Wednesday, April 22, 2009

Sell in May... And Go Away

I'm a bear -- I admit it, I am glass-half-empty when it comes to the markets. Today I'm sharing opposing views of where the market is headed: you decide.

MaxedOutMama gives the bearish view:

  • The Japanese are waiting hopefully for the Chinese economy to rebound, and have much longer to wait.
  • The Europeans think that the US may be rebounding, and that this will at least presage their rebound at the end of 2009. Fat chance.
  • The Chinese want the US and Europe to start spending again, but have conceded that this is unlikely to happen to the needed extent, and are trying to implement medical coverage for the broad population in order to boost internal spending. That could start paying off 2-3 years from now, and if it pays off enough, it might help to defray the cost of funding the imploding banks.
  • Many of the emerging countries are showing signs of escalating weakness, which is rough on SE Asia because they had been big consumers of electronics and appliances. See Singapore's Q1 annualized -19.7% GDP figure, and consider that Singapore's exports to Malaysia dropped over 20%.
  • The Brits are standing around with a stiff upper lip, waiting to be introduced to the recovery, which British government officials maintain has something to do with windmills.
  • Sarkozy is preparing to blame all of this on Obama (some things never change),because he refuses to attack Iran, and Bush, because he did attack Iraq.
  • The Germans are preparing to expand their already expansive government job support program (see description at the end of this article), so that their big industrials can cut employment in order to maintain profitability (and the ability to pay on their loans).
  • The initial effects of lower interest rates (implemented in most economies) on consumer spending for durables are on average fading after 3-5 months.
  • Obama of the US sees glimmers of hope for the economy aside from the continued job losses and economic contraction. These glimmers appear to be emanating from windmills and that cute little desktop thingie Obama got from the Austrian Economic Minister.
Her bottom line: "It further suggests that Chinese internal capital needs are going to grow for several years to come. I don't really know who we are going to get to fund our government borrowing."

MoM that is a scary thought. I would reply with, well perhaps we can pay the Chinese in golf-courses, but, no the Japanese bought most of those, and the Chinese don't even play golf it seems. Caddyshack. Yes! Finally got my Caddyshack mention. I just had to work that into a post somewhere.

On the bullish end is the Calafia Beach Pundit -- hey you can't help be a little bullish if you live on the left coast at a hippie beach. Here is what Scott Grannis has to say:
In my view, the origins of this latest rally can be found in a variety of indicators: sharply lower swap and credit spreads; higher commodity prices; rising shipping rates; quantitative easing by the world's central banks; lower implied volatility in stock and bond options; a steep yield curve; surprisingly strong profits at banks and brokerage firms; a surge in home resale activity; historically low mortgage rates; a relaxation of mark-to-market rules; a decision by the Obama administration to back off from its headlong dash to implement cap-and-trade and universal healthcare; and push-back from the Senate on Obama's request to cut deductions on charitable contributions, to name just a few.
Scott, whom we have mis-quoted before, mostly on his musings of Argentina is a financial professional, unlike MoM. I respect his views of Argentina, but Scott -- you have it all wrong. The bears are going to win the rest of this year, and here is why: The market will not turn around until the S&P 500 earnings are forecast to normalize. The P/E ratio should be somewhere south of 15 -- but right now the forecast S&P 500 P/E ratio is north of 23. Would you buy the S&P 500 right now at a P/E of 25? I wouldn't, and I say the market will be bearish until real values are found in equities. That will happen when the dividend on the S&P 500 is better than 6% (currently 3.3%).

I'm with MoM -- Scott I like you but you are wrong this time. Remember, the wealthy have the ability to wait until true values exist. When gold is cheap, they buy gold. When diamonds are cheap, they buy diamonds. When real estate is cheap, they buy real estate. When nothing is cheap, they buy nothing. The real wealthy people can afford to wait, and they will. You should too.

Now: sell in May and go away.


Thai said...

I particular identify with your glass half empty analogy with which on the economy I couldn't agree more.

We live in interesting times

OBloodyHell said...

Hard to tell. Mark over at CD has been calling attention to a key indicator in the Baltic Dry Index, which has been steadily going upwards for a while, and has previously shown close correllation with the upticks and downticks of the global economy.--

Then there's his note of the fact that housing prices appear to have bottomed out.--

I think the real problem is that, when you add it all up, apparntly the economy is pointing in all directions.

Thai said...

"I think the real problem is that, when you add it all up, apparntly the economy is pointing in all directions"

No truer statement was ever made

Bob in Los Angeles said...

I agree with all these comments--there are sure some mixed signals out there.

Watch the VIX.

The Bull will not return until the VIX returns to the teens.