Since smart money begins to buy on market fear as observed a few weeks ago, market participants later realize the move and slowly follow the herd to increase stock holdings. The buying favors to move market higher as sellers are reluctant to sell. With the gain on paper increases, some investors consider to take profit on earlier purchase during market bottom in last year. As market sentiment remains pessimistic, it is believed that market may turn back after the rally and provide opportunity to use the proceedings later to buy stocks back inexpensively.
Although broad market index have climbed back considerably from bottom in last year, equity stocks are still not favorite of investors. Stocks with the largest gain are mostly large-cap and dividend stocks. Investors remain averse to risk and lack of confidence in equity stocks.
Despite of market pessimism, smart money is finding bargain in a market where traders dominate. Since market manipulators no longer dump stocks on market pullback, institutional and individual investors begin to regain confidence in stocks.
Market shows sign of support from smart money. Market participants should cautiously use surplus cash reserve to pick bargains while speculators find opportunity in swing trading.
Tax Cuts Should End: Lawrence Summers
The United States should not extend Bush-era tax cuts for the wealthiest Americans even as the so-called 'fiscal cliff' looms because it will perpetuate income inequality, says Larry Summers, former U.S. Treasury Secretary.
Instead, these revenues should go towards strengthening public education and ensuring that low-income students are presented with equal opportunities as their wealthy counterparts so that they can participate in the economy.
Tax breaks for the wealthy cannot continue to exist because it leads to a "perpetuation of privilege", Summers said in the editorial in the Financial Times on Sunday. Unless steps were taken to "responsibly" increase the burden on those with high income and redistribute the proceeds, the trend toward inequality will continue, he said.
Downgrade Anniversary Shows Investors Gained Buying U.S.
When Standard & Poor's downgraded the U.S. government's credit rating in August, predictions of serious fallout soon followed.
They were wrong. Almost a year later, mortgage rates have dropped to record lows, the government's borrowing costs have eased, the dollar and the benchmark S&P stock index are up, and global investors' enthusiasm for Treasury debt has strengthened.
"The U.S. Treasury is still the widest, deepest and most actively traded in the world," said Jeffrey Caughron, a partner at Baker Group LP in Oklahoma City, which advises community banks on investments of more than $40 billion. "That becomes all the more important when you have signs of weakening global economic growth and continued problems in Europe."
Still, there is broad agreement that the U.S. must address the long-term fiscal imbalances that have driven public debt up to 68 percent of gross domestic product. Ryan and other pessimists contend the country is benefiting from temporary forces such as a flight of capital from Europe's sovereign debt crisis and the Federal Reserve's "Operation Twist" program to buy long-term debt.
"Yield changes during the last year had nothing to do with the downgrade, but it had to do with everything else pushing yields lower," Belton said. "On the top of that list you have a massive flight to quality out of Europe, and the U.S. is a safe haven."
How Close Are We to New Great Depression?
The risk of a new depression - a sustained, severe recession - has struck fear into the heart of markets and driven monetary policy in developed economies since the current financial crisis began.
"When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there's a very real danger that we will collapse into a new Great Depression," he argued.
The explosion in cheap credit has been widely blamed for the global financial crisis, but the debate about how to fix the problem continues.
The Only Summer Market Strategy That’s Working
Since collapsing at the end of April the S&P500 has rallied, dropped and generally churned in a way at once nauseating and dull. The news and charts have shaken out both bulls and no matter what gets thrown at it the market simply refuses to collapse or, for that matter, climb a "wall of worry". Stocks are simply stuck, rattling between the mid and low 1,300 area.
Through it all there's been one strategy that's worked. It's hard to execute, embarrassingly simple and a Wall Street cliche': Buy the dips and sell the rips. That's it. If you've been buying when stocks are down 1%, then selling them into rallies, you've made money while others have struggled.
This isn't a stock picker's market. It's a macro-driven, sector play market. Sectors rise and fall as a group, driven by macro news rather than stock-specific factors. That makes it a brutal market to hedge but a decent place to trade.
When Safe Havens Become Bubbles
Safe haven is a lovely term indicating that an asset class, bank or company is rock solid, reliable and dependable. After years of financial crisis a safe haven asset feels like a port in a storm and investors have flocked into so-called safe haven assets like U.S., German and UK government debt.
The problem with this trend is that returns are low, with many investors now willing to pay for the privilege of lending money to governments who enjoy safe haven status. Preserving capital in volatile times is an art in itself, but one analyst says the safe haven play is now creating bubbles in safe haven assets, indicating losses could be just around the corner.
"No one wants to be a safe haven anymore," said Matthew Lynn, the founder of Strategy Economics on Wednesday.
"The Swiss and the Danes are already battling against it-and the other 'havens' that remain are becoming ridiculously over-valued," said Lynn.
"It is clear that Switzerland does not want to be a safe haven anymore. And anyone who parks their money there has to accept the central bank will be fighting them all the way."
Danish authorities last week cut a key interest rate below zero to deter investors. They don't want to be a safe haven any more than the Swiss do," said Lynn.
Global Economy: Crash or Gradual Slowdown?
The debate over whether the world's economy is facing a dramatic crash has gained traction in recent weeks, as the euro zone debt crisis continued to dominate headlines and worries about other major economies like the U.S. and China grew.
"We are going through one of the biggest structural changes that we have seen in the global economy since the 1971-73 process."
"We've got a generation of corporate treasurers scarred by 2008-09 thinking they don't want to rely on banks for short-term funding and trade finance. That creates a very different relationship. It creates a less leveraged but also less dynamic economy with lower trend growth going forward."
Some Firms Opt to Bring Manufacturing Back to U.S.
About 14% of U.S. companies surveyed by a Massachusetts Institute of Technology professor definitely plan to move some of their manufacturing back home—the latest sign of growing interest among executives in a strategy known as "reshoring."
Among the main reasons cited for reshoring: a desire to get products to market faster and respond rapidly to customer orders; savings from reduced transportation and warehousing; improved quality and protection of intellectual property.
MIT's Dr. Simchi-Levi said lower U.S. corporate taxes would help bring more manufacturing back. He said it wasn't yet clear whether the reshoring trend will result in a large amount of U.S. job growth. Some of the jobs will be low-paid assembly work, he noted.
Even so, he called reshoring an encouraging development: "Once you start this process, there is no telling where it ends."
Stocks vs. Bonds: Neither Are as Safe as You Think Says Trader
Ancient conventional wisdom says investors with a high tolerance for risk should skew their portfolios into stocks, while more conservative, longer term savers should lean towards bonds for more safety. As shown in the most recent data from Morningstar, the masses continue to run from stocks into the relative safety of bonds. In June alone $8.5 billion was yanked from equities, while more than $10b was invested in taxable bonds, and another $3.8b into munis.
According to Lincoln Ellis, chief investment officer at Strategic Financial Group, there's one big problem with the binary choice between stocks and bonds: it doesn't consider the possibility that both could collapse in tandem. Stocks, corporate bonds, Treasuries and munis are all being driven by the same forces. The upshot is that traditional notion of bonds -corporate or government- having more safety than equities is wrong.
Hedge fund industry assets sink as performance ebbed in second-quarter
Even though investors put a net $4.1 billion into hedge funds in the second quarter of 2012, it was not enough to offset performance losses at many funds that resulted in total industry assets shrinking.
Hedge fund capital dropped from $2.13 trillion in the first quarter to $2.1 trillion, with the average fund down 2.7 percent, fund tracking firm Hedge Fund Research said on Thursday.
About 70 percent of all hedge funds recorded net outflows of $39.2 billion last quarter, while the remaining 30 percent gained $43.3 billion in new capital, HFR said.
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