Reply #34: Commentary: Recipe for a market meltdown

[UpInArms]

http://www.marketwatch.com/news/story/five-things-pave-way-downside/story.aspx?guid=%7b07D009FC-CFAB-4593-AB9A-89F99CB89727%7d&print=true&dist=printMidSection

NEW YORK (MarketWatch) -- My grandfather taught me many things, one of which was to always think positive. As a financial professional, I'm careful not to confuse that perspective with blind bullishness.

As we edge toward the midpoint of the calendar year, the bovine have reason for optimism. Despite credit contagion, debt unwinds, structural smoke, geopolitical risks and a housing abyss, mainstay market proxies are down only mid-single digits.

I've learned a few things over the course of my career, three of which currently warrant particular attention. First, the reaction to news is more important than the news itself. Second, stay humble or the market will do it for you. Third, discipline must always trump conviction.

With those lessons in tow, I wanted to explore another topic, one that few people have a motivation to discuss. It's the risk of a seismic equity readjustment, a possibility that has much higher odds than most people currently foresee.

The market is fluid and multi-linear, which is a fancy way of saying "things can change and they often do." Still, the ingredients for a downside disconnect exist, conditional elements that, when brewed together, could combine for a toxic ride that will come to define 2008.

...more...