing physical economy to remain viable needs something more than mere "confidence." Yet that's not even the half of what's missing here.

Repeat after me: the name of the game is "Inflate or Die." Say it again. Inflate or Die. There is no improvement in the physical economy's performance that can possibly sustain the mountain of liabilities built up over the past couple decades. Capacity to further inflate credit securities and paper over yesterday's boo-boos (a.k.a. "imbalances") has been exhausted. So, now it all dies.

This is the arrangement many a prick to this day says needed to be saved, lest we collapse into a second Great Depression. Yet there is only one thing sure to bring on this much-feared Depression. It is allowing these pricks even the moment to make such ridiculous claims. Their "system" simply cannot be saved.

Get this through your head. It cannot be saved. There are too many vulnerabilities extending across the globe and too little physical capacity to keep the game going indefinitely.

SPX 5-min

There you see one reasonable, prospective Elliott Wave view of the S&P 500's initial fall from top. How long stocks can hold up before stumbling badly in a third wave decline quite possibly depends on how long the EU's ultimate dissolution can be forestalled.

The fact that the patron saint of Naked Emperors, St. Hank, is on a book tour pumping heresy claiming he was doing God's work at Treasury eighteen months ago or so, but leaves one to wonder what cover this fairy tale perspective ventures to make legend during the fast-approaching, next phase of the Great Leverage Unwind. No matter. The days of cheap veneer getting great mileage are fast drawing to a close.


If a third wave decline is pending (and I suspect it is), then 200-day moving averages likely will be taken out as though this technical "barrier" weren't even there. In fact, a gap lower might likely develop.

Thus, the moment appears ripe for a low-risk options play ... one presenting the prospect of turning $500 into $5k in a mere matter of hours.

The question is how long the pause here? Better sense might suggest waiting for some clear measure of technical recovery before pouncing on a position. Yet because only the weakest hands are thought long here one might better expect only a meager technical recovery before the lug nuts start falling off the market.

HEADS UP to those who have requested Trade Notification over the past month or so...

I got your message. You'll be hearing from me shortly.

Fast Money
* * * * *

© 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!