Friday, December 17, 2010

Power Of Liquidity - Enormous Wealth Creation In Weak Economic Recovery

Equity stock market is buoyed at year high with little selling pressure from profit taking. Capital liquidity from Federal Reserve quantitative easing effort boosts asset prices with the exception of real estate. However, the most benefited are the already rich people. The majority of household wealth is tied in the homes. A smaller portion is in investment such as equity stocks and bonds. Some household may flee to the safety of money market after the financial crisis.

Institutional investors sit with equity stocks and cash holdings, watching hedge funds and individual investors perform the year end window dressing. At current level, hedge funds are preparing for the next movement direction in the equity stock market. It may be up or down depending on which side can attract more followers. It appears that market participants are holding up with stock positions. This may be result of switching from treasuries and bonds to equity stocks.

There is increased activity in stock market day trading. Although individual investors re-enter the market recently from the temptation of asset appreciation, they are very cautious on the experience of the financial crisis. While the core investment is held for long term appreciation, the liquid portion of portfolio is allocated for short term profit on market tidal wave.

"Welcome Back, Bull Market". Forget that stocks have walked up and down the unchanged line in the past week like prisoners on a chain gang. The fact is that the smell of greed is in the air, raising the curtain on a new year likely to brim with excess and more excess. In summary, if the latest signs of an economic spring are right, it is time to prepare to be swept off your feet. Still, be sure the brakes are close at hand — just don't squeeze too tight.

"As Bears Retreat, 'Goldilocks' Comes Out of Hiding". On Tuesday, the Fed admitted "progress toward its objectives has been disappointingly slow," which is why they'll keep rates at zero and continue 'QE' for the foreseeable future.

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