Sell in May and go away?

Hello,

Sell in May and go away? Or perhaps an Omen from 666, either way it hasn’t been the best of times for stock markets around the world. While the FED fiddles the markets burns. It appears the FED has introduced a policy of as Yogi Berra said,” if you see a fork in the road, take it”. If that doesn’t work you can just muddle away and hope something happens to make your job easier. Even when the FED told us they remained vigilant the markets seem to be exhibiting a lack of confidence, which is not uncommon with a new FED chair. My feeling at the moment is that the annual summer slow down in the economy is already at hand which will in turn get the FED to head for the beach and take a rest inspiring the market to once again resume its upward move.

Are commodities over valued and heading for a bust? It is interesting to note that the CRB Commodity index which has been credited with a parabolic raise since its low in October 2002 and is up 53%, while the S&P 500 is up 58% in the same period. Mind you the CRB has just emerged form a 20 year bear market .While the S&P in my mind has been in a bear market since March 2000 and is currently trading at the cheapest earnings multiple in over 20 years. I have also heard some silly talk that this market is like 1987 ,forgive me for laughing but the Dow tumbled almost 25% in one day ,that would be like the Dow dropping around 3000 points in one day now. It is also my duty to point out that the Dow had rallied beginning in 1982 and almost tripled from were it started, that would be like seeing the NASDQ around 15,000 right now. My point being again that stock and commodity markets are far from over valued and by a long term view still relatively cheap.

So it is not the 1970’s but what everyone should be asking is it 1982 all over again? With the largest US corporations sitting on a record $640 billion in cash it is no wonder that many market observers are calling this 1982 all over again. 375 companies in the S&P 500 have over 62 weeks of income in there pockets which could be used to fuel, mergers acquisitions and leveraged buyouts (LBO’s).Merger mania in the early 1980’s preceded the 1982-2000 bull market. This creates an explosive combination where a low equity valuation meets lots of cash rich and low debt companies.

James
www.jamesfoytlin.com