Stock Market Follies

Note that as the previous entry was being posted, the Dow is up almost 300 points today.

Nope. That does not mean that people who bought at the top of Friday's rally were smart. Rather, it means that anyone buying right now is confirming himself as one of those stupidest people on Earth. It is a game of musical chairs--a giant Ponzi scheme. The last ones who buy in this kind of fictional rally get hosed. As I have said, there will be a time when the stock market will finally go up, and stay up (for awhile). But buying at the tops of these irrational rallies (or selling at the bottom of these similar irrational drops), is a losing proposition.

For 401(k) plans, the only rational strategy is to buy on a regular monthly basis, on a long term basis, so that these irrational moves do not affect you in the end. You have to hope, of course, that the broken stock market does not become so broken that it destroys itself (and us with it).

Note: This entry, unlike Friday's is not a prediction that the Dow will continue straight up today. The difference is that we are not in the final hour. There could be substantial fluctuations during the day, and what matters is which way the computer prgrams break in the final hour. We may go up 1,000 points today (bad news, for those who want rationality to return to markets--although good news for those that sell before the music stops and we have the next big decline). We could end up a very long ways today, or down quite a ways The only constant is that the extreme computer moves have no "rational" reason, unless you regard making money in treating the stock market as a computer gaming casino is "rational. In one sense, of course, it is "rational" to engage in computer trading strategies to make money. It is just not "rational" from any fundamental, economic point of view.

Consider what happened when the Dow went up 28% just before Obama was elected. It promptly retraced that entire gain, and more. Anyone buying now should consider that, and realize the game of musical chairs you are playing.