With all of the recent howling and screeching about DevilDog and his ultra bearish position, I thought it was time to come to his defense or at least to give some of you a different perspective on what I find useful in his posts.

Why you ask? Well first off I understand he is a U.S. Marine, so the least I can do for someone who put his ass at risk so I can sit on mine and lose money by clicking a mouse, is to take some time type a few words containing bad grammar and mis-spellings.

Secondly, I understand he has the bad habit of taking cars on racetracks and driving them as fast as his skill and his balls allows. I too have this problem, although I believe his car is faster, mine does not have fenders nor doors. For those of you who know what that means, good for you keep reading.

Thirdly, I realized the importance of stretching what I believed is possible in the markets, after covering my long held short positions when they my target of 975-950 on the S&P 500 was reached. I not only left a lot on the table, but also compounded the error by going long for the bounce far too early.

So what’s the defense you ask? I’ll provide three ideas on how we might significantly break the lows of this bear. I can’t find reasons that would cause us to get to 125 as he has recently stated, but I certainly can see us at support of 450 to 475 which were last seen in 1994 to 1995. I’ll leave it to others to generate some additional ideas. For those of you with rigid minds, consider it “mental Pilates”.

1. Long Term Technical – If you pull up a monthly chart of the S&P 500 from January 1987 to the present, the “bear flag” that DevilDog has spoken of is plainly visible. It’s not fully formed, but one could make an argument that the previous bull market began in either 1974 or 1982. The current secular bear phase began in 2000 with a cyclical bull from 2002 until 2007. His target of 125 would get us back to 1982 levels. My 400 support level would be a measured move of the bear flag (1200 – 800 = 400, 800-400 = 400)

2. Modern Long Term Investing “Myth” 401(K) 403(b), etc. – During earlier periods stock market investing was considered “risky” and most stocks were bought for dividends and some growth. Because of high tax rates and smarty pants CPA’s and finance wizards, it became commonplace to just leave the earnings in the company and therefore not generate a taxable event to the investor. I believe this started in the 1960’s but I’m too lazy to research right now. I leave it as an exercise to the student of market and finance history. Somehow this morphed into the idea that one could simply invest and grow one’s pile of loot until it was big enough to either retire early, or retire in Florida.

Additionally, the semi soft cheese rocket scientists figured that since over very long periods of time stocks outperformed bonds that people should put all of their retirement savings in the stock market. Well not exactly, but that’s how the general investing populace interpreted it. Bonds and dividends are for retirement, I’ll grow my nest egg really fast and retire, then invest in bonds or whatever. Add 401(k) and defined contribution plans, mutual fund marketing (paid for by the investor’s dime), and dumb assed retirement plans consisting of various variable annutiy and other financial “products” and you have Joe and Jane six pack along with Pete the Professor and Sally Secretary all faithfully putting 1% to 20% of their annual salary into the stock market so they can retire. Just like they’ve been told.

But wait! A bear market comes along, and takes away 50% or more of the close to retirement crowd. $1,000,000 and $30K of income becomes $15K with $12K of Social Security. Suddenly retirement looks pretty grim. What do they do? It’s the future and it’s unwritten, but I can visualize a time in the not too distant future, where people start to rethink the myth and move their saving into mostly bonds, with a little bit of stocks. What’s this worth to the market? Who knows. Remember the defined benefit plans were raped in the 1980’s and early 1990’s to finance takeovers. All of the power is in Joe and Jane’s hands. Maybe they get sold some bond “products”, maybe they just say “screw it” and put their retirement in CD’s.

3. Effects of Housing Bubble on the Economy and Public Policy – I was pretty supprised yesterday when I heard Andrew Caplin, a professor of Economics at NYU explain to Kathleen Hayes, that there was almost no academic theory or research on housing economics. He went on to say that getting papers published was almost impossible since when they went to peer review they were turned down, since the reviewers did not understand the area, or thought that it had already been done. After all housing is a pretty important part of the economy, someone must have studied it. Apparently the mathematics of housing economics are pretty complicated, because of the lumpy nature of the data, and of course as we all “know” all poiltics is local and real estate is “location, location, location”. How many housing markets are there in your town? My little town has at least 3 or 4 that act very differently.

Soooo you may ask what does this have to do with “the Dog?” Well, if X% of our economy is based on building housing, and Y% of our financial mess is based on lending for housing, how can we have ANY idea what any public policy changes will have on fixing, something that we don’t really how it works? Who will we consult, Zillow? Going Down? Oh, Schumer and Dodd will call up the tanned one and figure something out. Right.

Now that I’ve got three on the table, I’ll leave it to the rest of you to generate some more.