In the absence of major market manipulators, day traders lose the leader to follow as in the sell-offs. Market participants still exhibit pessimism on concern of European sovereign debt crisis. However, the majority of portfolios are already thin on stock holdings but rich in cash. As a result, investors are reluctant to trim the portfolio further.
Market have been trading in a range for some time after the steep drop triggered by US rating downgrade. Day traders and speculators learn to trade accordingly. Near the range boundary, traders will quickly flip the positions to take profit and initiate new positions. Therefore, market participants are expecting a decline after the strong rebound from recent bottom.
But market dynamics may change as market manipulators may be absent for the rest of the year. The stocks in circulation among traders are purchased at a price much higher than market bottom. The shares at market bottom are largely purchased by bargain hunting investors for long term investment and market manipulators during short covering.
Household wealth have been growing steadily as economy stabilizes and personal saving increases. Although individual investors remain pessimistic on stock market, the growing portfolio value due to cash inflow from saving and stock dividend strength investor confidence.
If market manipulators cease to dump stocks to create market panic, market participants will look for better use of the cash in the portfolio. Dividend paying blue-chip stocks are the most desired because of steady growth in corporate earnings. Less aggressive investors will eye on corporate bonds.
Guess What? The U.S. Car Industry Is Back From The Dead
Car sales in the U.S. rose to the highest level in two years in November. And the U.S. car giants continue to recover as well.
Just as encouraging, says Bill Holstein, author of The Next American Economy and Why GM Matters, the average age of cars in America is now over 10 years, as compared to 6 or so years at the peak of the economic boom. This suggests that Americans will have to continue to buy new cars to replace the ones they have, which bodes well for future car sales.
Chrysler, Ford, and Nissan reported the strongest gains in November. Holstein is surprised by Chrysler in particular, which he thought would suffer from its merger with Fiat. Chrysler's sales, Holstein says, are being powered by the resurgent Jeep division, which saw sales leap an extraordinary 50% year over year. This explains why you see so many shiny new Jeeps all over the place.
Don’t get mad at Wall Street, get even
Mutual-fund managers will sell a losing stock near the end of the year in order to avoid having their disastrous bets memorialized in year-end reports.
Note carefully that there is no legitimate investment reason for this activity. After all, it is pursued for appearance’s sake only, since selling a stock after it has already lost does nothing to recover the loss. In fact, there is some research suggesting that window dressing can actually hurt a fund’s performance.
If the future is like the past, the short-term profit you turn with stocks such as these will come at the expense of the mutual funds who sold them in a vain attempt to fool us. It will serve them right.
Risk on/risk off and Moneyball economics
Risk on, risk off. No four words could better describe the frustrating year that was 2011.
For those of us who consider ourselves value investors, the risk on/risk off trade is particularly frustrating because the market has made little distinction in 2011 between the wheat and the chaff. When the market is in "risk on" mode, everything tends to rise in lockstep with little regard for price or quality. And investors differentiate even less in "risk off" mode, throwing out the baby with the bathwater.
If Europe's leaders manage to reestablish confidence in their respective sovereign bond markets, then it's "risk on" and commodities and lower quality, more speculative stocks should do phenomenally well. But if we have another setback — say, if a major piece of reform legislation gets torpedoed by squabbling among Euro nations, or a botched referendum — then it's "risk off" and you'd better be in cash.
In my view, this means implementing a dividend-focused strategy. Buy companies that survived the 2008 meltdown intact and actually raised their dividends that year. At current prices, your risk of long-term or permanent loss may be lessened. And if Europe's economy blows up, you can be reasonably certain that your dividend checks won't bounce.
Raising Taxes on the Rich: Not Whether, but How
This time last year Republicans were insisting that the Bush tax cuts be made permanent without paying for a penny of the cost, even though there is no evidence that they stimulated the economy.
Republicans like to pretend that cutting spending is economically costless, even stimulative, whereas raising taxes in any way whatsoever is so economically debilitating that it dare not be contemplated. This view is complete nonsense.
Careful studies by the Congressional Budget Office and others show that certain spending programs are highly stimulative, whereas tax cuts provide very little bang for the buck.
Keep in mind that these results are symmetrical. A policy with a high multiplier, such as government purchases, will reduce the gross domestic product by exactly the same amount if it involves spending cuts. A tax cut with a low multiplier will have an equally small negative economic effect if it is instead done as a tax increase.
Growing numbers of millionaires and billionaires have gone on record as favoring higher taxes on the rich, because they can afford them and think they're necessary to deal with our nation's fiscal problem, which is largely due to historically low revenues.
It is no longer possible to deny that there has been a sharp rise in the income and wealth of the ultra-rich while everyone else's income has stagnated. Authoritative recent studies by the Congressional Budget Office and by Anthony Atkinson, Thomas Piketty and Emmanuel Saez prove that fact beyond question.
But the idea that the rich cannot or should not pay more should be dismissed out of hand. They can and must pay more; the only question is how best to do it.
Fed Is “Ruining an Entire Class of Investors” Says Jim Rogers
Rogers has been a critic of the Fed's quantitative easing programs and artificially low interest rates, pointing to the latter as something akin to QE3 in drag.
"What the Federal Reserve is doing now is ruining an entire class of investors," says Rogers. By forcing rates down and keeping the economy on a flatline, he believes the Fed could cause another lost generation of investments. Suffice it to say, vaporizing those who faithfully accumulated savings over the years is no way to restore confidence in our financial markets.
"I'm long commodities and currencies; I'm short emerging market stocks, U.S. technology stocks, and I'm short European stocks," Rogers tells me after pronouncing himself a terrible market timer (author's note: He's nothing of the sort). His logic behind the portfolio is that he wins if the economy turns up due to commodity scarcity. And if the economy remains weak, Rogers' short positions will more than offset his long positions.
2012 Mortgage delinquencies seen dropping sharply
If the U.S. economy does not suffer more setbacks, the rate of mortgage holders behind on their payments should decline significantly by the end of next year, according to credit reporting agency TransUnion.
Banks are still working through a backlog of foreclosures created by issues including the robo-signing scandal, in which bank officials signed mortgage documents without verifying the information they contained. The issue surfaced last year in areas with large numbers of foreclosures, and banks had to backtrack and review foreclosures across the country to make sure their paperwork was in order.
Helping to cut the mortgage delinquency rate are a slowly improving job market and a stabilizing housing market.
The situation with credit cards is much stronger. Card delinquencies — payments late by 90 days or more — dropped to their lowest levels in 17 years during the spring, then saw a slight increase in the third quarter, but still remained near historic lows.
One reason card delinquencies are expected to remain so low is that credit is much tighter than it was before the recession. TransUnion data showed that nearly a quarter million new card accounts were opened by people with less-than-stellar credit scores during the third quarter, which contributed to the slight increase in late payments during the summer months. But banks are mainly still going after consumers with top-tier credit histories.
"People were protecting their home equity," he said. Credit cards were relatively easy to come by in years past, he said, so when money got tight, it was an easy decision to default on cards and maintain house payments. Now it's common to owe more on a mortgage than a house is actually worth, but credit cards are harder to get. So consumers are being practical and protecting what is more valuable to them.
He said he expects the equation will shift again if housing prices rebound and people go back to building home equity.
Occupy protesters take over homes, block evictions
In more than two dozens cities across the nation Tuesday, an offshoot of the Occupy Wall Street movement took on the housing crisis by re-occupying foreclosed homes, disrupting bank auctions and blocking evictions.
Hundreds of demonstrators slogged through the rainy streets of East New York, Brooklyn, stopping at the foreclosed homes that are littered throughout the low-income community and covering the "For Sale" signs with Occupy police tape.
Their message, as spelled out on protest signs: "Bail Out Workers, not the Banks."
The protesters' ultimate destination was a home that has been vacant ever since it was repossessed by the bank a couple of years ago. The plan was to take it over permanently and give it to a homeless family to live in.
In Minneapolis, protesters are trying to block the evictions of several area owners who fell behind on their mortgages because of illness or income loss.
One homeowner they're trying to help is Bobby Hull, an ex-marine and a master plasterer and contractor who has lived in his home since 1968. Hull still has income and access to financial help from family members, just not enough to pay his bloated mortgage principal.
"I can afford $800 or $900 a month; I can't afford $1,200 to $1,500," said Hull.
Foreclosure in his case made no sense, said Anthony Newby of Neighborhoods Organizing for Change. His mortgage balance was $275,000 but the auction of his home only fetched $80,000, less than one-third of the amount he owed. Everybody, including the bank, would have been better off reducing his balance to an affordable level, said Newby.
European CEOs Move Cash to Germany
Grupo Gowex, a Spanish provider of Wi-Fi wireless services, is moving funds to Germany because it expects Spain to exit the euro. German machinery maker GEA Group AG is setting maximum amounts held at any one bank.
The Bundesbank, Germany's central bank, registered capital inflows of 11.3 billion euros ($15 billion) from non-banks in September, according to the breakdown of its current account published Nov. 9. That helped transform a deficit of 47.3 billion euros in Germany's balance of other capital flows in August to a surplus of 700 million euros in September.
Companies outside the euro region are doing just as much preparation as those inside. U.K. Chancellor of the Exchequer George Osborne said yesterday he's seen studies suggesting a collapse of the euro would lead to a "very significant" drop in U.K. economic output.
Top of the list of concerns among companies is the collapse of one or more financial institutions in Europe. Executives say they're already moving money around to avert that risk.
Corporate warnings bode ill for earnings
On top of euro zone debt troubles, Wall Street now has to worry about sagging sales from Europe as a recession in the region seems more likely.
Earnings are now expected to increase 10.1 percent for the fourth quarter, down from a growth estimate of 15 percent at the start of October and from an estimate of 17.6 percent in July, according to Thomson Reuters data.
But the market for months has struggled with the news from Europe, which featured the lack of resolution to the debt crisis, causing high uncertainty for investors.
Prospects for profit and revenue growth have been among the chief reasons why a good number of analysts remain optimistic about stocks heading into 2012.
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