Wealth Alert - Risk Level #5 - High Alert! We are now on our final & highest risk level
Publish Date : 5/12/2010 2:04:00 PM   Source : Private-WealthClub

  We are taking this opportunity to raise our risk management level for global equity markets to our final Risk-Level #5 of 5.  This means it is now time to sell equities if you are a supporter of our global bear market deflationary thesis.  Refer to our piece: 

" Market Reflections, Outlooks and Predictions - 2010 The Show Me Year" for our broad outline...

Much like the fire drills that we had when we were in school and that some still have at your offices, walk don't run!  Do not sell as if it is an emergency, sell in a thoughtful and orderly way but do SELL.  Refer to our chapter on Risk Management Systems for details on our Risk Level guidelines.

After last week's global equity markets volatility, including the record breaking intra-day -998 point swoon on the DJIA, this week the markets have rebounded ALL of those losses to date.  Today's closing figures on the major US indices are as follows:

DJIA  +148.65 or +1.38% closing @ 10,896.91

NCOMP + 49.71 or +2.09% @ 2,425.02

SPX + 15.88 or +1.37 @ 1,171.67

Our goal is not to attempt to top-tick the market in our sell signal timing.  There is an old market proverb that roughly says, let the speculators have the first 10% of a move and let the momentum players chase the last 10%, just give me the fat 80% in the middle.  Which is exactly why we are making our call here and now.

We believe that the events from last week including the -998-point intraday drop in the DOW, which was the largest in market history, should be viewed as the canary in the coal mine so to speak.  The magnitude of that event is of larger proportion because the current market structure should prove to be of a similar comparable larger proportional risk for the downside.  How many times do investors say "I wish I would have sold when I had the chance."  Don't let this happen to you!  This is your official 2nd-chance!  And as I like to say, let's not look a gift horse in the mouth. 

Today on CNBC, Nassim Taleb the author of The Black Swan, Professor of Risk Engineering and Hedge-Fund Manager/Risk-Advisor spoke about the current global risk situation:

The CNBC piece, The Black Swan Returns (view here) 

We post this because we could not have said it better ourselves, so we will paraphrase him here!  He stated that in since last year NOTHING that governments have done has reduced risk.  That the crisis of 2008 was caused by debt.  Now, we have more debt, lower tax basis, bad risk management and more hidden risks.  Therefore, the world is now more fragile. 

He used an example of a patient with cancer, who has been given pain relievers instead of dealing with the cancer.  Governments have been moving debt from the private-sectors balance sheets onto the public sectors balance sheets, all requiring more borrowing.  The problem with this transfer of debt and risk is that when debt finds its way onto government's balance sheets, it is VERY difficult to remove.

He stated that projections for future debt burdens are overly optimistic.  That Larry Summers, the administration's Director of the White House's National Economic Council and the President's Chief Economic Advisor is treating the U.S. like he treated the Harvard's Financial projections which have come under criticism as well. 

He stated that the US alone requires $10-$15 Trillion worth of borrowing over the next 10-years.  He foresees a day when a one of the bond/debt auctions the government regularly conduct to raise that debt capital just goes bad.  This he describes will be the potential black swan event, with global implications. 

We believe that the reason for the rise in the price of gold to all time highs today is precisely because of this possibility and perhaps in the not too distant future.  Globally, governments are diversifying their assets away from FIAT currencies in anticipation of exactly such an event and if you think you can simply hide-out in gold (GLD), think again!  Stay with us and learn what to do to...