Sell In May and Go Away? NAH!

As The Clash so elegantly put it, "Should I stay or should I go?". We are coming off a very strong first quarter move in the market followed by an earnings season flush with upside surprises. As we head into the post earnings time frame and investors must now begin to come to grips with the urge to follow the popular rhyme, "sell in May and go away". The memories of the summer of '11 are still very fresh in investors minds so locking in any gains before any correction weighs heavy. But, are we due for a sequel? Let's enlist Themis Blind Justice and her scales to weigh in on whether we'll see a repeat of 2011. On the one side of the scales we have Leading Economic Indicators at a four year high. We have Retail Sales up for twenty of the last twenty one months. We are enjoying a benign inflation environment. We are witnessing a housing market that is basing, albeit at a very low rate. We have a Federal Reserve Chairman that has basically drawn a line in the sand in a, Not On My Watch, stance in preventing a repeat of the Great Depression. We have, finally a fully engaged European Central Bank, doing whatever it can to keep European financial markets liquid. On the other side of the scales we have the memory of 2011 and an ECB President Trichet in denial about the domestic economy and on inflation watch as the EU banking system basically seized up due to a liquidity crisis. We have partisan politics bringing the US to the verge of default and an ensuing credit downgrade. Oh, yes did we mention the ECB standing pat on rates as their credit markets seized? If Justice were truly blind and non-political her scales would surely tilt towards no repeat of 2011. Under new stewardship the ECB is full throttle, peddle down engaged. With the recent ouster of the incumbents in Greece and France the EU memberships mettle and resolve to remain in tact and relevant will be tested and may result in a member leaving. Though at this point unlikely, the market amd financials have had plenty of time to prepare for just such an event. The US is about to take on our own version of austerity, but that won't happen until after the elections in November. US corporate earnings and revenues continue to surprise to the upside. Inflation remains well constrained by elevated levels of unemployment, slack in factory capacity utilization and an abundance of newly tapped reservoirs of domestic fuels sources. Time for brass tacks. The US has muddled along often referred to as the Goldilocks economy. Not too fast not too slow pace of economic expansion. Not fast enough to ignite a bout of hyper inflation. Not slow enough to declare a double dip recession. With the Greeks and Europeans being, well Greek and European not wanting to work or pay for the luxury of a roof over their heads or food on the table, Germany, Asia and the US must pick up the slack. Germany must ease off on their Austerity on steroids demands and allow for growth initiatives to be included in the EU/IMF bailout plan. China must continue easing bank reserve requirements to stimulate growth while keeping the reins on real estate speculation taut. The US needs to unleash the entrepreneurial forces and pent up demand constrained by an overly aggressive National Labor Relations Board, overburdened by elevated tax rates and unclear at best, regulatory reform. The question and argument currently on Wall Street is can the US economy decouple from Europe? The debate is held daily and is in full force. Meaning can the US and our markets continue to expand and move higher even as Europe teeters and potentially enters a full blown recession. I believe they are missing what is really taking place. It's not a decoupling. We are witnessing the emergence of rising domestic consumption from China, India, Indonesia, Vietnam, Mexico, Brazil and Columbia along with the emergence of the US consumer from its cocoon. The US consumer is more confident is his/her employment status and is significantly delevered (un-indebted), retaking our seat at the head of the table. This acts as a nice counter-balances to the Euro crisis playing out. The decoupling/de-emphasizing is most clear as always in the free market. To date the US market as measured by the S&P 500 is up 8.3% year to date (YTD) and off 3.9% from the March highs. By contrast, Spain's market as measured by the IBEX 35 is off 19% YTD, the Greek market as tracked by the ASE is off 49% over the last year and Italy is down 7 1/4% YTD. I anticipate we are in for some rough sledding over the next few weeks. Ultimately patience should pay off as prices may decline, making companies on our watch list far too attractive to resist. We'll keep a close watch on Europe near term and continue to monitor the progress of the Greeks forming a coalition government along with Spain. They are following Citibank's lead in creating a good bank/bad bank to warehouse the hordes of non performing mortgages weighing down lending and threatening the stability of the sovereign. Side note. We in the financial arena have been warned for the past decade about the baby boom generation transitioning from workers to retirees. From savers acquiring assets to spenders dispersing them. I need to question the conclusion of this hypothesis. The fear had been, retirees would become mass liquidators of assets to support their lifestyles depressing asset prices. A few points, as we as investors get closer to retirement we should adjust portfolios away from risk and more towards fixed income and cash. Typically one would anticipate having a majority of their holdings in fixed income. First point, that dynamic changed when the Federal Reserve moved to a zero interest rate policy. Next, the near collapse of our financial system and market swoon, decimated many investor portfolio's mere years away from retirement. This may push out that retirement date five, ten, fifteen years if ever. Lastly, during our working years, we are enslaved daily by up to ten hours a day. Eight hour work day plus two hours prepping, traveling and winding down. When we are able to retire we transform into a twenty four hour consumer searching for ways to fill our day and entertain ourselves. How in an economy reliant on the consumer for 70% of GDP can this be bad? The pain may be felt by our children who had anticipated a hefty inheritance. But we're Americans after all, we work for what we need and want. They'll overcome the disappointment, move forward and be better off in the long run. So, for now, load up the RV, forget about Greece , We're Ready To Go! Thank you again for the opportunity to work with you in these very challenging times. Yours in pursuit of the KWAN!