Tuesday, March 1, 2011


High-octane, high-beta, momentum-driven stocks are getting schmeissed.


Stocks are sliding, likely spurred by Fed chief Ben Bernanke's testimony on inflation.

Stocks appear to be moving lower based on The Bernank's statement that while inflation remains low, the recent rise in commodity prices will likely contribute to an increase in headline inflation in the months ahead.


Saudi Slump

The Saudi stock market is down by more than 6%.

Oil and gold have picked up a bid.

Following 10 years of material outperformance of fixed income over equities, record inflows into bonds accumulated during 2009-10 as investors sought safety and yield following the Great Recession. Once again, the asset of choice -- bonds -- fared poorly even as inflows accumulated. Bond yields rose and bond prices fell, despite the Federal Reserve announcement and implementation of QE2.

During 2009-10, when the investment outlook began to clear, all of the incremental retail inflows were committed into nondeveloping foreign markets. But beginning in early 2010, emerging markets began to underperform the U.S. stock market. And by November 2010, that underperformance grew more conspicuous as the most popular strategy again let investors down.

Unlike almost any other time in history, the non-upper-income investor class may not be positioned economically to invest in equities to the degree the bulls expect. That investor class faces unique economic challenges and conditions and lower confidence in the form of an unprecedented drop in home prices (which has damaged the consumer's balance sheet), still high (though improving) debt ratios, the insecurity brought on by structural unemployment (and an elevated jobless rate) and the screwflation of the middle class (as the cost of the necessities of life have risen during a period in which wages have stagnated, serving to depress disposable incomes).

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