Still bearish about ‘almost’ all markets

So it’s early May and I am informed that I am due to write another column for the Canadian Mining Journal by mid month. Based on this schedule, is it time to say: “Sell in May and go away?”  Let me start with the first draft of the opening paragraph of my yet-to-be-printed Annual Report to my shareholders.

“As we enter 2014 I am bearish about the current state of almost all capital markets. This does not mean that I am necessarily bearish on the price performance of the stock market for the entire coming year because I think we will end up having an interim and long-term important opportunity that will allow us to take advantage of the bearishness.”

At the same time, on May 1, I read that Mohamed A. El-Erian, Bill Gross’s managing partner at PIMCO, has left his job and is quoted as saying that, “The ongoing U.S. recovery might lull some into forgetting about the risks its lack of momentum presents: The longer the economy just muddles along short of escape velocity, the greater its vulnerability to external shocks.”

And like clockwork, the old investment story of “Sell in May and go away” has been re-emerging. It has been my view that while most investing clichés should always be ignored, you can see from my opening remarks that I do buy into the “Sell in May and go away” cliché. The facts are, without any longer term or deeper thinking there does exist some unusual set of calendar-based returns.

That six-month spread between May and October has historically been a weak period for the stock market dating back for about 25 years.

On average, according to some strategists, the U.S. stock market has gained 1.3% compared to a better than 7% gain from November to April. There are some reasons that seem to change quite often, but although the U.S. stock market has been in uptrend since the 2007-2008 financial crisis, there has been weakness seen in the May to July periods.

From my perspective – “Sell in May and go away” looks like a good idea today.

On the other hand, those of us who are bullish on gold have not been too happy in recent weeks and yet it is also my view that as this review is being written on May 6, 2014, gold prices are rising and we are likely close to seeing much higher gold prices as the U.S. dollar gets trampled on by China and the rest of the so-called emerging markets losing their affection for the U.S. dollar and the U.S. advantage of being able to print paper currency at will, while increasing their debt and deficits like drunken sailors on leave.

So, sell in May and go away; but if you have it, hold on to your gold position. If you do not have it, you should be aware that the next rally in the gold price is currently underway but has a long way to go, at least it does in my opinion.