The probability of market collapse is unlikely as households have reduced the proportion of equity stock and learned not to sell in a panic. On the other hand, market participants do not have enough confidence and prefer to wait for opportunity to enter market at a much lower level.
With low participation from investors, market becomes more manipulative and sharp movement can be more easily driven by market makers. Investors should mitigate risk appropriately and restrict leveraging, if any, to provide enough buffer in the portfolio for wild market swing.
Some signs of life in housing, credit drought goes on
Four years after U.S. housing prices began to nose-dive, eventually triggering a global financial crisis, signs of life are appearing at the top and the bottom ends of the market.
"People who have decent income are saying, maybe I can trade up, buy a better property," said Bill Hardin, director of the real estate program at Florida International University.
"Some people are even saying, I'm willing to take a loss on the property I'm selling now to get something I couldn't buy during the housing peak."
Realtors, brokers and others in the housing industry report the first bidding wars for expensive homes since the crash.
"There is a surge of confidence among high-end buyers and we're unfortunately short on inventory," said Pamela Liebman, chief executive of New York property firm The Corcoran Group.
At the bottom end, homes are also on the move as investors pay cash for foreclosed properties to rent them out.
Diane Saatchi, senior vice-president at Saunders & Associates Realty which specializes in the Hamptons oceanfront strip favored by Wall Street, said she was seeing a lot of buyers paying in cash for homes worth $10 million.
"There's a pent-up demand on the buy side because people have been waiting for a couple years."
Matt Farrell, managing partner at Urban Real Estate in Chicago, recounted how a buyer with good credit and seeking a loan for a $2 million home was unable to secure a mortgage in time. So the buyer wired cash to pay for it with no loan.
Bargain prices help reduce glut of foreclosures
Low prices are leading investors to snap up foreclosed homes in Detroit, Las Vegas, Miami, Phoenix and Tampa. Those cut-rate sales are reducing prices in the short run. Yet they're also thinning the supply of homes -- clearing the way for higher prices in the long run.
For some buyers, the deals are now too good to pass up. A studio apartment on the Las Vegas strip that cost $500,000 at the height of the housing boom is now selling for roughly one-third that price. Half the homes listed in the Tampa Bay area are selling for less than $100,000, not far from some of Florida's top Gulf Coast beaches.
Most of the current foreclosure sales involve investors: Private equity firms; foreign and out-of-state buyers seeking vacation houses; individual investors hoping to rent out or quickly sell properties for a profit.
Many are scooping up cheap homes with cash, said Andrew Duncan, a Realtor who runs a Keller Williams franchise in Tampa. In March, 35 percent of previously occupied homes sold were bought entirely in cash, according to the National Association of Realtors.
"It's like a feeding frenzy when a home goes on the market now," said Mike Shannon, a Detroit real estate agent who specializes in foreclosures. "We're getting a few dozen offers on some homes in a matter of days."
The thinning supply is due, in part, to a lull in foreclosures. They've dropped more than 56 percent in Tampa and nearly 64 percent in Miami. In those areas, the number of homes receiving an initial foreclosure notice has plummeted.
David Stockman: “Crony Capitalism” Has Killed the Free Market and Democracy
For example, banks - which caused the 2008 economic and financial crisis - are enjoying profits once again as so-called "risk assets" reflate. Meanwhile, well-meaning members of the middle class intent on saving cash continue to get "savaged" (Stockman's word) when they keep money in low-yielding savings accounts and rely on a dollar that continues to lose value.
According to Stockman, the Fed should raise rates immediately and end the possibility of more bailouts.
The Case for Low-End Consumers, a Higher Dollar and a Sideways Fed
While that call to action may have worked well on the battlefield, in an aging bull market that has been partly (or largely -- depending on your point of view) propped up by the Federal Reserve's controversial bond buying program, it's an entirely different story.
In fact, Oppenheimer Asset Management's Brian Belski says that, when it comes to ending QE2, he thinks it won't be such a clear cut, black or white, buy or sell decision, but rather something more nuanced and gradual.
"Bernanke is a data hound," he says in the accompanying video, adding that he sees the Fed entering a period of market assessment followed by an orderly liquidation of its Treasury holdings to yield-hungry buyers.
Dangerous Views of Volatility
A low VIX seems to suggest stocks are on the verge of another epic advance—and they might be. A low VIX might also suggest the market is on the verge of an epic decline—and it might be. After all, VIX is popularly known as the fear gauge, and if it is low it means investors are not afraid, or maybe that they are complacent. We have been bullish in this column for some time, and remain so, regardless of the VIX.
This Bull Market Has Some Fight Left in It: Chartist
It may have taken 10 weeks and three tries, but the S&P 500 has finally broken through resistance at 1,344 and trundled on to a fresh three-year high. To say it's been a smooth journey would be an understatement, but to say the rally is over would be a mistake. At least that's what Chartered Market Technician J.C. Parets of AllStarCharts.com would tell you.
And it's that very sector rotation that Parets says is key to keeping this bull market running. "New highs need new leadership," he says, cautioning that the absence of consumer discretionary (XLY) and retailers (RTH) from the leader board for this leg-up is a bit unsettling.
Still, he says, "we're in the midst of the most powerful bull market in American history," and as long as there's easy money available, the rally will continue. According to Parets, this 26-month old bull market has some fight left to it; step aside or get trampled.
Decision Time for Stocks
The point is that the traditional pattern breakouts and breakdowns have not worked as expected so breakouts should be treated carefully. And on the other side of the equation, so should breakdowns, especially since there are such diverse conditions, from chart patterns to the proposed end of quantitative easing, tugging in different directions.
Bond Titans Differ on Post-QE2 Outlook
Pimco's Bill Gross has been selling Treasurys. BlackRock's Rick Rieder has been buying.
Two of the biggest fund managers in the world are at odds over how U.S. government securities will fare once the Federal Reserve withdraws from the bond market in June, marking the end of its second quantitative-easing program, or QE2. Their disagreement is symptomatic of a larger debate gripping the bond market and the rest of Wall Street: What will happen when the Fed turns off the tap?
The Fed's policy makers this week will likely vow to stick to their plan to end the purchases of Treasurys by the end of June.
But that's where the certainty ends.
One yardstick for the immediate future of Treasury yields after QE2 could be QE1, which included a $1.25 trillion Fed buying spree of mortgage bonds from late 2008 to March 2010.
Will Fed Trigger Bond Sell-Off?
The big question for the bond market now is whether an end to the second round of quantitative easing (QE2) will see a sell off in the bond market that will drive up borrowing costs for the Federal government and American homeowners.
"The US is still not expected to consolidate its budget in the second half of 2011," said Bee who believes the only groups who can step in and buy on a scale that would offset the Fed exiting the market are US households and foreign central banks.
"US Treasuries, in particular, are likely to be chosen in this environment," said Bee who believes the flight to safety will override fears over the credit worthiness of US debt.
"As long as the currencies of key commodity exporters and emerging market countries have a strong link to the US dollar, demand for US Treasuries is likely to remain elevated," he added.
"Furthermore, US household demand for government bonds should pick up. Relatively speaking, the more challenging environment for risky assets puts government bonds in a more attractive light," Bee said.
A Few Stock Plays for Fundamental Investors
As Steven Wright said: "There's a fine line between fishing and just standing on the shore like an idiot." In the wrong hands, fishing for value stocks can be much the same experience. It takes a steady hand and the right temperament to make it work, and Shinnick's results speak for themselves.
James Altucher: The Dow’s Going to 20,000 But DON’T Buy Stocks
Heading into Friday major averages were up 9 of 11 sessions and hovering near the highest levels since Spring 2008. So you might think Altucher would be ready to declare "victory" and turn cautious. Instead, he is upping the ante on his bullish call, predicting the Dow will hit 20,000 and the S&P will eclipse 2000 before the current rally runs its course.
Bullishness from Altucher is nothing new, as faithful viewers know. But today's call comes with a twist: Even while predicting huge gains ahead, he recommends 99% of investors avoid the stock market.
As discussed in the accompanying video and detailed on his blog, Altucher has a list of Reasons Not to Buy Stocks, which I'll summarize here:
It's really hard and very few people are successful at it. The very best investors in the world can only consistently produce 10% to 15% annual returns, so what hope is there for the rest of us?
The competition is ruthless, relentless and better connected (literally and figuratively) than the rest of us.
It's mostly a scam. In addition to insider trading and other outright frauds, "I would never ever trust any number that comes out on a 10Q, no matter how GAAP compliant it is," he writes. "Enron was GAAP compliant."
Ownership has its privileges. Citing legendary investors like Bill Gates and Warren Buffett, Altucher notes "the guys who make real stock market wealth never diversify and never sell" — and they also have 100s of millions of shares in the companies they run and/or founded. "Then there's the other 100 million people who own stocks."
For those "really determined" to ignore Altucher's advice and buy stocks, he recommends buying index funds or closed-end funds, or "wait for another 2008 and buy a large basket of stocks and really ride them -- and you have to really ride them through all the volatility."
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