SPECIAL REPORT ON STOCKS (basis S&P Futures, Sept contract) by Martin Armstrong, chairman of Princeton Economics August 13th, 1999

Today's reaction in the stock market, although impressive on the surface, still has not changed the longer-term outlook. A rally into next week may form only a reaction high with resistance at 1357 and 1365 (basis S&P Sept contract). Support should form initially at the 1319 level and a closing back below that level on a weekly basis will signal a resumption of the downtrend. An overall decline into January of 2000 appears likely with a minimum target objective of 1215 and ideal target objective of 987 to 930. We do not expect this decline to be rapid as was the case last year but we do see more of a persistent grinding downward movement for the majority of the period.

Problems in Russia, China, North Korea, and India, combined with a high probability of a major financial crisis in Japan on top of Y2K, will keep the fundamental picture questionable at best. In Japan the FSA investigation of CSFP has exposed just the tip of the iceberg of perhaps the worst derivatives loss program in the history of modern financial markets.

We now see hidden derivative losses in Japan may far exceed $10 billion. Some banks were using derivatives to meet BIS requirements and to disguise bad loans. An insolvent postal savings fund and the major booking of derivative premiums as current year profits instead of mark-to-market, have left this economy in an extremely vulnerable position. Despite foreign optimism about a possible Japan recovery, concern and pessimism still dominates the domestic Japanese markets.

Additional losses arising from the convergence trades in Europe have sparked rumors of billion dollar losses among hedge funds and investment banks. The problems with the convergence trades in Europe have sent the credit spreads into a tail-spin worse than October of last year.

All these things combined warn that a serious correction may develop beginning in September. We recommend reducing risk exposure by taking advantage of reaction rallies.

-- Drken (drken@bubble.gone), August 13, 1999

Answers

But the 401K betters hanging on to crummy jobs won't believe it, can't believe it, won't be placid about losing that carrot dangling on the employment stick

-- h (h@h.h), August 13, 1999.

401(k)s can usually be rolled into more conservative options. Thanks for the tip Drken. I'm mostly out. Sold three today I had been hold, have a few more...

-- Mara Wayne (MaraWAyne@aol.com), August 13, 1999.

If you can, call up your 401k plan administrator and get your funds into the safest fund they have, usually they have an overnight money market account...

good luck

-- Andy (2000EOD@prodigy.net), August 13, 1999.

We seemed to be repeating 1929. The market reached its all-time high in August, gyrated violently in September and October, and finally crashed at the end of October.

-- Mr. Adequate (mr@adequate.com), August 14, 1999.

Andy: We moved our 401k into a stable fund several months ago. We were pretty diversified in our portfolio at the time but we saw the handwriting on the wall. I'm not going to cash in the 401k because of the tax penalty involved, I'd rather lose it than give it to the government. I really appreciate all your effort and your "heads-up" posts.

-- bardou (bardou@baloney.com), August 14, 1999.

My 401K plan will have a money market fund (short term government securities) available come September 1. I plan to have moved to it not later than September 2! Even if I were a polly on Y2K, I'd still be VERY worried about a number of other adverse economic indicators.

-- Mad Monk (madmonk@hawaiian.net), August 14, 1999.

Thanks bardou, I hope these threads save some folk's 401k and/or savings and/or investments,

here's one final heads-up,

you can cash out ALL of your 401k now (at least, prior to Dec. '99), specifying to the ira fund that they NOT withold any tax...

it is then your responsibility to pay the tax and penalties at tax time next year...

the $64,000 question... will there be an IRS next year...

as my old mate Clint used to say...

"well, do ya feel lucky, punk" :)

-- Andy (2000EOD@prodigy.net), August 14, 1999.