From the point of view of an investor, stocks are attractive with a decent dividend and long term growth potential. Nevertheless, at this moment market is irrational and investor behaviour is highly unpredictable. There are buyers looking for long term appreciation and there are also buyers and sellers for short term speculation.
Market seems to have reached recent bottom and is getting support from investors who are looking for bargain as well as speculators for quick profit. Market makers are still holding short positions and derivative products. It is anticipated that market will continue to be turbulent for a while until market makers cover the short positions and the options expire. Market should recover slowly as the news fade away. However, there are still other potential problems such as the European debt crisis. Market makers may exploit any bad news to drive market further down as investors confidence are extremely fragile.
Investors resigned to more portfolio pain
"I don't think investors are worried about the downgrade. It's more a case of investors being afraid of each other," says Charles Lewis Sizemore, chief investment officer with Dallas-based Sizemore Capital Management. Many investors, who think someone else is going to sell out of panic, will go ahead and join the fray.
Transaction volume in 401(k) and other Vanguard client accounts was also heavy, spokeswoman Linda Wolohan said. She characterized the moves as "a mixed bag, with some investors taking money off the table, and others seeing the market decline as a buying opportunity."
What's more, brokerage firm E-Trade Financial reported a record number of trades were placed Monday by investors using mobile devices.
After the 2008 financial crisis, Carol Clemens, a 64-year-old retiree from Edmond, Okla., loaded her portfolio with dividend-paying U.S. and foreign stocks. With corporate earnings remaining healthy, she doesn't have any immediate plans to sell.
"I expect there are still lemmings left who must run for the cliff, but I will not be among them," Clemens says.
Still, some investors are active, regarding Monday's market's decline as a buying opportunity.
"I'll be watching for the panic to turn, because a crisis is a terrible thing to waste," says Dick Bristol, a retired Air Force major and dividend-stock investor from Biloxi, Miss.
"They can stay the course, as they know they are supposed to," she says, "Or they can sell stocks and rush into something safe -- a course they know they are not supposed to take, and one that risks missing out on whatever recovery may lie ahead."
Asian stocks tumble after Wall Street rout
Jackson Wong, vice president of Tanrich Securities in Hong Kong, said the sell-off was creating opportunities for sophisticated investors to buy at bargain prices. What was unclear, he said, was when those investments might bear fruit.
"It's still very hard to predict how the U.S. market will do," Wong said. "When the dust settles, if the situation doesn't get worse in the U.S. or Europe, the situation will rebound. But the U.S. has to stabilize."
Who started the S&P downgrade rumor?
Credit rating agency Standard & Poor's downgrade of the U.S. credit rating on Aug. 5, which plunged stocks into a roller coaster frenzy for the past week, didn't come as a surprise.
While S&P didn't give any public statement about the timing of the move, by the morning of Aug. 5, rumors were rampant on Wall Street that the downgrade would come after the closing bell that day.
Major stock indexes, which started higher on a better-than-expected jobs report that morning, were soon in negative territory, with the Dow Jones industrial average tumbling 240 points before rebounding to close modestly higher.
The rumors turned out to be spot-on correct, as the downgrade was announced just after 8 p.m. ET.
Now the Securities and Exchange Commission apparently wants to know where those rumors came from and how they spread.
Some market analysts have questioned whether the downgrade was the major cause of market volatility this past week, since demand for U.S. Treasuries remained strong throughout the week. But others have argued the downgrade added to uncertainty and fed into fears that the United States is at an increased risk of a double-dip recession.
Forget 2008, This Is Like 1987, David Kotok Says: And He’s Bullish!
While some observers are drawing comparisons to 2008, David Kotok, chairman and chief investment officer at Cumberland Advisors, says the current environment reminds him of 1987.
Kotok's optimism is based primarily on a belief this is not another 2008, as well as a view stocks are cheap on a fundamental basis.
"What we do know is, in the U.S., the equity risk premium is huge," Kotok says, referring to the comparative returns between stocks and Treasuries (or cash). "From a valuation view, you can buy American large companies cheap," he says. "That doesn't mean they don't get cheaper [but] we view this as entry level."
Insiders are Buying
You may recall that, three weeks ago, corporate insiders were selling at an abnormally high pace. By one measure, in fact, they were then selling at the fastest pace in the nearly 40 years that insider data had been collected.
With the Dow Jones Industrial Average now more than 1,400 points lower, the insiders appear to be shifting back to the buy side in a big way.
Still, it is comforting that a group of investors who presumably know more about their companies' prospects that the rest of us consider the low prices of their stocks to represent attractive bargains.
S&P Slammed After U.S. Downgrade
Days after Standard & Poor's downgraded the United States' credit rating, a powerful backlash has set in against the move. Washington leaders of both parties, as well as investors, have seemed to shrug off the ratings agency's verdict--and some analysts have even raised questions about S&P's basic competence and credibility.
Take a look at the financial markets: It's true that, so far this week, Wall Street and foreign markets have nosedived. But that descent began last week, before the downgrade. More important, far from running away from U.S. Treasury bonds, investors are flocking to them, suggesting that they see the chances of a default as slimmer than ever.
Many economists argue, essentially, that the United States isn't going to fail to pay its debts. "The debt is issued in dollars. That means it is payable in dollars. The U.S. government prints dollars," wrote Dean Baker of the liberal Center for Economic and Policy Research Saturday. "This means that if for some reason the government was unable to tax or borrow to raise the money to pay its debt then it could always print it. This may carry a risk of inflation, but S&P is not in the business of making inflation predictions, they are in the business of assessing the likelihood that debt will be repaid."
S&P is the world's largest ratings agency. In most cases, its business model is based on charging the issuers of debt--private corporations, local and state governments, for instance--in exchange for a rating. The issuer then uses a positive rating to give investors confidence in the solidity of the investment. But S&P also rates the debt of 126 countries. And, like many of the countries whose debt is rated by S&P, the United States neither requests nor pays for its rating.
S&P had warned earlier last month that if the debt ceiling negotiations failed to result in a deficit-reduction package worth at least $4 trillion, it would downgrade the U.S. rating. And now that the agency has delivered on that threat, S&P's critics argue that the credit raters are digging in on what amounts to a self-fulfilling prophecy. The decision "smacked of an institution starting with a conclusion and shaping any arguments to fit it" declared Gene Sperling, a top White House economics adviser, over the weekend.
And Monday, Moody's, the second largest ratings agency, released its own report, confirming that it's maintaining the United State's triple-A rating. The country, said Moody's, enjoys "unmatched access to financing, meaning that the U.S. government can support higher debt levels than other governments."
Gold shoots past record $1,800 an ounce
The price of gold surpassed $1,800 an ounce Wednesday for the first time as investors pulled their money out of stocks and snapped up precious metals contracts.
Gold prices have shot past a series of milestones over the past two years on an uninterrupted climb. Gold was trading at about $900 in the summer of 2008, before the financial crisis unfolded that year.
Corn supply tightens for 2012, raising prices
The U.S. Agriculture Department estimated Thursday that the fall harvest won't yield as much corn as first estimated. High temperatures in key U.S. corn-growing states have damaged about 4 percent of the coming yield.
Corn is used in everything from beef to cereal to soft drinks. It typically takes six months for a change in corn prices to affect products on supermarket shelves.
A smaller surplus drove corn prices higher earlier this year. Global demand for corn, soybeans and wheat has outstripped production for the last 10 years. Surpluses, vital to a stable food supply, have shrunk.
When surpluses drop as low as they are now, even relatively small declines in supply can send crop prices sharply higher on global commodities markets. Traders have been nervously watching the USDA crop reports, looking for any sign that the crop harvested this fall will be smaller than expected.
Analysis: China costs start to worry U.S. multinationals
For years, low prices on China-sourced goods helped dampen inflation in the United States. Now China's efforts to boost domestic consumer spending, reducing reliance on exports, are leading to higher costs for multinationals that manufacture goods there.
Eventually, China could export its inflation.
"Wages are getting large enough that you start to feel the difference," said Hal Sirkin, a BCG senior partner, who said U.S. companies are looking at alternative manufacturing sites. "One of the answers is to start moving back to the U.S."
The next few years will bring a wave of reinvestment by U.S. multinational manufacturers in their home base, as rising wages and a strong yuan currency make China a less attractive production center, BCG predicts.
"The customer base in China is just so immense," said Tim Hanley, Deloitte LLP U.S. Process & Industrial Products Leader. "Companies that were in China as a low-cost exporting base recognize they need to be there. That's where demand is."
Chart-based trading behind big market swings
That strange language is being spoken more forcefully on Wall Street these days. It is the language of technical trading, which is helping to drive recent wild gyrations in stock prices.
Charles Dow, the founder of Dow Jones and Company, is credited as the inventor of technical analysis. In the late 1800s, Dow said that technical trading strategies allowed small investors to compete with institutional investors even if they didn't have access to the same information. A stock's price behavior in the past could show whether a move up or down past a certain level would lead to a long-lasting change in its momentum, he said.
Tax increase for the rich? Might be only 3% of taxpayers
As the government looks for ways to climb out of its massive hole of debt, all eyes are on the rich.
President Obama and many of his fellow Democrats continue to call for higher taxes on the wealthy. And, according to results of a CNN/ORC International Poll released Wednesday, many Americans agree that it's the only way the country can dig itself out of its current economic mess.
President Obama's tax proposals -- which many Republican's call "job-killing" tax hikes -- include getting rid of some corporate tax breaks enjoyed by oil and gas companies and corporate jet buyers, and restoring some Bush-era tax rates for high-income households.
Executives see bright spots, no reason to panic
Americans are still spending money at casinos, amusement parks and concerts. Some are even shopping at Bloomingdales and looking at new homes.
Executives addressed the turmoil this week during earnings conference calls and in interviews with The Associated Press. From their vantage point, the economy looks less troubled than major stock indicators like the Dow Jones Industrial average, which has tumbled by 12 percent since July 21.
In another reassuring sign, people are spending money in search of a good time, even though about $2 trillion in wealth has evaporated on paper in the past 15 trading sessions.
At Beazer Homes USA Inc., CEO Allan Merrill was pleased to see prospective buyers still touring homes in Atlanta during the past weekend, but he was troubled by the anxious tones of his conversations with them.
"There is clearly some trepidation," Merrill said in a conference call. While he expects most people already hunting for homes to end up buying, he is worried the market volatility will dampen activity as summer draws to a close.
Stock Funds to Post Biggest Withdrawals Ever
U.S. stock mutual funds are forecast to set a new record for investor withdrawals in August as Americans recoil from the biggest equity-market slump in three years and the first-ever downgrade of Treasuries.
In previous stampedes out of U.S. stock funds, investors slowly returned, but McDevitt said it could be different this time because there have been a series of "structural shocks" to the financial industry that are not cyclical in nature, as in previous downturns that came with a bear market or a technology-stock bubble as seen early this decade.
And those same investors don't put much trust in U.S. money market funds either -- usually the safe place to park cash -- which are down $223 billion this year. They are opting instead for bank savings accounts or certificates of deposit, despite the paltry rate of interest they pay, because of the safety and liquidity.
Markets Being Irrational, So Stay Away From Stocks: Bove
Investors are behaving irrationally because they're being driven by irrational fiscal and monetary policy, banking analyst Dick Bove said.
"In the past few weeks holders of funds may be judged as acting somewhat irrationally:
When they heard that Treasury securities had been downgraded, they bought Treasury securities. When they decided that bank stocks were bad investments, they sold these stocks and took the money they received and deposited it in the banks," he wrote in a note to clients.
"They are also buying gold, commodities, and currencies in nations where the financial systems are judged to be stable. There is a frantic need to find a safe haven for funds and traditional pockets are being used."
No comments:
Post a Comment