Dow notches third straight week of gains; Nasdaq nears 10-year high

As usual, equity stock market climbs on a wall of worry. Trading volume remains relatively low.

Dow notches third straight week of gains
The Dow Jones industrial average continued climbing on Friday, notching its third straight week of gains.

Nasdaq nears 10-year high; should you be nervous?
The Nasdaq finished within 25 points of its highest level in a decade Friday. Should investors be worried about another bubble? Not really, because there's a twist this time around: Technology companies are making money and may valued correctly.

The economic recovery in the U.S. is one reason that technology companies are earning such high profits. Companies put off upgrading their computer systems and other large purchases during the worst days of the recession, and are making up for that now. Others are investing in new technology before they add employees.

International growth is another reason to be optimistic. Half of the profits of the technology companies in the Standard & Poor's 500 index come from outside North America, says Bill Stone, chief investment strategist at PNC Asset Management. China is now the world's second-largest market for PCs, and consumers in emerging market countries are showing strong demand for smart phones.

"I'm still finding a lot of good values out there," says Samuel Dedio, manager of the $108 million Artio U.S. Smallcap fund. "There looks to be a lot more upside ahead of this."

Market is calm despite the fact that a lot of investors sitting with cash profit from previous holdings are hoping for a correction to re-enter. But market participants refuse to give the chance.

As mentioned in earlier posts, the economic recovery does not benefit the population in the same proportion. Grassroots workers are benefited the less while the wealthy elite enjoy the most of wealth creation. It is also mentioned in earlier post that concentration of wealth may create social instability. The first sign does not show up in developed countries but rather in developing countries in North Africa and the Middle East. The turmoil appears to spread across the region. Fortunately, the economic impact seems confined in the local region. Investors are keeping a close watch on the development.

Market has reached a level that is unattractive to panicked investors, especially individual investors who still have not recovered fully from the financial crisis. Thus there is not strong driving force to push market significantly higher. On the other hand, the majority of investors are optimistic on the market trend. Also, the wealth effect creates a significant capital inflow to asset purchase, including equity stocks, commodities, as well as real estate. Due to a tightened credit market, the latter is restricted to wealthy participants with significant cash or equivalent on hand for investment.

Investors are cautious on the short term outlook but still holds tight on existing portfolio amid a brighter future. Therefore the probability of a massive sell-off is very unlikely among market participants.

Recent leaders juice up Wall Street
"People have been focusing on the positives like the outlook for corporations and a good earnings season," said Brian Lazorishak, a money manager at Chase Investment Counsel in Charlottesville, Virginia. Federal Reserve continues pumping money into the economy. That excess liquidity has been one of the main drivers of the stocks rally in recent months.

The following article expresses some insight in the equity stock market rally in the last few months. Those opinions that match with the philosophy of the speculative trading portfolio are quoted below.

The Bernanke 'Put' and Commodity Market Instability
The Fed has not been shy about taking credit for the recent equity price increases. They claim that this so-called "wealth effect" will spill over into the real economy and create a "virtuous cycle" where nominal wealth creation leads to real wealth creation.

The truth is, the Fed’s ability to influence the real fundamental economy via QE is limited (this has become abundantly clear when one actually studies the intended transmission mechanisms of QE), however, they are having a powerful impact on market psychology. This is where many economists lose sight of the forest for the trees. They entirely ignore the human reaction to policy measures. And in an environment where the Fed is maintaining low rates and literally telling people that they will keep "asset prices higher than they otherwise would be" it is simply foolish to believe that they are not inducing some level of speculation in various markets.

Recent market data proves that QE is nowhere close to achieving the goals it was initially set out to meet. And now there is clear cut evidence that it is having a disastrous impact on the marketplace by causing severe instability in commodity prices. It’s not merely coincidence that signs of this speculation began in August when the Fed initiated its "money printing" program.

QE has failed to generate any sort of job growth in the USA. There are now signs that it is creating severe price instability in many markets. Therefore this policy measure is counterproductive to both of the Fed’s mandates.

Although QE cannot achieve its initial goal, the wealth effect is spectacular. It causes a boom in the high-end economy where the rich gets much richer.

奢侈品牌股票　可飛得更高？
《華爾街日報》--管商業街上的很多商家都在艱難度日，但一些目標客戶是奢侈消費人群的公司——從蒂芙尼(Tiffany & Co.)到卡地亞(Cartier)，從路易威登(Louis Vuitton)到人頭馬君度(Remy Cointreau)——卻正在享受自己的快樂耶誕節。

但是，真正有意思的故事與基本面有關。奢侈品公司正在將產品銷售給兩類還有餘錢的人：第一類是富人，他們正在變得越來越富有；第二類是新興市場中的消費者，他們正在變得富有。

這也不僅僅與新興市場有關。和其他地區相比，美國本土的高端消費者經濟情況要好得多，而且現在他們又開始消費了。

都是什麼人在購買奢侈品呢？不大可能是中產階級。由於失業率高企、房價暴跌、經濟低迷，太多的人要麼痛苦掙扎，要麼一分錢掰成兩半兒花。根據凱捷諮詢公司(Cap Gemini)最近的財富報告，經濟危機後富人和超級富人——後者指擁有超過3,000萬美元的資金用於投資的人士——的財富迅速反彈。

How overseas inflation could hurt investors
Inflation isn't hitting your wallet hard, but it is lurking in your stock portfolio.

Investors have assumed that profits in emerging markets will continue to grow as millions join the global middle class. But if central banks take drastic steps to halt growth and tame inflation, then the stocks of U.S. companies that do big business there will fall.

Inflation makes companies that sell consumer goods compete with the basic costs of living. Every increase in the already high cost of food cuts directly into the money that consumers in emerging markets have to spend on small luxuries or electronics.

There isn't the same worry at home. "The U.S. economy has an enormous capacity to absorb increases in demand without causing dramatic widespread inflation," says Burt White, chief investment officer at LPL Financial.

Seniors 'Near Poverty' at Risk in Deficit Cuts
Anyone living on a fixed income has to look uneasily at the federal government's rendezvous with deficit destiny. Beyond partisan calls to cut more or less, sooner or later, from different programs, the underlying reality is that stiff budget cuts must be enacted to at least begin narrowing the deficit. Older Americans who don't have the option of seeking additional income have very little choice but to reduce their standard of living should their benefits be trimmed. And for millions of older Americans, there is simply nothing to cut.

Left slams Obama over safety net
It doesn't come as a shock that Republicans aren't thrilled with President Obama's budget proposal. But Democrats aren't exactly jumping for joy either.

Obama's budget targets community block grants, a program that helps low-income people pay their energy bills, and the popular Pell grant program to aid college students. All are part of the social safety net Democrats often fight to protect.

And that has the left howling.

How the middle class became the underclass
Incomes for 90% of Americans have been stuck in neutral, and it's not just because of the Great Recession. Middle-class incomes have been stagnant for at least a generation, while the wealthiest tier has surged ahead at lighting speed.

In 1988, the income of an average American taxpayer was $33,400, adjusted for inflation. Fast forward 20 years, and not much had changed: The average income was still just $33,000 in 2008, according to IRS data.

Meanwhile, the richest 1% of Americans -- those making $380,000 or more -- have seen their incomes grow 33% over the last 20 years, leaving average Americans in the dust. Experts point to some of the usual suspects -- like technology and globalization -- to explain the widening gap between the haves and have-nots.

"The erosion of collective bargaining is a key factor to explain why low-wage workers and middle income workers have seen their wages not stay up with inflation," Rodgers said.

International competition is another factor. While globalization has lifted millions out of poverty in developing nations, it hasn't exactly been a win for middle class workers in the U.S.

While average folks were losing ground in the economy, the wealthiest were capitalizing on some of those same factors, and driving an even bigger wedge between themselves and the rest of America.

Another driver of the rich: The stock market.

Tax cuts enacted during the Bush administration and extended under Obama were also a major windfall for the nation's richest.

Meanwhile, as corporate profits come roaring back and the stock market charges ahead, the wealthiest people continue to eclipse their middle-class counterparts.

"I think it's a terrible dilemma, because what we're obviously heading toward is some kind of class warfare," Johnson said.

Credibility Shaken, Hedge Funds Are Punished by Investors
That's a big change from the old way of doing business in hedge fund land, which was to reward failure and ignore problems.

We'll see how long these positive developments last. Investors put almost $150 billion into hedge funds in the fourth quarter, a record, according to Hedge Fund Research. Assets now stand at $1.9 trillion, just below the peak reached before the financial crisis.

Just because hedge funds didn't cause the last crisis doesn't mean they can't cause the next one.

It May Be Time to Believe in Housing Again
"Inquiries for new project activity has fared a bit better recently, although many residential architects report that households are much more nervous than usual about proceeding on projects," notes Kermit Baker in the American Institute of Architect's Q3 Home Design Trends Survey.

The survey finds most activity is in smaller infill projects near major metro areas or remodeling to create multi-generational households. The trend has definitely moved away from major new housing developments. While the market is still quite weak in comparison to better economic times, remodeling remains pricey.

A common line to Bruckwick: "My portfolio has come back up, so I can afford it where I couldn't a year or two ago."

Mortgage Broker: Now "Is Very Good Time to Buy" ... If You Can Get a Loan
So it's not exactly like the go-go days of the housing boom, but if you qualify, "this is a very good time to buy," says Sauro.
(Comment: Most investors are still not considering real estate in the investment portfolio. Real estate currently is not desirable for short term investment with the exception of luxury homes which see soaring demand by the wealth elite after the financial crisis. It has maintenance cost and tax liability. The demand for housing by average household is not strong due to absence of speculation. However, many individuals with significant cash reserve and holding power are accumulating real estate investment for long term appreciation.)