Investors Selling Continues

Equity market declines further on investors selling. Individual investors and day traders are selling more heavily than in the previous week. Market makers are already thin on portfolio holding and no longer leads the selling.

As the end of Federal Reserve bond buying program is approaching, market participants are preparing for a headwind. The large amount of capital flow may skew the market. The release of second quarter earnings will drive market volatility.



Solving the Mystery of Corporate Cash Hoarding
Dividends are rising at many of our largest public companies, but cash accumulation is rising even faster. The dividend ratio-the percentage of earnings paid out to investors-has been falling for four quarters.

It's now at its lowest level since 1936.

The "cash hoading" also means that companies are not expanding all that fast. That may also reflect a fearful view of the future.

Ordinarily, falling interest rates indicate that there is an abundance of savings available for current investment and future consumption. But our low interest rates are very obviously a product of the Fed's attempt to stimulate the economy. Executives at our most sophisticated companies are not under the impression that Americans are saving so much that they'll have a lot of available cash to spend in the future.

Bank Said No? Hedge Funds Fill a Void in Lending
With traditional lenders still avoiding risky borrowers in the wake of the financial crisis, hedge funds and other opportunistic investors are stepping into the void. They are going after midsize businesses that cannot easily raise money in the bond markets like their bigger brethren.

These lenders of last resort typically charge interest rates that are several percentage points higher than banks. Loaded up with high-cost loans, borrowers could find themselves falling deeper into debt or worse, into bankruptcy.

The lending activity is also stoking fears that speculative activities - like those that contributed to the crisis - are shifting from banks to loosely regulated firms that play by their own rules. While policy makers are moving to increase capital and other standards for banks to prevent another disaster, hedge funds and the like are not subject to the same oversight.

Stockholders Get Richer -- Ain't We Got Fun
The more things change, the more they stay the same, according to the old French saying. That's evident in the Federal Reserve's latest assessment of the financial well-being of U.S. households. There's been a change for the better in their aggregate net worth, but for the average American, it's been more of the same -- a further decline in their wealth, which is tied mainly to housing.

As if it needs repeating, the changes in these asset values have a disparate impact on different income and wealth classes. Even with the broadening of the so-called investor class, holdings of equities remains concentrated among the well-off. To the extent the middle class and lower own any assets, they consist mainly of the roof over their head.

So far, the policy response to the credit crisis and its aftermath has been successful mainly in terms of restoring asset values. Even so, the net worth of U.S. households still is 10% lower than in 2007, a decline of some $6 trillion. Meanwhile, real family incomes have fallen 2% since 2000 while corporate profits have increased 70% over the span.