Saturday, September 20, 2008

401-K Accounts Moving Up

My recommendation to move 401-K accounts to the Russel Small Cap Index is working out well. The index has shown relative strength since March. This strength should continue. My call to avoid international stocks has been a very good call. It took longer than I expected for basic materials, capital goods and energy stocks to roll over and they bounced on Friday, but I would continue to avoid these as well.

Oil is currently in a 100 to 110 support and resistance ban. This week, the house passed a fake bill in support of drilling, the gang of 20 failed to propose a bill and Harry Reid moved forward with plans to call for votes on 4 separate energy bills. These votes are solely for the purpose of political posturing. A consensus has been reached that no compromise can be reached before October 1. Democrats are ready to temporarily throw in the towel. The off shore drilling ban will expire on October 1 but democrats will suggest that the ban will be reinstated in a lame duck session after the elections or early next year. The uncertainty will dampen the enthusiasm for the expiration.


The way things are shaping up, it will be the job of the next president to deal with Russia, Iran and Drilling. The government of Russia is rapidly taking back control of business. Consolidation is taking place in America but nothing like what is happening in Russia. Russia's iron hand rule will once again give America advantages in commerce and in trade relationships with other nations. The actions of Russia against BP this year have once again shown that doing business with Russia is risky.

Iran and Russia have a lot to gain by making peace with the west. The people of both countries have suffered relative isolation for many years. Many Americans do not appreciate how wonderful economic and political freedom is because they have never experienced anything else.


Democrats are stuck in the environment/energy box they created. By their willingness to support non-economical programs, such as ethanol, wind power and solar, they are stuck trying to sell the public on paying unnecessarily high prices for gasoline and heating fuels. It may work! The average American has been sold that energy grows free on windmills and corn stalks.


Regardless of the actions in regard to energy, the clearing price has already been reached. If the US does not drill, Brazil and others will drill all the more. The first of many planned nuclear power plants has been permitted in the USA. If the USA moves forward or if it does not, China, India and scores of other nations are moving rapidly forward with nuclear power. When China begins to produce electricity at 2 cents or less, all the more manufacturing will move to China. The price of goods and the price of oil in real terms will both continue to trend down. Lower energy prices will increase the value of mortgage paper held by banks, increase the spending power of consumers and lower the cost of making high tech products.

Keep those 401-K's invested in the Russel Small Cap Index and continue to buy stocks that will benefit from lower energy prices.

When the CR is passed without the drilling moratorium attached, Bush and others are likely to say a word of thanks for ending 30 years of silliness. There should be a strong drop in prices between now and the weeks after the moratorium is lifted.