Saturday, April 16, 2011

Sell in May and go away?

Are you kidding me! Who can sell off all their stock in May? Not me who claims to be a long term investor. In fact, if all of you sell your shares in May the prices will undoubtedly fall significantly and I might be interested in buying. Duuuh!

Yet, it seems we have price patterns or better trading patterns that seem to repeat overtime. Are they real or are these just random price paths that look like patterns but aren't? It doesn't matter. What does matter are fundamentals and whether potential investments are priced right.

With oil prices at their upper trading ranges and oil company shares reacting volatilely to even small movements in this commodity's pricing it is time to be more careful. Maybe not in Cushing, but Brent oil prices have reached the danger zone where it may adversely influence economic growth. Going against that are recent opinions that claim that countries such as Saudi Arabia have overstated their reserves and production capacity for years. According to those opinions, Saudi Arabia is barely capable of exporting 10 million barrels per day let be the 12 million barrels capacity that they claim.

So if our current production rates are maxed out, barring new technologies which likely will be immediately denounced by the shrill shouts of environmental activists, (thank you for driving up the oil price even further), what near future oil prices are in store for us? Jeff Rubin thinks $225 per barrel may not be beyond imagination. Surely our world would then become a lot smaller and a new economic way of life could result. If you think that is far out, then maybe you missed the last quarter when China had its first trade deficit in decades!

Add to this the economic results of the earth quakes in Japan, the Middle East rebellions, the indecisive leadership of NATO and Obama's weak leadership regarding Libya. Mix in a record U.S. debt, a nasty debt crisis in Europe and one could really see the world and our stock market through some very black glasses.

So the risk is high for something to really go wrong. Simultaneously, economic indicators in North America look quite decent if not decisively upbeat. A world full of contradictions! So ask yourself, what is the upside for the market over this summer? Weigh this against the downside.

My conclusion is that we'll better cool it for a while. I do not see the stock bargains from a year or even from half a year ago and the upside is limited for oil but also for the economy overall. BRIC countries, in particular China, experience inflation. Several of these countries try to cool their economic growth by making lending more difficult. Not necessarily by raising interest rates but rather by increasing requirements of banks before they can lend to industry and consumers. We are in a 'wait and see' pattern until at least this fall. Then it may be time to re-evaluate. This may not be exciting but then if we want excitement, we can always go to Las Vegas. As far as investing is concerned, boring is good as long as we collect our dividends.

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