Wealth effect and fear of market collapse seems to find an equilibrium in equity stock market. Investors hesitate to take more risk on further gain. On the other hand, investors are piled up with cash from economic activities as well as wealth effect. In a low interest rate environment, investors are pursuing every kind of assets. Equity stock is a liquid asset and is ideal for short term investment. But investors stop buying on anticipation of a selloff but holding existing portfolio for possible gain. On the other hand, investors are more aggressive in other assets, especially commodities. Crude oil and gold price advances on investor buying and trader speculation. Junk bonds see a soaring demand from investors looking for return. Even real estate, source of financial crisis, are being bought up by investors in cash.
The financial crisis results in a significant shrinking of wealth of the whole population. In the recovery, the distribution is not proportional for each individual and the consequence is wealth transfer resulting in concentration of wealth. The most benefited are at the top of the wealth pyramid. This explains that the average people are unhappy with the economic recovery and drag down the pace of recovery. The mass seeks safety in money market and corporations hoarding cash suppress wages. The wealthy elite becomes wealthier through corporate earnings and asset appreciation.
The following articles discuss the impact of the actions taken by the Federal Reserve in order to revive the economy after the financial crisis. The articles describe current scenario of the economy. Many people share similar perception of the economy as the author from the viewpoint of the average individual. However, the large amount of capital flow in the financial market is real wealth, generated by economic activities as well as wealth effect. The Federal Reserve 'Quantitative Easing' aims to provide liquidity which is frozen during the financial meltdown and to avoid collapse of economy due to shrinking economic activities. This results in the rally of asset prices, including equity stocks, commodities, real estate (particularly in emerging markets which are not the source of financial crisis), etc. The prospect of the economy may not be as the author anticipates when economic activities resume at nominal pace driven by technology innovation. There may be challenges ahead such as environmental concern, concentration of wealth, etc.
Voodoo Economics: Policy Responses to the Global Financial Crisis
Voodoo Economics: Dissecting Quantitative Easing as Monetary Policy
Voodoo Economics: The Subtle Side Effects of Quantitative Easing
Super rich see federal taxes drop dramatically
You'll probably take little consolation in hearing that the super rich pay a lot less taxes than they did a couple of decades ago. And nearly half of U.S. households pay no income taxes at all.
There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.
Schoenberg, who now teaches a business class at Columbia University, said his income is usually "north of half a million a year." But 2009 was a bad year for investments, so his income dropped to a little over $200,000. His federal income tax bill was a little more than $2,000.
"I simply point out to people, `Do you think this is reasonable, that somebody in my circumstances should only be paying 1 percent of their income in tax?'" Schoenberg said.
Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said he has a solution for rich people who want to pay more in taxes: Write a check to the IRS. There's nothing stopping you.
"There's still time before the filing deadline for them to give Uncle Sam some more money," Hatch said.
Schoenberg said Hatch's suggestion misses the point.
"This voluntary idea clearly represents a mindset that basically pretends there's no such things as collective goods that we produce," Schoenberg said. "Are you going to let people volunteer to build the road system? Are you going to let them volunteer to pay for education?"
Tax Cheats Cost Uncle Sam $3 Trillion; Cost You $2200 in 2010
Tax evasion has cost the U.S. government $3 trillion over the past decade, Callahan says, citing IRS data. "It is a major contributor to budget deficits and the accumulation of national debt since 2001."
For the record, Callahan is not referring to the roughly 45% of (mainly poor) U.S. households who will pay no federal income taxes this year.
That is a "separate situation," he says, suggesting the bulk of tax evasion is being done by wealthy Americans, particularly small business owners like doctors, lawyers and restaurateurs.
Coke and Cheniere Draw in Traders as Commodities Surge
Since the Federal Reserve announced its controversial plan to buy Treasuries to inflate the economy last summer, the materials, energy and commodities sectors have responded dutifully and led the market's recovery. Corn, silver and oil are just a few of the commodities that have seen their prices surge.
Another trend he's watching is the subtle short-term flight to quality that has seen money going into sectors like consumer staples, which he says reflects the belief that "consumers are willing to buy a Coke, but not a car."
Stocks Will Go Higher, but Oil’s Peaked: RBC’s Phil Dow
Never mind the torpedoes, it's full steam ahead for stocks. That's more or less the message from Phil Dow, director of equity strategy at RBC Wealth Management.
Dow says his view is that crude "could go higher by and large," but that his forecasts are based on supply and demand, rather than speculative moves that would be driven by traders.
As for stocks, Dow sees "a pretty stable profit picture." That would be news to the bears, who are expecting profits to continue to slow, from over 30% last year to 15% this year. Dow, who isn't tremendously concerned about ratings downgrades for U.S. debt, thinks 1,380 is more than doable this year for the S&P 500 and is, in fact, probably conservative.
Dow ends near 3-year high and Apple jumps after earnings
Big earnings surprises gave a positive turn to investor sentiment on Wednesday, propelling U.S. stocks to their best day in a month and lifting the Dow industrials to their highest in almost three years.
Why the Federal Reserve Isn't Worried About Inflation Yet
The Fed remains undeterred about the prospect of higher food and energy prices, because it focuses on core inflation, which strips out food and energy prices.
While food and gas prices are probably the most visible sign of higher prices because consumers notice them on a daily or weekly basis, there are other prices that aren't rising as quickly. Prices of some items that are considered more discretionary have fallen. For instance, the CPI's apparel index fell 0.5 percent and March, and the household furnishings index fell 0.1 percent. "When consumers pay more for food and energy products, they cut back on discretionary spending, like spending on furniture, clothing, and recreational activities, which pushes the prices of those goods down," Schreft says.
Fed's Monetary Stimulus Won't Completely End in June
The Fed might be pushing the U.S. economy out of its monetary stimulus wheelchair in June, but the central bank won't likely force it to walk on its own: the Fed will still continue to provide a set of crutches. Even when it ends its $600 billion asset purchase program in a few months, it will likely continue to reinvest its portfolio's maturing assets by buying Treasury securities, which will still provide some support to the economy. So the Fed isn't really exiting yet: its balance sheet will remain static until it ends its reinvestment policy.
So when might the Fed start allowing its balance sheet to naturally shrink through its assets maturing without being replaced? That could be one of the very first steps we see as a part of its exit strategy. This would be a very passive action on the part of the Fed, because the Fed would essentially do nothing and money supply would slowly decline. When the Fed believes the economy is on more solid footing, you might see its reinvestment cease.
The World's Hottest Real-Estate Market?
Look in the window of any real-estate agent here and you think people have gone crazy — and then you realize that the prices are in British pounds, and that to convert to dollars you have to add another 60%.
Half a million pounds ($800,000) for a one-bedroom condo with a small garden on the southern, unfashionable side of the river Thames? Really? And $2 million for a modest two-bedroom condo in Chelsea?
While the rest of Britain grapples with austerity, falling real wages and budget cuts, London real estate — super-prime London real estate, the best of the best — is back in the grip of another mania.
This is just the latest twist to a story that's been running for some time. Gulf sheikhs. Russian oligarchs. Newly rich Indian and Chinese tycoons. London has become a magnate for the international super-rich: a millionaire's playground. Russian money has been flooding in for at least a decade. One hedge-fund manager here told me London property was a "laundromat for Russian money."
To hear people tell it here, this miracle will go on indefinitely. Prices will keep rising skyward. You no longer encounter many bears of London property. Most have given up.
In a rational market, yields are the drivers of capital gains. The price of an asset goes up because the current owners are earning so much money that outsiders want in. The idea that people will keeping bidding up prices of an asset that makes no money is quixotic at best.
Investors drove home sales up 3.7 pct. in March
Investors lifted U.S. home sales last month, plunking down cash to grab cheap homes at risk of foreclosure. But purchases made by first-time homebuyers fell, a troubling sign for the weak housing market.
Many of those purchases are being made by investors, who are targeting cheap properties in areas hit hardest by foreclosures: Phoenix, Las Vegas and Tampa. The trade group's data only takes into account individual investors. It does not include homes sold in bulk at auction or on courthouse steps. Many of the foreclosure sales are likely being picked up en masse by private equity firms.
Many would-be buyers are holding off, worried that home prices haven't bottomed out. Others are having trouble getting mortgages because banks have tightened lending requirements. The average credit score for Freddie Mac and Fannie Mae-backed mortgages is now 760, up from 720 in 2007.
"It is unlikely that home prices can recover on a sustained basis until the inventory-to-sales balance improves further and the number of distressed properties is significantly reduced," said Steven A. Wood, chief economist at Insight Economics.
Tech and Bank Stocks on Collision Course
Solid earnings by big tech companies this week ignited technology shares and put concerns about the Japanese earthquake's impact on future earnings squarely behind the market.
The question now is whether the tech rally can finally help lift the moribund financial services sector out of the doldrums or whether persistent weakness in banks and on Wall Street will hobble a U.S. economy that appears ready to run.
With all the institutional, private equity and retail money sitting on the sidelines or still in bond funds waiting for the signal to leap elsewhere, any sign of a rebound in bank lending or renewed activity in weak markets such as securitization would be a huge sign that the bull is alive and economic growth is set to continue.
This is why bank leaders and others in the industry — stand up former Fed Chief Alan Greenspan — are so quick to attack any new regulation as unhelpful and possibly hurtful to bank recoveries. Expect a long summer of battles in Washington over Wall Street reform, with bank stocks hostage to the bitter struggle between those who want to take make the industry safer for consumers and those who just want to return to business pre-Lehman.
Until then, and as long as banks remain weak and investor funds shy away from bank and investment bank stocks, it's difficult to see how we go much further from here in the overall stock market before some sort of financial industry scare ruins the tech coming-out party.
No comments:
Post a Comment