Bear Food: Heads I Win, Tails You Lose ~ The Risk Averse Alert

Wednesday, February 15, 2012

Bear Food: Heads I Win, Tails You Lose

There are two market "meters" whose present position aptly coincides with a stock market thought extraordinarily vulnerable. Each speaks of opposing outcomes whose consequence for stocks in both cases is disastrous.

First is the hyperinflationary-blowout-o-meter...

$GOLD weekly

Is there a central bank in the world not breathing life into this imperial relic? Forget not the shutdown of physical economic capacity — the foundation on which, alone, new wealth is created — occurring every step of the way during gold's parabolic advance. This shedding of capacity will only accelerate as lenders of last resort continue in their hyperinflationary ways, further driving profit margins into the ground while increasingly precipitating business insolvency.

How ever will stocks flourish in an environment where not only is physical economic capacity contracting, but more critically, so too is issuance of new debt that is of any value to a hopelessly insolvent banking system? Somewhere in the neighborhood of nasty likewise lives this nightmare where new debt can no longer be expanded at a rate sufficient to sustain existing debt. Truth is, too, I'm not the only person in the world who recognizes this. Money pouring into the safest debt security in the world understands this dynamic, as well...

$UST10Y weekly

When the name of the game is "inflate or die" and your banking system's lifeblood — new debt — is at grave risk of becoming in short supply, awaiting will be a whole lot of revulsion toward old debt no longer easily papered over. No doubt, the world's safest debt security likewise will be impacted. Bad enough, then, is the fact today's buyers have no choice but accept this risk. Forewarned is the fact they are doing so at an increasingly alarming — insane! — pace. Thus, does a deflationary-collapse-o-meter read "Danger Will Robinson!"

Rates on 10-year U.S. Treasuries might offer another benchmark for assessing the market vis-a-vis "resistance" the NYSE Composite index presently is meeting. You will notice how over the past three years "risk on" in stocks naturally meant "risk off" in U.S. Treasuries. Yet has there not been much supposedly "settled" in Europe these past couple months? Then why no "risk off" in U.S. Treasuries? I should say this behavior rather seems a fitting backdrop to a gold market thought having remaining one last parabolic march higher before it (along with stock and bond markets) subsequently collapses.

One way or another a whole lot of "wealth" destruction is in order. Once this runs its course the fact that, a whole lot of real — tangible — physical wealth was destroyed leading up to this pending implosion of fantasy "wealth," the stage will be set for such necessary investment in physical economy as is likely to prove conducive to investing in stocks for the long-term.

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.

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