Market makers have been using bad economic news to beat down market. There is a lot of speculation by day traders and individual investors holding tremendous amount of cash. Market makers are leading other market participants to speculate a falling stock market. In the previous bottom, day traders did not follow market makers close enough to stop selling, thus creating a rebound in short covering. As selling pressure decreases, day traders will watch closely to cover the short positions before any rebound. On the other hand, investors with pile of cash are looking for any sign of rebound to re-enter the market.
In a market flooded with capital, investors have to make a trade-off between risk and return. Although equity stocks are attractive on return of investment on a long term basis (assuming world economy will stabilize and resume growth on technology advancement but with threats on polarized wealth distribution and global environment deterioration), investors are seeking short term safety in cash or equivalent leading to market speculation. The flow of capital will drive market direction in very short term as market participants are taking high risk in short term profit.
Warren Buffett Pushes Congress to Raise Taxes for ‘Coddled’ Billionaires
Billionaire Warren Buffett urged Congress to raise taxes on the nation’s wealthiest individuals to help cut the U.S. budget deficit, saying it won’t inhibit investment or job growth.
He cited Internal Revenue Service data showing that the tax burden on the nation’s wealthy had fallen for the past two decades.
Buffett said the notion that high taxes discourage hiring and investment is false.
“People invest to make money, and potential taxes have never scared them off,” he said. “And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.”
Once Bit, Rich Shy From Risk of Stocks
Recoveries are often led by the investing and risk-taking of the wealthy, and the rich have traditionally been more optimistic about the economy than everyday investors. Yet current surveys show the rich are among the most pessimistic about the economy. Rather than investing in stocks or companies that can create jobs, they are betting on continued volatility and slow growth by hoarding cash, gold and other safety assets.
Not all the rich are playing it safe, of course. Spectrem Group, the Chicago-based research firm, found that a third of millionaire investors planned to add to their stock holdings in July, just before the markets faltered.
Mr. Curtis said many clients were calling in this week to seek information. But they were calm and mostly looking for opportunities. "There was not the panic that we heard in their voices in 2008," he said.
Don't Fall Into a 'Value Trap'
After a 9.3% drop in the Standard & Poor's 500-stock index this month, most stocks are looking cheap—but some seeming bargains may have more room to fall. Investors need to do more than simply look at price history and buy the most beaten-down stocks, say strategists.
Investors looking to place a high-risk bet on a market bounce should buy the cheapest "cyclical" stocks possible, says Vadim Zlotnikov, chief market strategist at AllianceBernstein, since such stocks should rebound more when the selling finally stops.
Buyers Wary of Building Bubble
Some of the nation's largest pension funds are starting to back away from trophy properties in the most expensive real-estate markets over concerns a new bubble is inflating.
After property prices crashed during the financial crisis, pension funds—among the biggest investors in commercial real estate—turned their investment strategies away from risky speculative projects and toward properties considered "core," well-leased buildings that are seen as low risk due to their stable income, in cities such as New York, Washington and San Francisco.
But strong demand for a limited number of buildings has boosted prices of big-city skyscrapers so high they are approaching record levels.
Not all funds are worried about a bubble. Townsend Group, a pension consultant, says pensions and other large investors have committed $9 billion to funds that invest in core assets, but the fund managers have yet to invest that money. Townsend said the cash sitting on the sidelines for lack of an attractive opportunity is the most in many years. In some cases, pension funds are sticking with trophy assets in part because the recent upheaval in capital markets has scared them off from anything but the most stable assets.
A Second Great Depression, or Worse?
With the United States and European economies having slowed markedly according to the latest data, and with global growth continuing to disappoint, a reasonable question increasingly arises: Are we in another Great Depression?
The easy answer is "no" - the main features of the Great Depression have not yet manifested themselves and still seem unlikely. But it is increasingly likely that we will find ourselves in the midst of something nearly as traumatic, a long slump of the kind seen with some regularity in the 19th century, particularly if presidential election-year politics continue to head in a dangerous direction.
The Great Depression had three main characteristics, seen in the United States and most other countries that were severely affected. None of these have been part of our collective experience since 2007.
First, output dropped sharply after 1929, by over 25 percent in real terms in the United States (using the Bureau of Economic Analysis data, from its Web site, for real gross domestic product, using chained 1937 dollars). In contrast, the United States had a relatively small decline in G.D.P. after the latest boom peaked.
Second, unemployment rose above 20 percent in the United States during the 1930s and stayed there. In the latest downturn, we experienced record job losses for the postwar United States, with around eight million jobs lost. But unemployment only briefly touched 10 percent (in the fourth quarter of 2009; see the Bureau of Labor Statistics Web site).
Third, in the 1930s the credit system shrank sharply. In large part this is because banks failed in an uncontrolled manner - largely in panics that led retail depositors to take out their funds. The creation of the Federal Deposit Insurance Corporation put an end to that kind of run and, despite everything, the agency has continued to play a calming role.
Behind the Selloff: Stocks Are Pricing 'Worst Case Scenario'
Fears of a global banking crisis swept across markets, driving stocks sharply lower, Treasury yields to record lows, and gold to record highs.
"What's pointed out in the Wall Street Journal is what's obvious to us. We are concerned about European banks, sure. Are they going to need to raise capital? Will they all be solvent at the end of the day? These stories go back and forth, and until we know the answers to that, we're going to try to price worse case scenarios into stocks. Right now the markets are going trough the process of concerns."
Hogan said the "muscle memory" of the Lehman failure is adding to the anxiety in markets.
"People waiting for the Lehman moment probably will be disappointed," he said. "The psychology of the market is such that we have a very recent memory of calamity."
European Bank Fears Slam U.S. Market: Don’t Hit Panic Button Says Strategist
Concerns that started with Greece, Portugal, and Ireland spread to Spain and Italy. Now today comes fear that they've infected markets like Finland and Austria. What once was a fear about sovereign solvency has now shifted to a panic about bank insolvency, with virtually every single European bank selling off.
So how do you handle days like this? "You definitely don't hit the panic button and sell. You have to look at your portfolio and the companies you own.. and see where there's going to be opportunity down the road in 3 to 5 years because we know we'll get through this in maybe 12 months or 24 months," Sethi advises.
As for gold, everybody's favorite safe haven of late, be "really careful...it's no longer an investment, it's beginning to be a speculative position."
European bank stocks hurt by borrowing crunch
European bank stocks tanked Thursday as fears mounted about their exposure to the region's debt crisis and weakening economy.
Some European banks with heavy exposure to the debts of Greece and other weak countries are relying on loans from the European Central Bank because other private banks are reluctant to do business with them. The ECB said one bank, which it didn't identify, had paid above-market rates to borrow $500 million a day for seven days.
In 2008, the investment bank Lehman Brothers collapsed, causing the global credit markets to freeze up. Banks refused to lend to each other because they feared more failures and greater losses. Companies and consumers couldn't get loans.
"Any signs of a funding crisis brings back horrific memories," Pawlak said. "There's this visceral reaction."
Last Straw or Time to Buy?
After the 419.63-point selloff by the Dow, many individual investors are finally throwing in the towel. They were already nervous.
Not everyone is pulling the plug. Christopher Cordaro, a wealth manager at RegentAtlantic Capital LLC in Morristown, N.J., says that he and his clients are holding tight. "We're in a slow-growth recovery that will have a lot of volatility associated with it,'' Mr. Cordaro says. "But there's not enough bad economic news to get out of the market.''
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