Skip to main content

"May"hem in Markets !

Market action in first week of May gives new meaning to English word "mayhem". Dictionary meaning of this word is: needless or willful damage or violence. The afternoon action in stock markets on Thursday May 6 was so true to this dictionary definition. It was indeed needless/willful damage to the confidence which was just getting started to build up. Many folks are still searching for answers what exactly happened at 2.45 pm EST on May 6 when DOW had its biggest intra-day points loss in its history !
I was amused that my previous post about selling in May would be so much on target - unfortunately when it comes to selling, I don't follow my own advise !

Storms were building for this fateful day for last few months with slow and erratic European response to Greek debt mess. Now the problem has become much bigger since contagion virus has spread to other European nations and may cross to other nations outside Europe. Unless Europe acts decisively over this weekend and next couple of weeks, we may be heading towards repeat of Sept 2008. So here are some suggestions for European policy-makers:
  • Guarantee sovereign debt of EU members for next 3-5 years and let governments work debt reduction over these 3-5 years
  • Tighten monitoring of members finances so nations like Greek cannot lie on their finances
  • Be ready to kick members out of EU if major violations are found
  • ECB should buy sovereign debt at 1-2% interest immediately - this would be equivalent of Fed buying mortgage bonds and treasuries which helped during this credit crisis
  • Create a "TARP" fund of over 500 billion Euros to help EU member nations
It is possible that Germany may be happy with this European problem since weak Euro is good for country like Germany which is second biggest exporter in the world but those short-term benefits may vanish if Euro falls apart - so Ms Merkel needs to tread carefully about how far she can stretch this issue without breaking Euro.

Job report on Friday was good but market ignored it due to all the volatility but its good to know that US economy has started creating over quarter million jobs per month. Given all these factors, how do one invests ?

My prediction is that volatility would continue to be higher over next few weeks and it is likely that DOW may see 10,000 before climbing back above 11,000. Under such conditions, I would recommend to stay on sidelines, prepare your list of stocks to buy (you can check some of old posts on this site for few ideas) and start nibbling at them when DOW reaches just below 10000. Long term market fundamentals still look good provided Europe fixes its issues quickly.

That's all for now - heading for IRON2MAN - first summer movie of 2010 !

Have a great weekend !

/Shyam


Comments

Sudarsan saidā€¦
Looks like your predictions about volatility continuing are turning out the be true. Did not check computer for a couple of days and suddenly realize everything is down. Looking forward to your next post and stock picks.

Popular posts from this blog

2025 = Is it going to be 1997 or 2000?

Happy Holidays... After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?  To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed. 1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic. 1990s also saw many inventions - the key being launch of Netscape in 1...

Elections and Rotations!

2024 will be known as an important year in terms of elections (97 nations covering half the population) across the major countries in the world. We are only halfway thru the year and already some key nations have gone thru elections and voters have indicated their preference for change (in a way). Let's take a look at few. India - Modi's BJP started with lots of enthusiasm with slogans of "Modi ki Guarantee" and "400 paar" (more than 400) seats (out of 543). Indian voters (which I considered one of the most smartest) gave reality check to Modi and BJP by reducing BJP count to 240 (from 303 in previous parliament) forcing it to form coalition government. I have lot more detailed hypothesis on these results (but not here). Almost everyone (including me) got their predictions wrong and lost some friendly bets. Indians want balance between "Strong, Prosperous, Proud" India with "Inclusive, Employment and Harmony". Modi and BJP are quick learn...

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...