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||Asean Affairs 31 March 2013
ASEAN Weekly Outlook
Sell in May and Go Away?
Shayne Heffernan says Start in April
Sell in May and go away is historically good advice, last year and again this year I strongly recommend selling in April (actually I have been selling for most of March as well).
Why am I so pessimistic about markets now? Very simply the market is not at work in our current numbers, bureaucracy is, central banks like The Fed are pumping trillions of dollars in to markets.
At the same time they are all pointing to snippets of information that the economy is in recovery, great news, but the stimulus keeps coming. So why do we need increasing amounts of stimulus if things are good?
We don't of course, but the stimulus keeps coming, the markets rally and the real market waits in the wings, but not forever.
As Europe unravels, the market rallies, as US Debt hits new highs, the market rallies. An orgy of cash and loose monetary policy has driven many markets to all time highs, but the real market waits in the wings.
The Fed bubble is close to bursting, as Europe implodes banks will need to sell assets to capitalize, the real capital short falls in Europe's banks are of biblical proportions. So as the banks reach for assets to dispose of what will be first? They will go with their best performing assets, US Equities.
As they sell off those equities, the real market will exit the wings and return centre stage, contagion and deleveraging will make their home on Wall St, falling prices will see the hot money that flooded Asia be recalled and a new financial crisis will emerge. Not even Gold will be untouched, it to will see a sharp fall as it is sold for ready cash, but Gold will stage a V shaped recovery, markets may not perform as well.
I do not expect to see Asia in as much of a crunch as we seen in 1997, I believe this time many investors and institutions will save their Asian investments in preference to those in the USA and Europe, Asia will not be stunted by the next crisis, in fact, Asia will cement it's new role as being a finance centre to the world.
I am not alone in this line of thinking, Marc Faber said this week in a Bloomberg interview
“I was relatively positive about U.S. stocks since March 2009,” Faber said. “I haven’t any short positions. I haven’t been shorting any stocks since 2009. But the U.S. marches up , consumer confidence marches down, and emerging markets are performing badly relative to the U.S. The dollar is strong indicating a tightening of international liquidity. And so I don’t think that the U.S. market will go up a lot from here I rather think that there’s now considerable downside risk.”
Nouriel Roubini has said
“We have postponed the fiscal austerity, unlike the euro zone and the United Kingdom, and now we stole some growth from the future; we have to start the fiscal consolidation, and therefore there will be some payback from the mistakes made in the past.”
And as I have said a number of times, never in history has high debt, high spending and high taxes not led to collapse.
So what am I buying? not a lot right now, I am and have been buying the VIX, selling the Dow futures, selling some of the excessive valuations on Wall St FB, NFLX, LGF etc I have been buying Ag especially in Asia, and we have a new focus on specific undervalued Asian companies and some US entities that have unrealized growth potential in Asia either as a market or a source of funds.
Shayne Heffernan Ph.D.
Economist/Hedge Fund Manager
Live Trading News
Heffernan Capital Management
Chinese Society of Economists
American Economic Society
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