Friday, December 7, 2012

Market Rebounds; Investors Stay Cautious

Equity stock market extends the gain from previous week. Market participants remain cautious. Fear of fiscal cliff is the main reason for low investor confidence. However, market participants are not ready to dump stocks yet.

There is no shortage of liquidity in the financial system. This helps to buoy equity stock market despite bad news coming out regularly. Market participants have low exposure to stocks and can pick up bargains if market retreats.
As it is approaching year end, trading activities are gradually coming down since investors are evaluating the final outcome in tax hike for the next year. When the uncertainty in tax hike is removed, market participants will turn back to economic condition again to determine market direction.

Investors Shun US Due to 'Cliff'
The looming "fiscal cliff" is causing the first signs of a shift away from U.S. markets into Europe, said Jim O'Neill, chairman of Goldman Sachs Asset Management.

"More and more longer-term investors are being influenced by [the fiscal cliff impasse] and are starting to think Europe has dealt with some of its long-term issues, even though the economies are weak." O'Neill told CNBC's "Squawk Box." "I detect the first signs of people shifting more towards Europe from the U.S."

High-Speed Trades Hurt Investors, a Study Says
A top government economist has concluded that the high-speed trading firms that
have come to dominate the nation’s financial markets are taking significant profits from traditional investors.

The study comes as a council of the nation’s top financial regulators is showing increasing concern that the accelerating automation and speed of the financial markets may represent a threat both to other investors and to the stability of the financial system.

The issue of high-frequency trading has generated anxiety among investors in the stock market, where computerized trading first took hold. But the minutes from the oversight council, and the council’s annual report released this year, indicate that top regulators are viewing the automation of trading as a broader concern as high-speed traders move into an array of financial markets, including bond and foreign currency trading.

Mr. Kirilenko, who is about to leave the C.F.T.C. for an academic position at the Massachusetts Institute of Technology, presented a draft of the paper at a C.F.T.C. conference last week. He said that the markets were a “zero sum game” in which the high-speed profits came at the expense of other traders.

Top U.S. FirmsAre Cash-Rich Abroad but Poor at Home
At a time when American companies hold near record amounts of cash, many are surprisingly cash poor at home. That doesn't mean they could suddenly run out of money to pay their bills. But it does mean there could be unseen limits on their ability to pay dividends and buy back shares.

With billions of dollars overseas that may never come back, the Securities and Exchange Commission is concerned that companies haven't been presenting investors with an honest appraisal of their liquidity. As a result, regulators are pressing companies to more clearly lay out how much of their cash is in the U.S. and how much is overseas and potentially encumbered by U.S. taxes.

The heavy imbalance between overseas and domestic cash at many U.S. companies in part reflects international expansion into new and sometimes more lucrative markets. Businesses may choose to pile up foreign cash to expand globally, paying for new facilities and overseas acquisitions.

Paulson Said to Blame Bet Against Europe for Most of Loss
John Paulson, manager of $20 billion in hedge funds, told investors that the bulk of his losses this year came on bets that the European sovereign-debt crisis would worsen, according to a person familiar with the matter.

Paulson lost 51 percent in his Advantage Plus Fund in 2011, mostly on a failed bet on an economic rebound.

U.S. household wealth rises to near 2007 high
The net wealth of U.S. households rose in the third quarter to its highest since late 2007, providing a hopeful sign for future consumer spending.

The data, part of the Fed's quarterly Flow of Funds report, also showed Americans continued their four-year-old effort to shed debt.

The 91% Tax Fantasy: Peter Schiff
The fiscal cliff deadline is looming and President Obama refuses to sign any legislation that doesn't raise tax rates on the top 2%. There is an understandable amount of debate on either side of the aisle over the president's decision.

In Krugman's Twinkie Manifesto, he claims that in the 1950s "incomes in the top bracket faced a marginal tax rate of 91% while taxes on corporate profits were twice as large, relative to national income, as in recent years."

Buffett's A Minimum Tax for the Wealthy article touts similar ideas.

In an op ed published in Friday's Wall Street Journal, Peter Schiff challenges the increasingly popular pro-tax rate hike argument:

"The confiscatory top marginal rates of the 1950s were essentially symbolic—very few actually paid them. In reality the vast majority of top earners faced lower effective rates than they do today," he writes.

The bottom line?

"The best thing we can do for economic growth is to lower taxes on the rich...they're already too high...but we also have to acknowledge that government is too big," he tells The Daily Ticker. "We have to dramatically reduce the size of government spending and if we don't do that then we need to be talking about tax increases on the middle class and working poor."

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