Does it seem auspicious for our economically vital capital markets--much less for anybody’s retirement security--that much of the money in play would actually rather be someplace else?

The situation looks even more unsettling when we consider whose money is pumping the stock indexes up, and for what purpose it has been invested.  A significant chunk of the capital flowing into Wall Street these days is already people’s retirement money.

Following the advice of personal financial planning gurus as well as their own direct observations, people today have all but abandoned more traditional forms of saving for retirement, because their money just can’t grow fast enough soon enough to meet their needs.  Many people aren’t especially comfortable entrusting this money to something as quirky as today’s stock market.  It is, after all, money that can mean the difference between penury in old age and a modicum of comfort.  But as long as other forms of investment cannot yield reasonable returns, they are more or less forced to remain in stocks.

And so the Dow keeps on soaring to new heights.

There is yet another reason why so much retirement money is accumulating in Wall Street these days.  It is as a direct result of Corporate America’s decision in recent years to walk away from more traditional funding of its employees’ retirement.

Even those companies that are contractually required to provide retirement benefits are turning to nontraditional methods of funding.  One example is the so-called Guaranteed Investment Contract, made with a life insurance company, in which the employer pays the insurer less than it would cost to directly fund an internal pension plan, and the insurance company goes out and invests the money to make it grow to the required size by the time it’s needed. While the employer company is still paying, there is a kind of at least theoretical abdication involved here, in the sense that the employer ceases to rely on its own profitability to pay for its employees’ retirement, and relies instead on the less tangible, more abstract moneymaking processes of Wall Street to get the job done.   Moreover, certain insurance companies have backed up these "guarantees" with nothing more than investments in junk bonds.  But even when the money goes into more substantial types of securities, it still flows, by and large, to Wall Street—where it joins the other money with no place else to go that is already pushing upward on the Dow Jones Index.

As for companies that are not legally required to provide for their employees’ retirement, the most common response has been simply to stop doing so.  In fact, about as generous as most employers get these days is to match a percentage of what employees set aside for themselves, in the form of 401Ks.

But whether companies leave their employees essentially on their own to finance their retirement, or shoulder more of the burden of providing for their needs via Guaranteed Investment Contracts, the money still tends to end up on Wall Street—and thus still joins all the rest of the money exerting pressure on stock prices to climb above the levels that a more prudent calculation of expected dividends might otherwise indicate.