Stock Market Setting Up To Repeat Fall

Text Book definition is that Stock market values are based on the belief of investors in the future earnings of the companies traded. What is not even mentioned in those same text books is any form of the word "greed", for as some who know will explain, is the true motivation of a cyclical exchange of money for paper.

I was elated to see the market correct to 7000+ last year. Actually I was hoping it would fall even further and stay there. I know this is unpopular among all you 401K and IRA investors banking on an ever rising stock market.

Take a look at this chart of the Dow Jones Industrial Average over the last 10 years. http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chdet=1258664400000&chddm=4046068&chls=IntervalBasedLine&q=INDEXDJX:.DJI&ntsp=0

One can clearly see that sometime around 1984 we entered into a new valuation for finance and company values. We also added a black market of securities called Derivatives. It wasn't that there was significantly more companies to drive the average nor that the same companies suddenly added massive assets. It simply meant that, more money entered the stock market looking for the next big gains and investors paid premiums for the right to own the shares held or protect from the consequences of a risk they presumed. http://informationinstitute.blogspot.com/2009/11/derivatives-1.html

• So why did investors not learn a valuable lesson with the market correction to 7000?
• Why is it, just 10 months later that the DJ Average is now back up to 10,356 as I write this?
• What is propelling the current surge and what is holding it up to even higher values?

In a word "greed"...and "a basic lack of control" over the money held in those stock asset accounts.

"Greed" comes from people who make money under a changing market...thus the bullish rise to old heights occurring now and the inevitable down slide "bears" taking shorts when it falls.

"Lack of control" comes from money held in pension and retirement accounts, left there by owners who had no better place to put their investments. They resolved to "ride it out"...hoping for exactly what is happening now. The only problem with this "wait and see strategy" is two issues:

1. Their future is controlled by people who make money using "other peoples money"
2. Stock markets crash and investments are now more risky from systemic collapse

(It should be noted here that the U.S. Government prohibits the conversion of under age retirement accounts to more stable investment platforms, (Treasury Bonds, Gold, Etc.) without incurring a substantial penalty...do you see how the Government is forcing you to stay IN the stock market! But, you can and should get out! The timing of that decision is what will matter most.)

How soon we forget that what goes up fast - comes down even faster. Wall Street will continue to make money in good times by rising stock prices off passive investors returning to the market. In bad times they will make money short selling those same stocks. In both conditions, money is made on commissions for making the changes in placement.

Investors will continue to lose money when the next bubble bursts and a "hard correction" follows in 2010. Maybe by that time people will see how a 401K and IRA account is a risky place to bank on your future. You would be better placed in gold....even after taking the taxation hit. At least you would be protected from the next big falling stock condition and hedge against the now insatiable falling dollar value.