Dead cat bounce! Beware of bear market trap …

Bernanke and Paulson’s smoke, mirrors and hot air are temporarily buoying markets, luring gullible investors back into stocks! Meanwhile,

Merrill Lynch just disclosed it was creamed by $40 billion in investment write-downs in the second quarter — $69 billion so far this year.

Citigroup has revealed a $2.5 billion loss — and a decline in total assets of a staggering $99 billion so far this year. Plus,

The U.S. Dollar Index is now within one penny of a new all-time low and a new plunge.

I think this could be one of the most dangerous times imaginable for you — and for anyone else who owns vulnerable stocks or equity funds.

With the mortgage crisis and credit catastrophe still deepening … with the economy still teetering on the edge of a cliff … with the U.S. dollar hovering near its all-time lows and poised for even greater losses ahead …

Yes, Washington’s efforts to rescue Fannie, Freddie and other lenders have lured some investors back into stocks. But mark my words: It will be a move those investors could regret for the rest of their investing lives.

Every indicator we examine is virtually screaming that this is nothing more than a bear market trap — a dead cat bounce — and that the worst of this crisis is still ahead of us.

My recommendation: If you haven’t done so already, use these rallies as your chance — perhaps one of your last chances — to do three things:

First, reduce your risk. That means taking advantage of the bounce in financial stocks to clear out. And that also means shedding stocks in most other sectors as well.

Second, build your cash, stashing most of it in U.S. Treasury bills or a Treasury-only money fund, with an allocation to the world’s strongest foreign currencies.

Third, with funds you can afford to risk, turn this crisis into some of the major profit opportunities we cover in our newsletters.

Good luck and God bless!

Martin

About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Mathias Korzan, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.

Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.