From traders perspective, current market cycle is very similar to last year. In the beginning market climbs on wall of worry, investors do not have confidence and prefer to allocate assets to money market. Then market reaches the top and market manipulators start to dump stocks to take profit. With insider knowledge of European sovereign debt and US rating downgrade, market manipulators further beat down market with heavy short selling to create panic selling among institutional and individual investors. Market manipulators made significant profit on heavy selling and finally closed the short positions at the year end.
The rally resumes since start of this year as market manipulators have closed the short positions and cannot create panic sell-off among market participants. Similar to last year, the rally continues when investors are cautious and do not have confidence. Now it appears that market may have reached the top and is consolidating.
Market participants realize that recent top may have already appeared and expect significant pullback or even market collapse like the drop triggered by US rating downgrade in last year. The trend observed from the perspective of charting shows that market collapse may be coming after oscillation at the top. As a result, institutional and individual investors are staying on the sideline with hefty cash.
Traders and market manipulators may repeat to beat down market like last year as there are lots of news such as US rating, debt ceiling, Euro zone crisis, etc. However, unlike last year, market participants have the highest percentage in cash and least incentive to dump stocks. Therefore it is doubtful whether the panic sell-off will repeat in this year.
Market may oscillate violently due to excess capital in financial market. However, this is also a good opportunity for speculators with insight in market mechanism. Risk mitigation is the most important consideration since current market environment is highly manipulated and short term market movement relies more on capital movement rather than economic condition.
Will Earnings Season Turn Into Warning Season
CNBC.com's Jeff Cox discusses what investors can expect from the upcoming earnings season. "Almost 4 to 1, companies are saying they are going to do worse than they originally thought," says Cox. Europe is hitting U.S. companies.
Income Inequality is America’s Biggest Challenge: United Nations Economist
In "The Measure of a Nation: How to Regain America's Competitive Edge and Boost Our Global Standing" statistician and United Nations health economist Howard Friedman compares the United States to 13 other wealthy nations in five key categories: health, education, safety, democracy and equality. His analysis and conclusions are alarming: the U.S. has fallen far behind in most of these areas, causing the nation to become "the Dog" when juxtaposed to its Asian and Western European competitors.
According to Friedman, the biggest challenge for the U.S. centers on the nation's rising income inequality, a problem that led to the Occupy Wall Street protests and one that has become a central theme of President Obama's reelection campaign. The U.S. "has substantially higher levels of income and wealth inequality than our competition," according to Friedman, and Americans' "staunch faith" in U.S. meritocracy is a misconception derived from false notions.
"The U.S. has far less social mobility than other wealthy countries," he says. "The American dream of this social mobility actually turns out to be a myth. The top student from a poor neighborhood has roughly the same chance of graduating college as the worst student from a wealthy neighborhood. That's not a meritocracy. And that leads us to a system where those who have the most will continue to have more and more and the rest will struggle."
BRICs Priced for Economic Meltdown
The biggest emerging markets are contributing more than ever to the global economy as their proportion of the world stock market shrinks, leaving investors with the widest valuation gap in seven years.
“Unless we are seeing a major collapse of those economies, it’s a huge opportunity for investors,” O’Neill, who helps oversee $824 billion, said in a June 28 phone interview. The BRIC stock markets may double by 2020 as their share of world gross domestic product increases to about 27 percent, he said.
“Equity markets have started to anticipate much more difficult economic times in these countries,” Shaoul said in a June 28 phone interview from New York. “The balance of risks is to the downside.”
“The emerging markets are a place to be,” Byron Wien, the vice chairman of Blackstone Group LP’s advisory services unit, said in a June 26 interview on Bloomberg Radio in New York. “They’ve done poorly but now prices have come down to very attractive levels.”
Oil Prices May Have Hit Bottom: Expert Sees Energy Prices Rising
Global energy prices are moving sharply higher Tuesday morning on news that Iran was attempting to disrupt oil supplies by blocking the Strait of Hormuz waterway. Brent crude topped $100 a barrel for the first time in three weeks and U.S. oil futures for August delivery gained nearly 5 percent mid-morning before easing to $87.71 a barrel.
Heinsohn says Iran's saber rattling in April was a big part for the jump in energy prices but other factors this summer season will keep prices elevated. Hurricanes, greater consumer demand and now the U.S. and European Iranian oil embargoes will drive oil and gasoline prices higher until at least September.
There are bearish factors on the supply side that could offset any major price spikes including increased oil production by Saudia Arabia and a commitment by world leaders to tap oil reserves.
The Secret Word: Deflation
Inflation reigned for 75 years, from 1933 to 2008. People are so used to it that they cannot imagine the opposite monetary environment. Bullish economists have been calling for recovery, which means more inflation, and bearish advisors have been calling for a crash in the dollar, which means hyperinflation.
Deflation explains:
1) Why interest rates on highly rated bonds are at their lowest levels in the history of the country;
2) Why the velocity of money is the lowest since the 1930s;
3) Why huge sectors among investment markets are down over 40%;
4) Why the Consumer Price Index (CPI) just had its biggest down month since 2008;
5) Why Europe is in turmoil.
That's right: Ten-year Treasury notes pay out less than 1.5% annually, their lowest rate since the founding of the Republic. Treasury bills yield essentially zero, their lowest level ever. The velocity of money failed to rise during the past three years of partial economic recovery, and it recently made new lows. Real estate prices have fallen 45% in the past six years. Commodity prices — as measured by the CRB Index — are down 45% in just four years. This group includes oil and silver, two of the most hyped investments of the past decade. Remember in March when articles quoted analysts calling for $5, $6 and $8-per-gallon gasoline? In just three months since then, gas prices have fallen 13%, knocking the CPI into negative territory.
Ironically, investors in the past decade have been doing exactly the opposite of preparing for deflation. Convinced of perpetually rising prices, they have bought every major investment. They chased real estate up to a peak in 2006. They bought blue chip stocks into the high of 2007. They pushed commodities up to a peak in 2008. They chased gold and silver up to highs in 2011. And through spring 2012, they continued to buy stocks and commodities on any rumor that promised inflation: European bank bailouts, Operation Twist, the Greek election, Group-of-8 summits, Fed meetings, Bernanke press conferences, improved economic numbers, predictions of QE3, you name it. Meanwhile, the U.S. Dollar Index hasn't made a new low for four years. During deflationary times, cash is king, and investors have chosen to own anything but cash.
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