For many, the Memorial Day weekend is the unofficial beginning to the summer season.  Of course, the summer solstice (June) marks the calendar’s initiation to the “second season”.  Not to be outdone, the great “Fourth of July” in America confirms that we are embedded in the hot weather, humidity, and lethargy of mid-year.  If the markets needed any more convincing that “sell in May and go away” is a true axiom, we saw evidence of economic doldrums from the market’s performance last week.

Last week’s lethargy originated from anemic growth in jobs creation, high gasoline prices creating earnings meltdowns, and overall pre-holiday boredom.

I suspect that an overload of information is just too confusing for most investors who seem not to care, or wanting to bother with the whole mess right now.

Internals.

Trade volume, and values, evaporated in the face of a short work week, which only strengthened confirmation of many cyclical lows.  The short week heightened the probability of continuing the existing downtrends in sectors that need cash badly to infuse life into their moribund condition, like Cyclicals and Financials.

Given the lower volume, mood swings become exacerbated and more violent because there is little buying protection from the downside.

However, the direct beneficiaries of these trading extremes are the sectors in secular uptrends that have little overhead resistance, like Energy, Basic Materials and Technology.

We are witnessing a period of slow growth and high inflation that is likely to persist for years.

Externals.

A major concern from my reading of the Arlington Econometrics data is that any spillover from economic downturns in one region might have a negative impact upon earnings acceleration patterns in another global region.  Rather than looking at the world’s bourses as a disconnected paradigm, the integration of capital flow amongst economies almost creates a synergy that makes vulnerabilities regional rather than local.

Inflation issues are no longer isolated to producing nations or their direct consumers.  Instead, peripheral market baskets suffer collateral damage from locations far away and not directly linked to their economy.

We see glimpses of this parallel connection in agricultural and energy matters.  So, too, might health and medicine transcend direct, or neighboring, borders.

We are early in the cycle of price escalations.  A slowdown might take on pandemic consequences and prolong the current bear market.

Unfortunately, we are suffering the after-effects of a massive growth cycle which preceded today’s bear.  Overall, if prices continue to slide I would stay out of the way of the secular capitulation, and bide my time by rebalancing risk in my portfolios.

Scotty C. George

(212) 624-1147

www.dupasco.com

Arlington Econometrics is a quantitative market tool.  Utilizing proprietary algorithmic equations, Arlington offers solutions for market-timing, asset allocation, and macro economic analysis.  Arlington Econometrics’ database spans over forty market bourses, and includes over 70,000 financial and statistical instruments.  Using historical time-series measurements, Arlington Econometrics optimizes the analytical process and forecasting coefficients to make economic forecasting more objective. 

The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.

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