Friday, 4 May 2007

Sell in May and Go Away?

Are the stock markets closing in on a top? Here are my three concerns:

1. The share mania currently occurring in China. The chart below is a three year chart of the Shanghai Stock Exchange:

It has been rising exponentially for a couple of years and looks very overbought. Due a very large correction. As shown in February, this could spill over into other markets.

2. The Yen and the Carry Trade.

The Yen is almost back to where it was in February when it came off quite sharply. The Economist this week says that the Carry Trade has been unwinding and that the current weakening of the Yen is a result of Japanese individual investors moving their money offshore in search of higher returns. I, personally, don't buy that. The size of the Carry Trade is just too large to be offset by individual investors in such a short period of time and why would it be having such an effect now? So, I see the potential for a double top/bottom (depending how you look at it) and a trend change in the short/intermediate term. The worry for those of us invested in non-Yen related things, as shown in February, is that if positions have to be closed quickly then the most liquid assets get sold off first to cover those positions - e.g. stocks, precious metals, bonds, commodities. So, we could see a sell off across the board.

3. The company profits bonanza may be coming to an end.

HSBC says forecasts for 2007 earnings per share for S&P500 companies have fallen from $95 to $93 since the middle of last year. This follows years of double digit growth. If investors expectations of future performance turn down then share valuations will look very stretched on a forward earnings basis.

In the UK, rising interest rates, rising bankruptcies and a vulnerable housing market could have the same effect.

This will take longer to play out than the first two issues but if investor sentiment changes it could get nasty.

Oh, and the Sunday papers say not to sell up this May as it could be a bumper summer. If that isn't a contrarian signal, I don't know what is.

Thursday, 3 May 2007

2 interesting charts for Gold investors

For anyone interested in Gold investments, I find this blog interesting:

where Gary has summed up the market in a couple of charts.

My own personal take is that we are approaching an interim top in the gold price. The market looks overbought at the moment, though you wouldn't believe it from today's bullish action in gold stocks. The COTs (Commitment of Traders), a weekly report of longs v shorts in the market, have been showing for some weeks that we have entered the lower end of the range where the market historically turns down. But it's always a tough call when to get out as the most explosive gains often seem to come in the last gasp of the market.

Wednesday, 2 May 2007

British Local Elections

In the UK today we have elections for local councils and the Scottish and Welsh assemblies. Much has been made of the lead in the opinion polls in Scotland for the Scottish Nationalists and how this could lead to the break up of the UK. My view is that this election is all about giving a good shoeing toTony Blair particularly, Gordon Brown to a lesser extent and the Labour government in general.

The main catalysts are clearly the Iraq war and ongoing carnage - and the general shambles that it seems to have degenerated into, with British forces being taken hostage by Iran and then selling their stories to the press. The huge increase in taxation which may have started stealthily but now hits like a sledgehammer. I can't be alone in noticing my pay packet shrinking again in April as taxes, this time NI, have gone up by more than the increase in tax allowances. I don't think we would mind so much if the money wasn't being so obviously wasted.

Despite his expected electoral thumping, Tony Blair is apparently planning a seven week "farewell tour". He must be suffering from delusions of adequacy if he thinks that most of the Labour party want to see him on a farewell tour, let alone the general populous. The only reason that people will be sad to see him go is that he is now certain to be replaced by Gordon Brown. God help us! I can't help thinking that the crushing of all opposition in advance of the Labour leadership elections - even Putin must be impressed by the ruthlessness and effectiveness of it - are a precursor to how all opposition to his policies will be dealt with. Brown is reported to be planning a 100 day policy onslaught from his coronation to bulldozer us all into submission. Quite how this is going to be achieved while parliament is on holiday I don't know, but politicians may want to check the cancellation policies on their holidays!

I won't be voting today as London has no elections but I hope that my fellow countrymen do the right thing and give Blair's backside a helpful kich through the door.

The power of turning things off

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