Equity market keeps going up while trading volume declines. Investors are holding equity stocks on speculation of a bull market. On the other hand, investor confidence remains low so there is no aggressive purchase to drive market sharply higher. Main street investors appear to be adapted to the incremental growth of their portfolio of equity stocks. However, for those at the top of the wealth pyramid, they are looking for adequate investment means for their discretionary income while the high-end economy is booming (in contrast to the grassroots economy). Low interest rate contrasts significantly with their staggering wealth. This discourages wealth accumulation in the money market. On the contrary, many assets have risen to record high level with the only exception of real estate. It would be difficult task to allocate the income into a portfolio providing sense of safety from a financial crisis with a much higher return than available from money market. These surplus capital does not need the safety for daily living and can afford risk as a trade-off for investment return to satisfy the desire of greed. As a result, various investment funds are established recently to absorb these surplus capital as the wealth effect continuously swells the pockets of people especially in the richest group.
Capital liquidity will keep equity stock market afloat, as well as many other kind of hard assets. Some investors, especially household investors with job security and cash savings are looking for opportunity in the real estate market which remains depressed making it attractive as compared to other investment asset types. Investors with holding power are speculating a recovery in the housing market while they can afford temporary paper loss on investment and fulfil the investment capital need with a stable income.
Hedge funds performance are mostly inferior to institutional investors and active individual investors in the last year. However, with more capital inflow from retail investors and a positive outlook on economy in the coming year, there are increasing hedge fund activities, especially in emerging and commodities markets. The contrasting performance in equity stock market between developed countries and emerging economy indicates diversified perspective among market participants.
Bond Market Flashes Inflation Warning
A steep "yield curve" is typically a bullish sign for the economy and the stock market. It could also, however, suggest that investors see a risk of overheating.
Move Over Bart Simpson, Ben Bernanke Is the New "I Didn't Do It" Kid
Undoubtedly, there are fundamental reasons behind surging commodity prices, most obviously rising demand from the emerging markets of China, India, Brazil and the like. Unfortunately, in much of the developing world, food price inflation threatens to undermine stability.
The Market Is "Clearly Going Higher": James Altucher's 3 Reasons to Stay Bullish
The market is "clearly going higher," Altucher says. "I'm not saying it's going to happen overnight," he says. "But there's an enormous amount of [Fed] money that's going to be hitting the economy, then there's a multiplier effect."
Investors Starting to Believe That Inflation Threat is Real
"We think Mr. Bernanke is as determined as ever to create a 'wealth effect' by blowing up a stock market bubble," Trim Tabs research analysts wrote in their weekly market commentary.
"What we fear is what's happening in the emerging market world where inflation is running higher than usual," he said. "That gets imported back into the US, so we think those fears are completely just."
Consumer credit rises, supports strong growth view
Consumer credit surged in December as shoppers boosted their credit-card debt for the first time in more than two years, supporting views economic activity was gathering momentum.
China hikes interest rates again to damp inflation
Rising prices are especially sensitive in a country where poor families can spend up to half their incomes on food. Higher incomes have helped to offset price hikes, but inflation undercuts economic gains. It has worried leaders who fear that a sharp rise in living costs could trigger unrest.
What to Make of Rising Food Prices
The spike in food prices present investors with three questions to consider: What kind of inflationary impact will the price gains have? How will rising food prices affect the political risk equation in emerging markets? And is it time to get long or go longer agricultural commodities?
Will that have an impact on inflation? In the developed world, the answer is probably not. Agricultural staples make up a surprisingly small amount of consumer inflation measures because of efficiencies in production. The calculus for emerging markets is different. And already food and energy costs are contributing to inflation spikes in China (around 5%), Brazil (5%) and India (9%).
The challenge of higher commodity prices and its link to civil unrest is one reason some popular emerging markets have had a tough start to the new year. India is down 12%, China has fallen about 2% and Brazil is off 6%.
QE3 Coming? This Is Not a "Normal Recovery," Fund Manager Sees
"The normal recovery thing is not going to happen this time," because the economy remains over-leveraged and burdened with too much debt, he tells Aaron in the accompanying video.
More Homeowners Are Underwater, Now Here's the Good News ...
However, there is a silver lining, as Aaron and Henry discuss in the clip.
Time to Call This a Full-Fledged Bull Market?
Even though stocks have rallied for almost two years and the Standard & Poor's 500 index has nearly doubled, many investors don't think we're in a bull market.
It's all an illusion, powered by the Federal Reserve's printing presses, some worry.
It'll come crashing down as soon as the world realizes the U.S. is broke, others warn.
This is not about outguessing the market. It is about sticking with stocks, assuming your equity allocation is where you want it to be.
"The real point is, don't get rattled, don't get shaken out; this is a long-term rally," Birinyi told me.
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