“Sell In May and Go Away” Might Be a Good Idea for Conventional Assets
by Stefan G. President of Money Metals ExchangeVolatility in the currency markets, bond markets, and stock
markets likely has a lot of people on Wall Street feeling a bit worn out.
Taking a summer vacation in the Hamptons might just be their best idea.
The coming months promise to be anything but quiet and
predictable. Here are a couple of items that may yield profound implications
for stock, bond and currency investors before summer ends...
The Threat of an Official Recession Is Looming
The next
few months are critical for the U.S.
economy. The
official definition of recession calls for two successive quarters of negative
GDP. First quarter GDP came in barely positive, initially estimated at 0.2%,
but it will be revised twice before July. Some experts expect it will wind up
in negative territory.
The U.S. trade deficit recently came in much larger than expected.
The higher deficit will, setting other factors aside, translate to lower GDP. Investors will get a look at 2nd quarter GDP in late July and pessimism
among forecasters is growing.
So far U.S. equity investors are hoping for the best, or at
least hoping the Fed will reverse course on tightening. Stocks are shrugging
off bad news and powering higher with price-to-earnings valuations climbing
into the nosebleed section.
It is hard to imagine valuations at these levels holding if
investors and high frequency trading algorithms must grapple with an official
recession. Of course, should the Fed announce some new form of stimulus in
response to bad news then all bets are off.
The End Is Nigh for Greece
The Greek government is running out of tricks to avoid a
default. Last week, officials there paid €750 million Greece owed to the IMF by
borrowing €650 from the IMF; a last resort gimmick they won’t be able to
repeat.
Absent finding an agreement with lenders to modify loans and
dramatically reduce what is owed, the Greeks will be in outright default as
early as next month. This summer should tell the tale on Greece’s future within
the European Union.
Should Greece default and exit the
EU, it will be the first event of its kind, and it has the potential to open a
Pandora’s Box. There will be bank failures within Greece and pain for anyone
holding Greek debt. It could pave the way for bankruptcy and an exit in a
number of other nations where finances are also in shambles. And no one can
confidently predict the outcome in derivatives markets where banks and hedge
funds have been making highly leveraged bets.
Should the Greeks manage to reach an accord with lenders,
markets will have to contend with a different set of challenges. You can bet
other overly indebted nations including Ireland, Spain, Portugal, and Italy
will aggressively pursue similar deals. The pain for bond holders isn’t likely
to end with Greece.
The EU has a flood of bad debt swirling around its knees, but officials there continue to pretend they stand on solid ground. Regardless of whether Greece defaults outright or manages to cut a deal, it looks like the pretending will have to stop – and soon.
Clint Siegner is a Director at Money
Metals Exchange, the
national precious metals company named 2015 "Dealer of the Year" in
the United States by an independent global ratings group. Siegner, a graduate
of Linfield College in Oregon, puts his experience in business management along
with his passion for personal liberty, limited government, and honest money
into the development of Money Metals' brand and reach.
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