Juggling Dynamite

For the past few months, risks of a significant market storm have been building. There have been many, many warning signs. I wanted to take a moment now to reiterate for my readers that price risk for stock and commodity markets today appears to be the highest it has been since the summer of 2008. If you have so far not taken steps to protect your capital on the downside, you may wish to reconsider. Remember how you felt about your portfolio losses in March of 2009. It is quite possible that we may be headed back there.
No one can tell for sure how the future goes from here. All we have is probabilities to assess. But at this point, the probabilities of a damaging market storm are uncomfortably high again. I am not suggesting that anyone panic or abandon well established risk management rules that they have set in place. My concern is with the 95% of the population who has nothing better than hold and hope as a plan. Standing unprotected in the midst of hurricane season is a reckless bet. Those counselling you to do so should be acknowledged as a helpless sales force, not worthy advisors.

Good discussion of this week's economic data and market sentiment. I have been saying for several months that we were sensing eerie shades of 2008 in our indicators.
The business cycle is reasserting itself toward contraction despite herculean efforts by governments to arrest it. The secular cycle of contracting credit and disinflation is bigger than anyone's opinion, optimism or confident assertions. Note this is happening despite all the bullish hopes about Asian population driving demand. We fight reality at our peril. What is that line about having the wisdom to accept the things we cannot change? Self-preservation over wild risk-taking is the theme of the day.

Last night Congress passed a financial reform bill for Obama to take with him to the G8. He says the bill includes 90% of the changes he had proposed. For details on what aspects made the bill see Bloomberg: Biggest Wall Street Revamp Since 1930s Approved. For a top 10-point summary see: Here are the key points you need to know.
I don't expect miracles out of this bill, but I do think that a few of the key changes will help restore some desperately missing oversight and regulation on the financial sector. I also think certainty and clarity on the overhaul will help markets to re-price and reassess future growth which is one of the many steps needed to get the world economy back on a sustainable path.