Swaying to the Beating to Come ~ The Risk Averse Alert

Wednesday, February 01, 2012

Swaying to the Beating to Come

Here at the doorstep of expanding war and/or debt default we find in the face of continuing systemic stress a general acceptance of hyperinflationary policy, and this apparently in belief catastrophic collapse is forestalled by it. Despite this persisting policy acceptance, though, we should also remind ourselves that, hyperinflationary fuel has been added to the fire only in moments of extreme duress. Then, too, that as more fuel has poured forth over the past three years, the banking system's troubles only have multiplied.

Indeed, last I heard, the ECB's December LTRO was not having the desired effect of restoring intra-bank lending in Europe. So, now, by non-solution, too, do the banking system's woes compound. Yet still in our midst is the face of generally accepted hyperinflationary happiness.

Now, the dance steps here in focus help shed light on what's to come, as the stock market has been swaying along in a well-rehearsed rhythm.

Most recently, early adopters of the Geithner Minimum no doubt had some insight into what such pressure as the Treasury Secretary delivered Europe could bring. These "rescued" the market early-October. However, now they're cashing in.

Truth is an LTRO that, net, was 1/10th the Geithner Minimum is doomed to prove as ineffective as the full $2 trillion, and the early adopters know this. That's why the market is crawling higher on markedly diminished volume compared to the same period last year. Furthermore, as post-August throttling recovery well-demonstrated, the cost of hedging leveraged, early adopter long positions remained dear for some time. Little wonder, then, that as long as the loooooong weekend in Greece continues on (after which a "deal" with the troika will be reached), exposed debt farmers and their derivative counter-parties would use time available to squeeze every last drop of capital the likes will be needing at some point in the foreseeable [likely calamitous] future (as such capital-critical reality threatening starvation a la MF Global also is testified to by huge amounts of cash on corporate balance sheets, as well as parked at central banks — both confirming confidence is shot and there's trouble ahead).

The point is duress precedes hyperinflationary reaction, which itself precipitates further duress. This is the beat to which the stock market is swaying. As such, what's to come gains clarity.

Namely, prospect that wave B still is forming — this of an a-b-c corrective wave down from October 2007 — might find wave c of (b) of B [down] upcoming, prospectively challenging March '09 low — this in duress, of course — while wave (c) of B [up] would follow — this in anticipation of the next round of hyperinflationary happiness, which, itself, can only further the banking system's duress, and so would set up for wave C down, targeting index levels last seen in the 1987-1994 period.

Likewise, the speed at which this might unfold, too, just might be one for the record books. We are no doubt at a moment of vulnerability unlike anything anyone presently living has ever seen.

Fast Money
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