The Risk Averse Alert

It really does not matter what the U.S. Congress' glorified bean counters—hands dripping with the blood of innocent children—do to address the so-called "fiscal cliff." If anything, the U.S. Treasury's insolvency in fact no less sooner stands to be decisively exposed with any move to make permanent various income tax cuts whose original legislative mandate was intended a temporary reprieve on account of a generally proclaimed necessity to prevent the U.S. "economy" (read: dangerously leveraged casino) from falling into the abyss. Yet, paradoxically, should tax rates be allowed to increase with no action taken to avert this legislatively established outcome, then although momentarily improved would be cash flows sustaining a U.S. Treasury whose obligations have been on a decades-running path of parabolic increase, thus seemingly securing the future viability of Treasury's capacity to service its debt, capital available to sustain the derivatives-laden dung pile marked-to-fantasy on the books of money center banks necessarily would be impinged upon, and this to the effect of hastening the U.S. Treasury's demise via a mad scramble for capital, this, itself, subsequently resulting in collapsed tax revenues, as well as upwardly spiraling debt service costs.

The last thing scam-captured, Ivy League educated marionettes are likely to precipitate is a panic to raise capital (whose likes are sure to be instantaneously set into motion were the fiscal cliff's legislatively mandated increases in income tax rates to pass), particularly should this prospective panic risk decimating the U.S. Treasury market. So, making permanent lower income tax rates otherwise intended to be temporary no doubt presents the path of least resistance. Yet for how much longer will [trapped] investors in U.S. Treasury debt be inclined to sit back and continue trusting in financial claims whose likelihood of repayment will be diminished on account of a legislative mandate permanently lowering income tax rates? All the more troublesome is a reckless central bank committed to depreciating the purchasing power of these, the safest securities on the planet.

Have no doubt, Capo Confetti and crew understand the risk of an out-of-control hyperinflationary spiral into the abyss, the likes of which global central bank policy, indeed, is inciting. The very last thing these criminals desire, though, too, is circumstance leading to revulsion of the safest securities on the planet. Therein lies a parallel to the Japanese experience since 1989 worth pondering. To wit, Japanese government bonds have remained in demand notwithstanding the BoJ's Weimarization of Japanese credit markets. Yet trash at the bottom of Japan's capital structure remains in a death spiral (see the Tokyo Nikkei). The question is, now that there is no "safe" currency anywhere on the planet, can the trans-Atlantic banking system defy insolvency in any fashion resembling Japan over the past twenty-five years? Can credit markets be similarly propped up at the expense of equities? That's the only hope the trans-Atlantic might remain in limbo between its hyperinflationary blowout and its deflationary collapse. The only hope.

So, having been anticipating a likely, final lift higher [nominally] carrying major U.S. stock indexes to their best readings since March '09 bottom, and now appreciating the dire quandary at the core of the trans-Atlantic banking system whose path of least resistance finds a most pressing imperative in a legislative mandate to deprecate the viability of securities located there (U.S. Treasuries) does tomorrow's grave worry then come into view: how to fake government spending cuts (thereby pretending the U.S. federal government's debt load is manageable) without precipitating the banking system's collapse? Good luck girls! That's the first thing I have to say.

Beyond this is thought of a "new normal" wherein the past few years' trans-Atlantic experience seen running in parallel to that of Japan over the past twenty-five years rather appears now likely to imminently lead to entirely uncharted territory. As I detailed following Attilos' abysmal performance in his first presidential debate with Reb, there is every reason for congressional legislators to insist Wall Street just lllllooooooooves Treasury debt: in fact...just can't get enough of it. Cut spending? What for? Some phantom threat to the U.S. Treasury that has yet to materialize over the past 30-40 years? This in fact would be a lot like logic opposing reinstatement of Glass-Steagall, this on the grounds Dodd-Frank is claimed better suited to regulate our modern-day banking system (when in truth everyone in the know understands the banking system is one debt revulsion away from its total collapse).

The point here is an epic political battle in all likelihood is about to be waged. No matter how the tax side of the so-called "fiscal cliff" is resolved, the long-term viability of the U.S. Treasury will be thrown into doubt either way. Doubly so, should spending cuts be insisted upon, as the federal government over the past few years has been the sole source of demand sufficient to prop up a crippled and hopelessly insolvent banking system. All signs point to big, big trouble for trash at the bottom of the capital structure, and this even if the trans-Atlantic's mimicking of the Japanese experience somehow can be continued. Not at all far fetched, though, is possibility 2013 could be the year major indexes rapidly sink to levels last seen in the 1987-1994 period with mind numbing speed. Should a battle to reinstate Glass-Steagall, as well as erect the Third Bank of the United States win the day (as increasingly out-of-control circumstance otherwise gravely threatening the U.S. Treasury makes such ends both desirable and likely), then accompanying an epic political battle likely will be a financial collapse for the ages, have no doubt about it.



© 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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