Market Ruminations

There is nothing definitive to report this week. We are, by my reckoning, on the edge of a turn in direction. I think the dollar is going to start going up. The play on that will be UUP. I think Gold is going to start going down. The play on that will be GLL. I think the Dow is going to start going down. The play on that will be DXD. I am not sure about US Treasuries. I may dump my position in that one and take some profits. The play on that one is UBT. This is what I think and I think the fog will lift within the next 2 weeks. QE 2 ends this month and without massive printing of money I can't see the market continuing to levitate. In the absence of the market taking a clear direction I will say a few words about the 401-k subject. Back in the late 70's the stock market had been in a grinding bear market since the late 60's. Just about everyone had finally concluded there was no money to be made in stocks. Mutual funds were suffering massive outflows of money. Thousands of them literally went out of business.. Wall street was practically in tears. No one wanted to buy or sell stocks and volume was at all time lows. The mutual funds and the wall street bankers were desperately casting around for a remedy to the situation. At the very same time this was going on the large corporations were desperately trying to get out from under the onerous burden of the company directed and managed pension plans. The combination of an aging work force, underfunding for decades, strangling government regulations and no way to make money in the stock market was killing the large corporations. About this time the Heavens opened up and some tax accountant found a loophole in the tax laws and invented what is now knows as the 401-k. It was an instant hit with the guys behind the curtain. By enrolling employees in a 401 a blizzard of payroll deduction money was guaranteed to flow into the stock market every payday and the companies could start divesting themselves of the pesky and expensive to manage pension plans. The mutual funds and the wall street bankers went wild and they made money at an unprecedented rate. As fate would have it the invention of the 401 coincided with the end of the Bear market which ended in August of 1982. Everyone was happy. What went unnoticed though was that the Wall Street guys behind the curtain had devised a method of taking back all the money people were putting into their retirement plans. Here is how it works. They ramp the market up to heights beyond all reason getting fat off the blizzard of dumb money coming in every payday. Then they drive the market down, shorting it all the way and take back all the profits from the 401-k's. They they ramp it up again and drive it down again. Meanwhile the poor guy with the 401-k is getting taking to the cleaners because he has been hypnotized by the " Buy And Hold " mantra. He is the only one buying and holding. The Wall Street guys are long on the way up and short on the way down making money each way. Now they are getting ready to ramp it down again. When they do I intend to be prepared and I hope some of you out there will be as well.