Sell in May? Are you crazy, man?
That seemed to be the thought process as the markets had a very strong week. Emerging market stocks paced the global bourses, gaining 2.7% (global markets were up 1.8%). Wednesday’s Shanghai Surprise did not disrupt trading much: The S&P 500 gained 1.4%, to reach an all-time closing high of 1536. The Dow Industrials also set a new record, climbing 1.2%. The Russell 2000 index of smaller cap stocks saw some action, jumping a big 2.8%; the Nasdaq grabbed a 2.2% gain. Other big winners: The REITs, which were up nearly 6% on the week. Gold also gained 2.4%, while Oil as slightly negative.
This took place across a backdrop of weakening economic fundamentals, with GDP nearly flat, inflation rising, and job creation lackluster — all of which was of course promptly ignored.
This was the best May for the indices in years: In order, the Dow gained 4.3%, the Russell 4%, the S&P 3.3% and even the lagging Nasdaq notched a respectable 3.1%.
Equities weren’t the only things rising: Bond yields moved up, with the 10-year yield within spitting distance of 5%. This may hurt the argument that
stocks are cheap compared to bonds. Not surprising, Utility stocks suffered somewhat also.
Barron’s Trader column notes that:
"This sets up a delicate equilibrium: wobbly housing and auto sectors supported by the rest of the U.S. economy, whose modest growth is stoked by a weak dollar and strong global demand. How long the stock rally can extend will depend on the durability of this balancing act. And no, it’s not easy. Seriously."
Serious as a heart attack. No matter — we got you covered:
INVESTING & TRADING
• Global Bull Rides Boom in Loose Lending: The great global bull market in stocks rests heavily on the booming credit markets. But there are increasing worries about the soundness of that foundation. Never has credit been made available on such
advantageous terms to private borrowers, who are using it to pay for
mammoth private-equity transactions, leveraged buyouts, mergers and
acquisitions, or merely to repurchase shares. (Barron’s)
• Jim Jubak points out that For bears, being right still hurts: But there’s something even worse than losing money when you’re a bear:
It’s losing money while knowing that you’re right. This stock market is
overvalued, as these market pessimists argue. This rally is built on a
flood of cheap money. Earnings growth is slowing. There are speculative
bubbles all over the world, from the apartment market in Spain to the
stock market in Shanghai. And yes, there will be a day of reckoning for
the global financial system. But in the meantime, while they wait for Armageddon and the days that
will divide the prudent from the reckless, bears are getting killed. (MSN Money) Ned Davis must have had Jubak in mind many years ago when he wrote the book: Being Right or Making Money.
• I love the cover of this week’s New York Magazine: Who the @#$%! does Jim Cramer think he is? (By James J. Cramer)
• China’s alphabet soup of shares can be hard to digest: A curious thing happened as China’s yuan-denominated A-shares tumbled on Wednesday. Although they dropped by 6.4 per cent, the alphabet soup of other classes of Chinese company shares fell by sharply differing amounts. (The Australian)
• Chartistry: The Dark Arts of Wall Street (Conde Nast Portfolio)
• Is Carl Icahn the hottest investor in America? No longer the lone wolf, Icahn is more formidable than ever, having
built a team of two dozen associates to help him find targets and mount
his crusades. For Fortune’s exclusive look inside his kingdom,
Icahn, as well as his top dealmakers, sat down for several hours of
interviews in which they described the inner workings of an operation
that has boosted the total market cap of its target companies by more
than $50 billion in just over two years (see chart), spreading the
wealth among shareholders far and wide.
• A Metal Scare to Rival the Oil Scare: Indium, gallium and hafnium are some of the least-known elements on the periodic table, but New Scientist
warns that reserves of these low-profile minerals and others like them
might soon be exhausted thanks to the demand for flat screens and other
high-tech goods. Scientists who have tried to estimate how long the
world’s mineral supply can meet global demand have made some gloomy
predictions. (WSJ’s Informed Reader)
• Is eBay Rational?
You might think that if there’s one thing an economist should be able
to tell you how to do, it’s successfully list an item on the auction
Web site eBay. Auction theorists are, after all, celebrated in the
profession; one of them, Susan Athey, won the John Bates Clark medal in
• DON’T FEEL SO BAD, OUR COUNTRY IS TOO: Italians claim country run by Goldman Sachs: Italians grumble that Goldman Sachs runs their country, much as the Jesuits ran countries during the Counter-Reformation. Premier
Romano Prodi is an ex-Goldman Sachs man, as is central bank president
Mario Draghi and the deputy treasury chief Massimo Tononi. The
price paid for having so many friends at court is that the elite bank
inevitably becomes entangled in the financial scandals that so often
swirl around the Italian political class. (UK Telegraph)
The Wall of worry continues to build:
• US economy nearly hit standstill in first quarter of the year The American economy almost ground to a standstill in the first three months of the year as a healthy rise in consumer spending was wiped out by an unexpected cut in the amount of stocks held by business. (The London Times)
• Rules ‘hiding’ trillions in U.S. debt: The federal government recorded a $1.3
trillion loss last year — far more than the official $248 billion
deficit — when corporate-style accounting standards are used, a USA
TODAY analysis shows. The loss reflects a continued deterioration
in the finances of Social Security and government retirement programs
for civil servants and military personnel. The loss — equal to $11,434
per household — is more than Americans paid in income taxes in 2006. Total liability is $516,348 per U.S. household. (USA Today)
• Cars Outsell Light Trucks for First Time Since 2002:
More cars than light trucks were sold in the United States last month,
reports from the automobile companies showed Friday, as gasoline prices
nationwide soared to more than $3 a gallon. (New York Times)
• Return of the Bond Vigilantes?
Fixed-income investors were dubbed "bond vigilantes" in the 1980s for
their readiness, willingness and even eagerness to drive yields higher
at the merest hint of inflation or if policymakers were suspected of
straying from the straight and narrow of prudent policy. They became so
powerful that Clinton adviser James Carville famously groused in 1993,
"When I come back, I want to come back as the bond market, because then
you can intimidate everybody." (Barron’s)
• Wow, I could’ve had a prime mortgage: Imagine you’re a homeowner, and you discover that instead of the
expensive subprime mortgage loan you signed on for, you actually
qualified for a prime mortgage with much lower interest rates…"I reviewed several hundred [subprime] loans recently for our wholesale
division," said Allen Hardester, director of development for
mortgage-broker, Guaranteed Rate, "and all of them, with one exception,
qualified for a prime-rate loan." See also Mortgage rates move sharply higher (CNN Money)
TECHNOLOGY & SCIENCE
• Transcript of the interview with Microsoft Chairman Bill Gates and Apple CEO Steve Jobs
at the D5 conference on May 30, 2007.
• Updated FDA Food Pyramid (be sure to read thru the comments)
• Startup Search, a directory of the startup companies, products, investors, and people changing the web.
• Way cool mapping technology: Google Maps Street View and Microsoft Live flies around and through New York City.
MUSIC BOOKS MOVIES TV FUN!
• Knocked Up is getting some surprisingly spectacular reviews: Industry bible Variety calls it "more explosively funny,
more frequently, than nearly any other major studio release in recent
memory." Is this the face of Hollywood’s next A-lister? (The Globe and Mail)
• best of craigslist has some hysterical (but not safe for work) postings
• Colossal time suck: Everybody panic!
Hazy. Hot. Humid. Sticky. And thats just my underwear. Expect some Summertime sweltering this weekend, if you can get anywhere near the water, do so. Otherwise, stay in the AC and click away!