Sold In May? Profits Stayed Away

Cliches are fine to listen to but often become expensive when followed blindly. All the major indices rallied in May and finished the month positive year to date. The DJIA is now the laggard, up just 0.85% since Dec. 31, 2013. The Standard & Poors 500 is the clear winner so far at plus 4.07% YTD.

The Nasdaq Composite’s weekly gain of 1.36% made up 86% of its total return in 2014.

 

Market Shadows is ahead by 7.9% YTD and + 50.6% since we got our Virtual Value Portfolio rolling on Oct. 26, 2012.

The other old adage, “Cash is king” has become meaningless in a ZIRP world. The only reason to hold cash today is for paying bills and taxes or as temporary parking between long-term investments.

Accelerating money creation by the world’s central banks makes the risk of being ‘in the market’ pale compared with the gradual destruction of buying power being engineered by the Fed, European Central Bank, Bank of Japan and the Bank of England.

Accounting gimmicks like counting R&D spending and underground earnings from drug dealers and prostitution in GDP are designed to allow for even more government borrowing capacity. Countries like Iceland, Poland and Cyprus have blatantly stolen private wealth ‘for the good of the state’ and other countries may follow.

Official figures on CPI and GDP can no longer be relied on. We just received a dramatically downwardly revised Q1 2008 GDP number six years after the fact. The truth never comes out until the politicians who were in charge at the time are no longer accountable.

Forget the Fed’s ‘taper talk’ and realize that with over $17 trillion in national debt, plus some multiple of that in unfunded pension, social security and medical care liabilities, we will never again see significantly rising interest rates, at least not voluntarily. Government budgets could no longer bear debt service expenses at ‘old normal’ rates.

Sovereign debt auctions are now a joke. Central banks and other shill buyers dramatically distort the demand side. Does anyone really believe Greece, Spain or Puerto Rico can ever pay back principal without simply rolling over the debt?

Fiat-based currency offers the least chance for holding onto true wealth. Stocks are the best alternative. They are liquid and can be marked-up as paper money is marked-down.

Fiscal prudence and deferred gratification are no longer rewarded. Governments are penalizing savers as public policies are encouraging immediate consumption. Wealth confiscation has been become a worldwide phenomenon as Central Banks rush to devalue their currencies and hold interest rates down. 

We are in uncharted economic territory and past the point of no return.

Enjoy the fruits of your labor while you can. Invest wisely and hope the day of reckoning comes later, rather than sooner.