Sell in May – Markets have a shocker

June 1, 2012

FOREX, Global Macro

By Greg McKenna

We saw a bit of position squaring yesterday for month end after assets like the Aussie Dollar made a fresh low for the year before rallying. Likewise in US equities the early weakness gave way to a better performance but by the end of play the pressure was unable to be withstood and they finished in slightly negative territory.

As two of Europes top officials warn of the end of the Euro (Rehn and Draghi) and money floods out of the spanish banking system the awful truth is that this mess is as far from resolution as it was when this debacle started 5 years ago next month.

So is it any surprise that markets had a shocker in May on this recognition that the  global economic recovery, the ephemeral one that is still coming, the ineptitude of European policy makers and the burgeoning problems in the European banking system all combined to see equities, commodities, risk currencies and peripheral bond spreads sell off while core bond markets such as the US and Germany rallied. In Australia our bonds rallied to new lows on the back of both a weakening growth profile.

Here is a snap shot of the performance of some of thee markets I follow in May – as John Mauldin says, you might want an Adult Beverage with you when you read them.

It doesn’t make great reading and the problem is that there is little chance of respite sustainably anytime soon – sure we might get a relief rally if Greece votes in favour of austerity but you can forget Greece now – SPAIN IS THE GAME YOU NEED TO WATCH. They just might have to exit for self interest and because they are simply too big to save.

We have been preaching capital preservation since March – we’ve been bang on the money and I expect that this mantra might be rusted on for a while.

Have a great day

Greg McKenna

www.twitter.com/gregorymckenna

Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

If however you do need advice on Investments, Economics, Funding and Liquidity, Interest Rates and Forex and Derivative markets we are happy to help.

Please Email the team at Lighthouse at info@lighthousesecurities.com.au or Greg directly on greg@lighthousesecurities.com.au

 

 

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