minutedots Investment update

Phiillip Larrea By Phiillip Larrea, 2nd May 2013 | Follow this author | RSS Feed | Short URL http://nut.bz/21qnimnp/
Posted in Wikinut>Money>Investing

Investment strategy for summer doldrums and central bank policy.

Sell in May? Not While the Bankers Play



Normally, “sell in May and go away” makes sense. This year may be different. We need to understand what has driven the markets higher up till now, to gauge where the market is heading. Economies everywhere are flailing around just this side of drowning. So what? The markets are only responding to whether or not central bankers will print more money. In this sense, bad economic news is great investment news, as it increases the likelihood of more intervention from the bankers. Each time the markets have looked weary, the Federal Reserve, Bank of Japan, and just this week, the European Central Bank have stepped in with a trillion or so of their paper money.

In the past few years, the bankers have quantified both amount and duration of what we have come to know as “quantitative easing”. This has made it easy to time the market. When the bankers are in, you buy; as they near the end of their allotted pot of money, you sell. The markets go down until the bankers get depressed and announce a new program, and then you buy again. The bankers have caught on and changed their tactics. Now the message is that they will print a trillion a year until it works.

If all of this sounds like it could be dangerously inflationary, don’t worry- it hasn’t been. None of this funny money is making its way into the pockets of the paycheck class. Since they have no additional money to spend, there is no increase in demand. If General Mills raises its price on Cheerios, fewer Cheerios will be sold. This is exactly what we are seeing in earnings reports from virtually all of the bellwether companies across every industry; profits meet expectations, but revenue is light.

What a windfall this coordinated global central bank policy has been- and will continue to be- for investors. So this year, hang around in May. Trim your outrageous winners down to size, buy the laggards and bring your portfolio back into balance. Of course, if the bankers start humming a different tune, well… different story.

(contact Phillip Larrea at phillip.larrea@gmail.com)

Tags

Economic And Social Issues, Investing, Politics

Meet the author

author avatar Phiillip Larrea
Editor, "minutedots" investment newsletter. Widely published poet and author of 2 books, Our Patch, and We the People. Instructor and public speaker.

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