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Sell in May and Go Away

Some of my friends have gone to cash. Others have gone to conservative high value, non-tech stocks. My friends worry that the volatility is being manipulated by forces unseen — perhaps high frequency traders. 

Emailed my friend, the successful trader,

I’ve also found it interesting that Dennis Gartman on CNBC on april 7 said that a 15-minute shift in sentiment occurred on April 4, which scared him out of the market. “I’m not sure what happened, but something happened between 11 and 11:15, that everything turned on a dime.” that when all the markets turned down at the same time and it spooked him so much that he sold all equities and went to 100% cash.

He’s been right, so far.

S&PTenDays

You can watch Gartman here.

My friend, another savvy market watcher, emailed me:

Harry,

Volatility is one of the ways the white collar criminals who are running our financial markets steal from all of us.  It’s working well for them, so don’t expect any changes.

Cash-settlement derivatives like put/call options do NOT improve liquidity or strengthen the market.  They are side bets allowing people with lots of money to run stocks up and down for no purpose other than to benefit from each movement “on the side”.  They are skimming money out of the system, just as The Flash Boys intermediate themselves into the game to take money from real buyers and sellers.

Some of us, like you and me, built businesses the hard way, created value where there was none before, employed people and solved real problems.  Others elected to be “gatekeepers” managing the flows of wealth.  Some of those others have gamed the system, mostly legally with the blessing of the lawmakers and courts.  At some point, there will be a reckoning, I hope.

We should long for the day when the only thing ANYBODY could do in the stock market was buy or sell a real share of stock.

This earnings season is not proving ebullient. Lots of misses: IBM. Google, Goldman Sachs, GE, UNH (sadly, for me).

One bright spot. From today’s Wall Street Journal:

Blackstone’s First-Quarter Earnings Rise 58%
Firm’s Buyout Funds See Fourfold Increase in Deal Profits

Blackstone Group BX +2.45% LP on Thursday (that’s today) said its first-quarter earnings rose 58%, as the private-equity firm’s buyout funds saw a fourfold increase in deal profits.

The New York firm reported first-quarter profit of $266 million, or 44 cents a share, up from $168 million, or 29 cents a share, in the same period last year.

Blackstone’s first-quarter economic net income was $814 million, or 70 cents a share, up from $628 million, or 55 cents a share, in the same period a year ago. That exceeded Wall Street’s expectations for the profitability measure, which includes unrealized gains as well as cash earnings. Analysts polled by FactSet anticipated economic net income of 52 cents a share.

The results, the best quarter to start a year since Blackstone became a public company, were largely due to the buyout business, which collected $4.7 billion from deal proceeds during the period. The segment also invested $3.1 billion in deals.

That activity helped overcome dips in profits from Blackstone’s real estate and credit businesses and a loss at its financial advisory segment. Blackstone’s hedge fund topped its year-earlier gains.

Blackstone, the world’s largest private-equity firm, reported assets under management of $272 billion, up from $218 billion a year ago.

Meanwhile, its distributable earnings, the portion of profits in which shareholders can get a piece, were $485 million in the first quarter, up from $391 million in the same period a year ago.

The firm said it would pay a dividend of 35 cents for the quarter, an increase from 30 cents a year ago.

Blackstone’s shares, which are down 1.8% on the year, closed up 2.5%, or 74 cents, at $30.94 on Wednesday.

The shares traded up 2.8%, or 86 cents, at $31.80 in premarket trading.

I was short Radio shack  and covered a little higher. I never figured it could get this low. As one reader points out this morning: It’s a lottery ticket.
RadioShack

Intel has a long history of failed diversifications. The only thing Intel has ever made significant money is the X86 microprocessor chip, which it sells in most PCs and laptops in the world. From a friend who knows Intel well:

The watch acquisition is madness!  I got one. It is hard to read and big.  Even for me. The internal joke is “Back to watches!”  You may know that the original Intel microprocessor back in the 70′s was done on a contract for a Japanese watch maker.  Intel bought back the IP rights and that was how it all began.  So, back to watches.

The failed drug war. Sad. Very sad. From a recent Economist:

America, Afghanistan and opium. Ten billion wasted.
AMERICA invaded Afghanistan to wage war on terrorism. Once there, it found itself waging war on drugs, too. American soldiers provided security for eradication teams. American cash gave Afghan peasants incentives to grow wheat instead of poppies, and rewarded local politicians on whose turf opium production fell. In all, America has spent more than $10 billion trying to suppress the opium trade. And for what?

Afghan farmers planted 200,000 hectares with opium poppies in 2013, according to the UN-a new record (see chart). John Sopko, the American official whose job is to oversee how Uncle Sam’s money is spent in Afghanistan, told National Public Radio: “If the goal was to reduce cultivation, we failed. If the goal was to reduce opium production, we failed.If the goal was to break that narco-trafficking nexus and the corrupting influence, we have failed.”

 OpiumPlantedinAfghanistan

Other analysts think the money was worse than wasted. Efforts to pull up poppies and shut down opium labs have been focused in the areas least hostile to American forces, for the obvious reason that anti-drug police are less likely to be killed there. This has displaced production into Taliban-controlled areas, argues Jeffrey Clemens, an economist at the University of California, San Diego-and therefore enriched America’s enemies.

The economics of the opium trade are stacked against the drug warriors. Demand for Afghan opium is relatively inelastic: the world’s heroin addicts cannot wait for their next fix. So if the overall supply falls (because America has suppressed cultivation in friendly areas), the price shoots up. And a lot of that extra cash flows to the Taliban who, by UN estimates, earned $100 million from the drug in 2011 and 2012.

The Morality of Dishonesty!?
A few years ago robbers entered a bank in a small town.

One of them shouted: “Don’t move! The money belongs to the bank. Your lives belong to you.”
Immediately all the people in the bank laid on the floor quietly and without panic.

This is an example of how the correct wording of a sentence can make everyone change their view of the world.

One woman lay on the floor in a provocative manner.
The robber approached her saying, ” Ma’am, this is a robbery not a rape. Please behave accordingly.”

This is an example of how to behave professionally, and focus on the goal.

While running from the bank the youngest robber (who had a college degree) said to the oldest robber (who had barely finished elementary school): “Hey, maybe we should count how much we stole.” ?
The older man replied: “Don’t be stupid. It’s a lot of money so let’s wait for the news on TV to find out how much money we got.”

This is an example of how life experience is more important than a degree.

After the robbery, the manager of the bank said to his accountant: “Let’s call the cops and tell them how much has been stolen.”
Wait”, said the Accountant, “before we do that, let’s add the $800,000 we took for ourselves a few months ago and just say that it was stolen as part of today’s robbery.”

This is an example of taking advantage of an opportunity.

The following day it was reported in the news that the bank was robbed of $3 million.
The robbers counted the money but they found only $1 million so they started to grumble.
“We risked our lives for $1 million, while the bank’s management robbed two million dollars without blinking?  Maybe its better to learn how to work the system, instead of being a simple robber.”

This is an example of how knowledge can be more useful than power.

Moral of this story:

Give a person a gun, and he can rob a bank.
Give a person a bank and he can rob everyone.

HarryNewton
Harry Newton who eyes the old tired chestnut, “Sell in May and Go Away.” It might actually work this year. Maybe gold will also pick up a bit more?

SGOLOneYear

Stay safe, my friends.