Buy in May and Stay Invested

By Charlie Bilello

It is their job to entertain. It is your job to ignore…

“Sell in May and Go Away.”

Perhaps the catchiest of all market sayings and one we hear repeated year after year. But how has it actually served investors over the years? Let’s take a look.

Since 1928, the S&P 500 returns from May through October have lagged the returns from November through April.

Case closed, then, sell your stocks at the end of April and buy back at the end of October?

Not so fast. Why not?

Because the returns from May through October are still positive, with the average May-October up 3.9% and the median up 5.3%. Needless to say, “staying away” from positive returns is not the best investment strategy.

At 71%, the odds of a positive May through October are only slightly below the odds of a positive return from November through April (73%).

Still not convinced that Sell in May is a bunk theory?

Below is a chart of $10,000 invested in 1928 with a “Sell in May” strategy versus buy and hold. If you sold each May, put the money under your mattress, and bought back at the end of each October, your $10,000 would grow to $2.2 million (6.1% annualized return) versus $33.2 million (9.4% annualized return) for buy and hold.

In the short run, the day, week or month in which you choose to buy stocks will invariably lead to different returns. This inherent randomness in markets will sometimes work in your favor and other times work against you. But at the end of the day, it is just noise.

It is the media’s job to promote that noise as a source of entertainment. And it is the job of the long-term investor to ignore it. There is simply no evidence that a particular month is the best or worst time to invest.

The key to earning really large returns is investing long enough to experience the magic of compounding. Which is why a much more helpful saying than “Sell in May and Go Away” would be “Buy in May (and every other month) and Stay Invested.”

I won’t hold my breath waiting to see that in the headlines anytime soon.

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Another Confesses The Impossible, We Might Not Have Known What We Were Doing

By Jeffrey Snider

When you go around claiming that central bankers don’t know the first thing about money, people tend to think you are crazy. It’s not really their (people’s) fault. Not only have we been conditioned to believe in a technocracy of sorts, it is raw human nature to immediately suspect such a radically contrarian view.

It would be one thing to say, well, central banks screwed up and were behind, making a few big mistakes along the way and we had the pay the price for it. Even that would be hard for some to really accept. But to make the indictment that they really don’t know what they are doing even on the most fundamental level just cuts way too deeply against convention. Your natural instinct is to believe there is no way that could possibly be true.

The Maestro, after all.

Yet, if you actually take the time to listen to what they say, and have said in the past, they do admit as much. It’s never summarized in that fashion, of course, and any potentially negative implications are downplayed or dismissed.

Since the Great Inflation monetary policy has been quite intentionally stripped of money. Banks evolved and there was really no easy way to define money beyond a certain point (in the sixties), so Economists just gave up trying. This is no small thing, but in Economics it is treated trivially.

Continue reading Another Confesses The Impossible, We Might Not Have Known What We Were Doing

What’s Wrong With This Picture? Citi Macro Surprise Versus NASDAQ and Fed Funds Target Rate

By Anthony B. Sanders

Italy 10-year Yield UP 26.6 BPS

One of these indicators isn’t like the other one.

Take Citi’s Macro Surprise Index for the US and compare it to the NASDAQ index and The Fed Funds Target Rate (Upper Bound).

macru

In 2018, both The Fed Funds Target Rate (upper bound) and NASDAQ Composite index have risen.  But the Citi Macro Surprise index has fallen over 2018.

And then there is Italy which is threatening to leave the Euro. Its 10-year sovereign yield is up 26.6 basis points today.

italy10.png

Vesuvius Redux?

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What is the PE10 telling us about Emerging Market Equities?

By Callum Thomas

Forecasting is hard, especially about the future, but with the right indicators we can make it at least a little less hard.  In today’s article I show how important valuations can be in shedding light on long term expected returns for emerging market equities.  It’s a unique angle on what is generally a well-understood principal in asset allocation.

The chart comes from a piece of research I did which looked across global equity markets at the relationship between the PE10 and expected returns. The chart shows the 10-year forward price change across time against the PE10 valuation metric.

Continue reading What is the PE10 telling us about Emerging Market Equities?

European Inflation Concerns Also Rising?

By Michael Ashton

In this space I write a lot about inflation, but specifically I focus mostly on US inflation. However, inflation is substantially a global process – a paper by two ECB economists in 2005 (and our independent followup) found that nearly 80% of the variance in inflation in the G7 and G12 could be accounted for by a common factor. This observation has investment implications, but I’m not focusing on those here…I’m just presenting that fact to explain why I am about to show a chart of European inflation.

Right, so technically it’s my second article in a row in which I mention European inflation. In last Friday’s “Potpourri for $500, Alex”, I noted that core European inflation rebounded to 1.1% after being counted for dead at 0.7% last month. But what is illustrated above is the inflation swaps market, and so is forward-looking. I think this looks a lot more dramatic: investors expect 5-year European inflation to average 1.5% over the next 5 years (a year ago, they were at 1.1% or so and two years ago the market was at 0.7%), and to converge up towards 1.8% where the 5y, 5y forward inflation swap indicates the approximate long-run expectation since it’s not significantly influenced by wiggles in energy.

Continue reading European Inflation Concerns Also Rising?

Pardon Him

By Heisenberg

Markets gave Trump the benefit of the doubt to start the new week after a weekend that found the President spending what certainly seemed like an inordinate amount of time assailing various (and in some cases entirely imaginary) foes on Twitter.

Seemingly oblivious to the optics, Trump regaled the world on Monday morning with his thoughts on farmers, soybean taxes, “all sorts of trade barriers”, deficits, the constitutionality of the special counsel probe, his power to pardon himself and “Witch Hunts” that he says are being conducted by “conflicted” Democrats and unnamed “others” who he says are “angry” at him for reasons he didn’t specify.

That went on for nearly three hours.

Despite that, stocks were fine, seemingly content to ignore the incessant rantings of a guy who is now openly suggesting that he’d absolve himself of responsibility for crimes he committed on the off chance anyone actually ends up producing proof of those crimes and seemingly resigned to the notion that, as Goldman put it over the weekend, “US trade policy is a conundrum.”

Continue reading Pardon Him

So I Get This Question About Millrock Resources (MRO.v)…

By Otto Rock

…on Twitter yesterday:

And yes, after about 15 seconds on the internetwebpipes indeed turns out that this Nick Hodge is another mining stockpick wealth make-yer-rich guru who plies his knavery on the green and foolish of this world (I’d pay more attention to them all but I can’t be arsed these days), he runs something called “The Outsider Club”* and yes, he’s pumping Millrock Resources (MRO.v) to his merry band on knownothings and doing this to the stock:

It won’t last. It never does. And guess who’s selling to the new buyers?

Continue reading So I Get This Question About Millrock Resources (MRO.v)…

Here We Are Again! More Than 75% Of Loans Backing CMBS Deals Are Interest-only Mortgages

By Anthony B. Sanders

Similar Level To Late 2006 and early 2007

While interest-only mortgages have almost disappeared in the residential space (thanks in part to the Consumer Financial Protect Bureau’s efforts), they are growing again in the unregulated commercial space.

(Bloomberg) – Commercial mortgage bonds are getting stuffed with the lowest-quality loans since the financial crisis by one measure, according to Moody’s Investors Service, a warning sign that the $517 billion market may be headed for harder times. More than 75 percent of the loans backing the bonds a re interest-only mortgages, a similar level to late 2006 and early 2007, Moody’s said. Those loans are riskier because borrowers don’t pay any principal early in the debt’s life. When that period expires, the property owners are on the hook for much higher payments.

cmbsredux

The percentage of interest-only loans in a commercial mortgage bond is an “important bellwether” for the industry, according to Moody’s analysts, because the loans are more likely to default and to bring bigger losses to lenders when they do. Underwriters aren’t taking steps to fully offset the rising risks, the ratings firm said.

Continue reading Here We Are Again! More Than 75% Of Loans Backing CMBS Deals Are Interest-only Mortgages

New Issue Promotions

By Bob Hoye

hoye

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The Strength Of Two Unfilled Up Gaps & A 50-Day High

By Rob Hanna

One interesting study that I discussed in last night’s subscriber letter considered the fact that SPY left an unfilled upside gap for the 2nd day in a row while closing at a 50-day high. The results table I shared can be found below.

2018-06-05

The size of the follow-through isn’t terribly large, but it has been quite consistent that some follow through was achieved in the next few days. The market is certainly overbought here. But overbought does not always mean an immediate reversal. While evidence is mixed, (for instance, an expected substantial SOMA decline this week is creating a bearish headwind this study suggests the kind of strength we have seen over the last couple of days is often followed by more strength. And it can serve as a nice little piece of evidence for traders to consider as they establish their market bias.

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On the Mexico and Colombia Elections (from IKN 471)

By Otto Rock

A bit of the ‘Regional Politics’ section of [this week’s] edition of The IKN Weekly, IKN471:

Mexico: All roads now leading to AMLO

With less than a month to go before the big vote date, we’re now getting headlines in Mexico’s press like this one (translated):

“Victory For AMLO Seems Inevitable, According To Polls”

That from the Diario de Yucatán (8) but there are any number of op-eds and reports out there now saying the same thing in different ways. López Obrador’s support has remained strong though the final stages of the election campaign, by general consensus he’s performed well at the two live televised debates so far (there’s one to go in a few days’ time), and what’s more the support of his main rivals Anaya and Meade has stagnated (they continue to split the “anyone but AMLO” vote).

So get used to the idea of AMLO as the next President of Mexico, but don’t fear him as much as some of the near-inevitable English headlines will have you believe in days ahead. You’re sure to get certain media channels screaming about Left Wing disasters and suchlike but fret not, AMLO isn’t the hard left reactionary that he once was and part of his successful march to the presidency this time is because, unlike the previous two attempts, his message and policies are toned down and centre-left in style and substance. Mexico will remain a market economy and investor friendly, there will be decisions around the margin of that but nothing we as FDI people should worry about too much.

In fact I would contend that the outcome to the Colombia election is far more important in regional geopolitical terms than that of Mexico and as you are about to see, that’s pointing toward a happy ending as well.

Colombia: Iván Duque now red hot favourite to be next President

By way of confirmation of this publication’s initial reaction of hearing of the out-sized victory margin of Iván Duque in last weekend’s first round of elections in Colombia, the first set of reliable polls on the round two run-off between Duque and let wing Gustavo Petro look like this (9):

  • Duque: 55%
  • Petro: 35%
  • To spoil ballot/don’t know: 10%

That 20 point margin will be near-impossible to close for Petro and we can now be confident that Duque will win and the Álvaro Uribe dauphin will become the next President of Colombia.

I’ve been asked by a couple of you what this means for mining in Colombia and the best answer is “no worse than today”, which isn’t much improvement of course (the legislation and institutional support for hard rock mining continues to be sorely lacking), but even a continuation of the current “muddling along” situation is better than the overtly anti-mining stance that would have been adopted by a Petro government.

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Who Will Rid Us Of This Meddlesome Clenis?

By Evan Hurst

The Clenis is back in the news, because the media will always find a way to make the news about the Clenis, even when NOBODY IN THE WORLD was curious what the Clenis was up to these days. Also, Bill Clinton and his Clenis have a book to promote, and this last year has been pretty earth-shaking with the #MeToo movement, so when you put all those things together, what do you get? You get NBC News interviews where journalists are like “Oh hey what up, Big Clenis?” and ask Clinton if he thinks he and his Clenis should have behaved differently during the Monica Lewinsky scandal, or if they would have behaved differently had the #MeToo movement been around back then.

Let’s be clear here: Bill Clinton needs to shut the fuck up. And if journalists insist on asking him questions about this, he needs to either ACTUALLY take some responsibility for what he did, or ACTUALLY try to talk about the differences between the 1990s and now, or really, just say anything besides what he said when NBC’s Craig Melvin started inquiring as to the life and times of the Clenis:

MELVIN: If you were president now, in 2018, with everything that’s going on with the #MeToo movement, how would you have approached the accusations differently?

CLENIS: Well, I don’t think it would be an issue because people would be using the facts instead of the Imagined Facts. If the facts were the same today, I wouldn’t.

What? OK, we obviously grant that Clinton was the subject of a years-long investigation that, in the end, only managed to turn up a jizz stain on a blue dress and a big old perjury committed by the president. GRANTED. But what the hell “facts” is he talking about? He doesn’t really say!
Continue reading Who Will Rid Us Of This Meddlesome Clenis?