May 31, 2011

Memo:  Sell in May and go away!

With this mornings economic data, collapsing Purchasing Managers, plummeting Consumer Confidence and home prices still in decline was not a good way to end the month and should be your clue to exit stage left!

Several weeks of 400,000 plus first time filers does not suggest employment growth so I am looking for the Unemployment rate rising to 9.4 and the USA will be lucky to add 50,000 jobs.  Gas prices is having an impact on consumer spending. I bet confidence too!

QE2 is ending June 30, 2011 and the market is suppose to be a future discounting exercise so it has already priced in what ever the impact will be.  I just don't know about this theory on this particular event.  I really don't know what will happen if a QE3 is floated, the debt limit debate, or substantial cuts in government spending (Federal, State and Local) or what I really expect a failed U.S. Treasury auction because the bond vigilantes (also known as the USA's creditors) will exercise their voices in a clear and unmistakable way.

The economy has had its post decline rebound funded by record borrowing by governments (massive dose of financial steroids) and now the economy will seek equilibrium (hopefully without more politically influenced financial steroids) which is a U.S. economy that is about 15 percent smaller than it is currently measured.

The SP500 is about 10 percent above its 200 day moving average and it was September 2010 that it traded below it. 

I think 10 percent decline in the near term is almost a gimme, with a most likely scenario of about a 15 percent decline in SPY.  SELL NOW and have a great summer!