Although the overall wealth is growing steadily, the capital deployment to drive the growth of business activities is relatively low. Banks are reluctant to lend and small business have difficulty to obtain credit to expand. Money liquidity remains an obstacle to economy and employment growth as well as polarization of wealth distribution.
Despite a looming Greek sovereign debt default, there is no panic sell-off although profit taking drags down market from the peak. Market manipulators have not attempted to use bad news to create panic sell-off. At this point, it appears that market manipulators have given up the previous selling strategy as market participants are waiting with cash on the sideline for bargain rather than to sell at the bottom again. However, short term market behaviour can be irrational. Individual investors are still very cautious and holding cash to buy at any market collapse.
Institutional investors are more aggressive due to inflow of investors capital. Since market is at the high limit of recent movement range, institutional investors are not chasing hot stocks but switching to undervalued stocks.
Market participants have been increasing the risk appetite as hot money are finding investment opportunities. Stocks are becoming scarce in the trading pool as long term investors are accumulating. Market would trend higher in the long run despite ups and downs in the course.
Active investors and individual savings portfolio can use cost averaging strategy for long term appreciation. Traders and speculators can buy on the dip and take profit on the rally. But identifying the short term bottom and top is a difficult task.
How to Play the Five Big 'What Ifs' of 2012
Here's how to tackle the five scenarios that are keeping Wall Street investors awake at night:?
1 What if Europe gets worse?
No matter how much investors might desire it, Europe's economic mess just won't go away. But the big fear is that it will deteriorate even more before it gets better.
He adds: European stocks could look really cheap in 12 to 18 months. So savvy investors will be wise to keep some cash on the sidelines.
2 What if U.S. housing finally improves?
It's now close to five years since the housing bubble burst. When it rebounds isn't only an investment question, but of vital importance to households as well.
3 What if the jobs recovery falters?
The long-awaited jobs recovery seems to have arrived. The unemployment rate has dropped steadily, albeit slowly, from 9.1% in August to 8.5% in December.
If the jobs market does falter, then stocks of companies that sell consumer staples, such as soap and food, could benefit, he says. In addition, pharmaceutical companies and electric utilities, also providers of essentials, will tend to do well, he says.
4 What if there's another budget crisis?
Last summer, investors watched in horror as Congress wrestled over the government's finances. They even risked the first-ever default on U.S. debt.
The problem: Massive uncertainty over the outcome.The bigger the differences between the two sides, the worse it will be for investors. Ms. Zentner says an impasse could cause wild swings in the stock market and the economy. So if Congress looks like it's headed for another blockbuster fight, stay safe in cash and avoid the potential gyrations of stocks.
5 What if China's economy heats up?
China's economy matters because it's the second largest in the world. Over the past decade, the communist country has grown fast, but lately it has been cooling off. The question is: What happens when it heats up again?
"As China grows so does the use of commodities," says Michael Woolfolk, senior currency strategist at BNY Mellon in New York. Specifically, he points to industrial minerals such as iron ore and copper, which are used in construction and manufacturing.
Stocks Are Cheaper Than They've Been in Two Decades
U.S. stocks are trading at their cheapest levels since at least 1990, according to such commonly used valuations as price-to-earnings and price-to-book ratios as well as dividend yield, Bespoke Investment Group says.
To start 2012, the benchmark had an earnings multiple of 13, the lowest since 1990 and below the 80-year average of 15, according to Bespoke. It would take a move back to 1,484 to get the benchmark back to this long-term mean P/E.
The price-to-book ratio is 2.05, below the average since the late 1970s of 2.43. To get back to that average P/B, the benchmark would need to increase to 1,491.
“Gut Check” Coming But Todd Harrison Sees More Room for 2012 Rally
Since mid-December, major averages have risen over 9% and the S&P is off to its best start to a year since 1987, albeit on the lowest volume since 2008.
Bulls seek to keep the momentum going this week, which features a Fed meeting, another batch of earnings and U.S. economic data, as well as ongoing drama in Europe, including negotiations with Greek debt holders and the EU's decision to ban Iranian oil imports.
Strong Earnings From Dow Components Defy Weak Economy
In some ways it seems fitting - even telling - that the hottest stock in the Dow Jones Industrial Average over the past year comes down with a cold during January earnings season. It would be hard to say that McDonald's (MCD) did anything wrong given the $27.2 billion record high revenues raked in last year, as well as record net income of $5.5 billion.
And despite beating bottom line estimates by 3-cents and matching sales, McDonald's shares are shedding more than 2% on the news.
Verizon (VZ) also reported record revenue growth today that matched expectations, but its muddled path to an ex-items bottom line miss by a penny is cause for concern in some circles.
And finally, we tear apart Johnson & Johnson (JNJ), the global healthcare conglomerate who's defensive appeal outweighs its 4% sales growth. J&J comfortably beat on the bottom line with EPS of $1.13 versus $1.09 estimates.
While Verizon and AT&T pay larger dividends, the fact that J&J is one of only four U.S. companies t0 carry a AAA-rating makes its 3.5% yield even more appealing. As does the fact that if and when they increase it again in April, it will mark the 50th consecutive year they have raised their dividend.
Greek Bond Talks Break Down, But Markets Shrug It Off
The breakdown of talks between Greece and its bondholders appears to be a nightmare scenario. Standard & Poor's has threatened to declare Greece in technical default, the first for an EU member state since the introduction of the euro in 1999. Meanwhile, the IMF is warned "the euro crisis entered a perilous new phase" and lowered its global growth forecast for 2012.
Despite heightened risk of a 'disorderly' resolution to the Greek debt crisis, the financial markets gave a collective shrug on Tuesday. The Dow was recently down 0.3%, following similarly modest declines in Europe while the euro recovered from its early weakness to push beyond $1.30.
As inevitable as a Greek default may be, Merk concedes the news from Europe is likely to swing between "panics and euphoria" in the coming year. "The issue is, if things spread, you want to have that safety buffer... that 'ring of fire' around them, that's what the European Central Bank has been working on."
Market Rally of 2012 Is Almost Over: Bianco
Jim Bianco thinks the stock market is living on borrow time. Giving his outlook for the rest of 2012, the president of Bianco research says stocks "might have another 5 to 6% to go and that's on the topside." He has two main reasons for his relative gloom: The end of stimulus and rapidly shrinking earnings.
"It's a QE world," says Bianco, referring to Quantitative Easing. "All the Central Banks in the world are printing money."
By the account of many, including Bianco, cheap money in the form of artificially low rates has been the main driver of solid global stock performance over the last three-months.
January rally interrupted as buyers pull back
A month-long rally on Wall Street appears to be sputtering as stocks slipped on Thursday in what investors called a possible warning of weakness ahead.
This is one of the busiest weeks of earnings season, with 117 S&P companies expected to report. According to Thomson Reuters data, 59 percent of the 152 companies in the S&P 500 that have reported earnings beat analysts' forecasts, down from the 70 percent beat rate in recent quarters at this stage.
In Punishing Year for Hedge Funds, Biggest One Thrived
The world's biggest hedge fund is also one of the best performers.
Bridgewater Associates, which manages nearly $120 billion, posted returns of 23 percent in 2011 - a year when the average hedge fund portfolio lost 5 percent.
The firm has managed to post big numbers even as assets have swollen, defying conventional wisdom and industry experience. Investors poured money into Paulson & Company in recent years, after the founder, John A. Paulson, earned billions of dollars betting against subprime mortgages. Assets at Paulson topped $38 billion at the beginning of 2011, but many of his portfolios suffered last year, with one of the main funds losing 50 percent.
Bridgewater has been able to avoid that fate, in part, because it follows a go-anywhere strategy. The fund's managers assess the political, economic and regulatory environments around the world, and then make bets using commodities, currencies and other assets.
Buffett Blames Congress for Romney's 15% Rate
Warren Buffett, the billionaire calling for more taxes on the rich, said Mitt Romney's U.S. tax rate of about 15 percent reflects poor laws rather than failings by the candidate for the Republican presidential nomination.
"It's the wrong policy to have," Buffett told Bloomberg Television's Betty Liu in an interview today. "He's not going to pay more than the law requires, and I don't fault him for that in the least. But I do fault a law that allows him and me earning enormous sums to pay overall federal taxes at a rate that's about half what the average person in my office pays."
Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A) , supports Democratic President Barack Obama and said Congress needs to raise taxes on the wealthiest Americans to close the budget deficit.
Millionaires Won't Sit Still for Higher Taxes
That comes to mind with the proposals outlined in President Obama's State of Union address Tuesday that would effectively codify the so-called Buffett Rule -- that billionaires should not pay a lower tax rate than their secretaries. With the secretary of the chief executive of Berkshire Hathaway seated next to the First Lady, the president proposed that those earnings over $1 million pay a minimum 30% federal tax rate. That would mean no deductions for mortgage interest, health care, retirement savings or child-care benefits, although the deduction for charitable deductions would be preserved.
Along with Occupy Wall Street, it's apparent Washington has the so-called 1% of top earners in its sights. No matter that the top percentile already accounts for 37% of taxes.
Nobody seems to ask the question why dividends and capital gains are taxed at preferential rates. The simple answer is that they have already been taxed once, and their seeming tax breaks are applied to income being taxed a second time.
Dividends are paid out of after-tax corporate income that already has been taxed at rates as high as 35%. Capital gains are generated by income from investments, which come out of savings. The savings come from income that already has been taxed but not spent.
The pilloried 1% may decide not to bother with the risk of such ventures. Rather than be subject to the double taxation of dividends, they could opt for high-yielding real-estate investment trusts or master limited partnerships. REITs and MLPs basically flow through all their earnings to their shareholders, who are taxed on the earnings at ordinary-income rates.
If million-dollar earners are going to be hit with a minimum 30% tax rate, they might as well go for the highest, fully taxed yields. That would be REITs, MLPs or junk bonds. Or they could just opt for municipal bonds and pay zero taxes.
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