Thursday, January 27, 2011

Wealth Inflation: Investors Chasing High Return Assets With Extreme Caution

After setting 52-week high, equity stock market turns back on the last day of week with a loss. Although investors are very cautious, selling appears to be executed orderly. Trading volume does not surge significantly on fear. Wealth effect has benefited investors and increases the confidence to hold hard assets such as equity stocks. Market participants have diversified attitude on trading strategy. Day trading activities increase as some investors increase speculative holding which are flipped for quick profit. Some investors are afraid of a possible correction and temporarily stay on the sideline. A small portion of investors start to turn to real estate for long term investment.

Equity stock remains the favorite investment among household investors because of dividend yield. Treasuries and bonds are less attractive. Real estate has maintenance cost and other expenses. But the intrinsic value is much higher than market value and hence much room for appreciation. Federal Reserve has successfully avoided a collapse in the financial market. The wealth effect will continually boost economic activities despite the fact that it creates a wider wealth gap between the haves and have-nots.

Market may need time for consolidation before advancing further. Investors confidence remains fragile until a recovery on grassroots economy which would benefit a larger portion of household.

Shutting Out the New Traders
High-frequency traders were blamed for speeding last year's flash crash. High-frequency trading firms love to buy from and sell to "dumb" individual and institutional investors. Individuals tend to place market orders rather than using limit orders at or below the bid price. Thus, they pay the maximum. As for mutual funds and other institutional investors, they are easily front-run by the new trading operations, which have faster access to market data as well as faster trading computers. If the funds are buying a particular stock, the traders' computers can detect this activity, buy up shares ahead of the fund and sell it back to the fund for a profit of a cent or two. This runs up the costs for mutual fund investors.

Brace Yourself: Peter Schiff Predicts U.S. "Inflationary Nightmare", Made in China
From the weather, to speculators, to greedy corporations, inflation’s "got nothing to do with those factors” and everything to do with the money supply, says Schiff.

Inflation "is the consequence of what the government has done to try to stimulate the economy,” he says, referring to quantitative easing and stimulus spending. Basically, the Fed has had to print money in order to pay for this country’s huge deficits, which in turn has pushed up the price of just about everything priced in dollars, which remains the world's reserve currency.

"As the Chinese currency increases in strength, the dollar must decrease," he explains. "And, so Americans [would] experience higher prices, falling purchasing power and a lower standard of living.”


Stocks Priced for 'Perfection'? No, But "Pretty Close," Author Says
As we've already seen in Ireland and Greece, and now potentially in the U.K., austerity measures tend to bring about some short-term pain; what's unknown is whether the long-term gains are worth it, assuming they do emerge.

"Never Buy Another Stock Again": An Investing Guide for the Rest of Us
With the Dow nearing 12,000, many would like you to believe it’s a stock-pickers market. But, if you ask Reuters market editor David Gaffen, he’d disagree.

His point, not only is it too time consuming for individual investors to research individual stocks, investing fees are also costly and eat into returns. On top of that, if you don’t carefully monitor each and every stock in your portfolio, you could end up stuck in a stock that tanks.

Even for the best and brightest investors – includlng those whose manage money for a living – it’s not that easy, says Gaffen. He points to the most recent bear market where even some of the best fund managers lost a lot of money.


Dow Jones average falls after hitting 12,000
The last time the Dow closed above 12,000 was June 19, 2008, just as the financial crisis was worsening.

Davos: Soros Speaks
The World Economic Forum in Davos attracts a particular kind of financier and corporate honcho. The folks who flock to this out-of-the-way ski town in the Alps in January are plenty worried about the bottom line and their personal portfolios.

But the reporters were primarily interested in hearing what the oracular investor had to say. As he usually does, Soros spoke about his philosophy of history and the markets. "Markets, left to their own devices, don't tend towards equilibrium. They are prone to create bubbles. So, actually, bubbles are just as characteristic of financial markets as equilibrium."


U.S. manufacturing profits suggest stronger economy
U.S. manufacturing companies posted higher-than-expected results, as sharply improved margins boosted profits amid strong industrial demand and growth in emerging markets.

Citi's Buckland Says Global Stocks Will "Grind Higher" in 2011, Led by #Surprise!# Japan
“We expect earnings and share prices to reengage in 2011,” he tells Aaron in the accompanying video. Last year earnings finally caught up to share prices. This year, Buckland believes earnings will rise 11-12% and share prices will follow.

Buffett's Options for His Mountain of Cash
According to a Sept. 30, 2010 filing, Berkshire Hathaway has $34.46 billion in cash. While it is possible, the chance that Buffett would be satisfied simply standing by and watching his money pile continue grow in size is slim. In the past, he has clearly expressed his negative feelings towards the idea of holding cash as a long term investment.

Paulson's $5 billion payout shocks, raises questions
Billionaire hedge fund manager John Paulson, whose bet against the overheated housing market made him one of the world's wealthiest people, became a lot richer last year.

By earning an estimated $5 billion in 2010 thanks mainly to bets the economy would recover, Paulson likely set a record for the $1.9 trillion hedge fund industry's biggest-ever year's earnings. He beat his own record, which he set in 2007 with a $4 billion haul made off the subprime bet.

More generally, Paulson's eye-popping payday confirms that hedge funds are still Wall Street's gold mine, where hefty fees make hundreds of managers extremely rich. But it also underscores concerns among investors that they may not always be getting their money's worth, especially when hedge fund returns lag behind the broader markets.

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