The Wall Street saying, "Sell in May, and Go Away" has its roots in another eon. The names that drive the market will always change and so it is true, seasonality is changing. Bank no longer count on farmer loans in spring and worry about repayment at harvest time. Now, they have the Federal Reserve.
Other Factors
We have told you about the changes in commodities. The pandemic effected mining. Countries like Chile and Peru which produced large quantities have seen their production shrink. These and other emerging market producers have kept inflation in check. In the same way, China had kept US inflation low for the past twenty years with retail. Now, we are seeing the reverse. Demand is picking up as economies are utilizing stimulus, especially in infrastructure. However, supply is not there. This has resulted in surging prices for metals, agriculture and related needs. What I mean about "related needs" is this: there is a need for chips, but many things go into producing a chip and those things are in short supply. The list of firms raising prices grows every day. In his annual meeting, Buffett said that he is raising prices, especially in housing and office furniture. He is joined by Proctor and Gamble, Whirlpool, Kleenex. Coca-Cola and others.
Expectations
With the end of the virus in sight, expectations are rising for economies around the world. The idea is real, but the timing is exaggerated. The market is scary. You can see this in the Shiller CAPE. His price-to-earnings is up to $37.49, which is double the historic average. Famous investor Leon Cooperman agrees. He says that he does not know when or why, but things will end badly. This is what our Economic Evangelist said in March. In addition, what we have seen from the market, is fierce, cutthroat action in the battle between the Bulls and Bears. Whenever the market shows the slightest downturn like last Friday, "cannibal money" comes into the market to eat these shorts and "melt up" the market. This has been going on since the market lows of March 2020. Even with that said, life happens. People who are buying are expecting things to return to normal. What we have been saying all along is labor and unemployment. Our economy has not stopped people from losing jobs and many of those same people are tired of low wage, no social mobility type of employment. The number of claims has not fallen below 500,000 for any week since February of 2020. This is reality! Society is in flux. Retail, hotels, cruises, airlines and auto sales are nowhere near pre-pandemic levels. This will shock earnings and their overpriced expectations. You add to this the high price in all things from cardboard to plastics and from lumber to copper. Higher costs and lower profits. This is reality. Inflation is here!
What We Expect
A continuation in market trend. A slight downturn and then, a quick rise to a new record level. We feel this market trend will abruptly stop at the end of May. June is the new sell date and one central reason is this. In the back of everyone's mind are those expectations. The spending programs from the Biden administration along with similar developments in the global community. Will they happen? Will they get real results rather than only expectations? We can get a glimpse from the action in currencies.
King Dollar is central. It keeps trying to be its historic save haven, but things change. Every time that it seeks to rally past 93, it fails. We believe it will test 89. The test will be crucial to where the market and our economy goes. With all the Biden plans for spending, the King could face a coup d'état. China and the IMF are seeking power. They are the worst of outcomes: The Communists or One World Government. These things don't happen overnight. The dollar will still be the world's reserve currency, but the dollar could fall as low as 83. The biggest battle then, is where money will flow. Will the bitcoin keep rising or will gold finally breakout? A year from now, we will see the trend. The US is following Japan's policy on debt. It has worked, but it is held by a thin thread. Peace.
