Equity outlook bleak, sell into this rally

But, I am afraid that in this particular case, the crisis may lead to further social and geopolitical tensions and along with the anti globalization movement to less trade and a more protectionist agenda. It will probably also lower foreigners' enthusiasm for US assets and weaken the already wobbly dollar.

In turn, if tensions around the world increase, as I think they will, gold and gold shares should benefit. Since the September crisis occurred at a time the stock markets around the world are already moderately over-sold, a decent bear market rally could take place, which could even last for a few months.

Indeed, the recent severe weakness in financial stocks has to be viewed with great concern. This particularly since the sell-off in the financial sector came at a time interest rates have been cut aggressively. Obviously the stock market senses that something is not quite right among financial institutions.

Moreover, it is very uncommon for the market to perform well when financial stocks are under pressure. I may also point out that many so called 'value funds' have more than 40% of their weightings in financial issues, which could lead to some further selling pressure in the future.

In fact, earnings for financial institutions could increasingly come under pressure, as loan losses and losses on financial products mount, whose risks no one clearly understood. Thus, we would recommend the sale of all listed financial institutions and of companies, which derive a large portion of their earnings from financing activities.

The stock markets around the world have become oversold and the recent attack on the US may have led to an important low. Valuations, however, remain unattractive in most western industrialized countries.

A bear market rally of sorts is, therefore, now underway, but I very much doubt that we are at the beginning of a new bull phase, which will carry the averages to new highs. Thus, any strength in the market should be used as an opportunity to raise cash.

I regard the recent attack on the US as another negative factor in the equation. It has exposed the vulnerability of complex urban industrialized societies with their extensive division of labor and high population densities to well-planned attacks, which can increasingly disrupt the economies and the interconnectedness of such societies.