Ad Hoc Commentary – time to get off again?

So far, selling in May and coming back in Jun had been relatively good. Our favorite S&P500 hit new highs overnight and it seems that this bunny is not going to stop. Of course the critics will say that staying in both May and Jun would have been better. But let’s put it this way, if yours truly were able to pick every trough and peak consistently, he wouldn’t be writing. Instead he would be starting off a hedge fund, give it some respectable name like Stratton Oakmont (remember Wolf of Wall Street?), and do a traditional 2 and 20 fee structure.

A lot of have happened in the last few weeks. The most important development is perhaps the rise of Euro-skepticism in France marked by the victory of Marine Le Pen’s Front National in the EU elections. And we even have the somewhat ‘lunatic’ fringe now saying that most of the French national debt is illegitimate:

“…On the day following Marine Le Pen’s Front National victory in the European elections, however, France made a decisive contribution to the reinvention of a radical politics for the 21st century. On that day, the committee for a citizen’s audit on the public debt issued a 30-page report on French public debt, its origins and evolution in the past decades. The report was written by a group of experts in public finances under the coordination of Michel Husson, one of France’s finest critical economists. Its conclusion is straightforward: 60% of French public debt is illegitimate…”

In addition to that, we now have Austria:

“…Austria is invoking a law used by Iceland as it tries to bypass a state guarantee and impose losses on investors in a bank that cost taxpayers billions to bail out and now may cost other lenders their credit ratings…”

To understand Austria, we need to go back to history on Credit-Anstalt. A quote from Businessweek should help:

“…The Austrian government stepped in to guarantee all the bank’s [Credit-Anstalt’s] deposits and other liabilities—but that only brought the government’s own creditworthiness into question…”

As yours truly mentioned before, everyone is fighting the last war: America fighting Great Depression; Germany fighting Weimar Republic Hyperinflation; and Austria fighting Credit-Anstalt default. Even regulators are fighting the previous war, i.e. the mortgage crisis of 2007. Lesson of the day: unless you are the smartest guys in the room, you shouldn’t be selling complex mortgage-based paper:

“…The department has asked for more than $10 billion from New York-based Citigroup and $17 from Bank of America …”

“…Goldman Sachs Group Inc. (GS) won dismissal of a suit over $450 million in residential mortgage-backed securities, with a New York judge saying that the firms that bought the bonds should have done more research beforehand…”

One can probably conclude that Judge Ramos probably do not agree with Greg Smith that GS clients are naïve. We remember Greg Smith as the author of the very notorious ‘muppets’ letter over 2 years ago:

“…Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets’, sometimes over internal e-mail…”

In any case, the air is getting really thin up here again on equities, and yours truly is increasingly getting uncomfortable again. Perhaps it is time to get off the S&P500 train again, and wait for better levels to enter the market. What say you? It is the time of FIFA World Cup, and if the ECB is right, it is the time of low liquidity, and it follows high volatility:


Good luck in the markets.