Who's making the money?

If you are looking at your balance sheet, you know that your net worth has been dropping like a rock. Your 401(k) has moved past 201(k) status, and is heading towards the 101(k) territory. As I was driving home from work, I asked my friend the same question we have debated during each market downturn since we have known each other--"...so WHO is making all the money?"

In recent market downturns past, it was relatively clear. Balanced budgets, and Internet technology generated strong economic times, with heady stock prices, and good times for all. During the 2001 economic downturn, people still had certain fundamentals on their side--low interest rates, a relatively strong economy, and equity in their houses. So the next wave of money was in leveraging those low interest rates into returns on home equity loans, or REIT's. Then as home prices started to turn, it was the turn of the commodities to start to run up. Gold and Oil prices started to boom, and smart money was still earning a good return. But with the year 2008 came the starting of the Baby Boom retirement wave. The mass exodus of funds from the market place has started, as baby boomers leave the workforce, and take their money and go home.

So where's the smart money now? That's an excellent question. Interest rates are feebly low, home equity is sinking like a stone, gold and oil prices drop daily, and I can't think of a blue chip company that hasn't had a terrible quarter. Even Wal-Mart wouldn't have bragged about this quarter a year or two ago. Tech is going in the tank, and even the gold-standard--General Electric--is down well past bear market territory.

Short sellers may be making money off the troubles of the market, but they aren't going to get rich, long term this way. If they haven't already made their bones, it could be hard to time this market and make money on the shorts without getting squeezed from time to time. They can make some profits, but then where do you put the money? T-bills? CDs? Currency trades?

Sadly, I don't think the equity markets aren't done to the down side. Why? Because smart investors know what time of year it is. Capital Gains Loss harvesting season. Anyone thinking about a tax play is looking for an equity to dump, realize a capital loss, and save on taxes. And why not? Anyone out there think that the market is going to make a sudden and sharp rebound over the next 31 days? No one I know. Smart investors know that they can probably pick up something on the cheap with the cash they get from liquidating their positions. They can probably pick up the same security they sold a month and a day from now, at a lower price, and they will pick up more shares, AND get a tax break. That's a way to make money.

But it's not a strategy to get rich. Why I am worried is that there does not appear to be a ready answer to who's getting rich on this market. And when I can't see it, and no one I know can give me a good answer to the question, I start to worry.

What seems to be happening is that people have realized that they can get by without a $4 cup of Starbucks. Perhaps a $1.50 cup of joe at Dunkin Donuts may be just as good. Perhaps it's time to put the lot into McDonalds, Wal-Mart, and Procter and Gamble stock, and just try to ride this out. After all, people still need cheap food, cheap products, toothpaste, and detergent.

I am probably not smart enough to figure out what to short, so I may put my money into savings, try to keep working hard, live within my means, and continue to look out for who is making the money...