The first equity warning was mentioned in these messages last week by one of my favorite currency analysts, Lone Olsen of Jyske Bank. She wrote on April 11, 2007:
“The yen is about to revive. The spring is expected to give the yen a new revival. Historically a revival of risk aversion can be seen in the financial markets during the months of spring (sell in May and stay away). Search for risk/risk aversion are the key words, when we have to estimate the future development of the yen.”
As Lone says, traditionally May is a month to exercise extra caution in your equity portfolio.
The second equity warning is one I send readers every spring when I remind them of a statistical analysis done by Michael Keppler. This study shows that most appreciation in most major equity markets, is achieved from the beginning of November through the end of May.
Equity Warning Quote:
Michael wrote: “We have done extensive research on seasonality and I am proud to announce that a shortened version of a major study which I have coauthored with our Director of Research, Dr. Xing Hong Xue, will be published in the Winter Issue of the Journal of Investing. Our research shows that basically in all major equity markets, nearly all returns are achieved from the beginning of November through the end of May. All the best to you and Merri. Michael”
Historically the best five months where there are the best chances of equity profits end in about 30 days. There is no on-off switch I know of but we should be thinking more about risk aversion because of the huge carry trade in the market. This equity warning is important because large numbers of investors have borrowed currencies like the yen, Swiss franc and Czech koruna to buy high flying shares.
They tend to be nervous investors because of their leveraged positions. If fear sweeps the market, these investors dump quickly to pay off their loans. This pushes the markets down quickly, especially the emerging markets which tend to be thinner to begin with.
The months ahead are when the chances of profit in markets are at their lowest. Risks are at the highest. This is reason enough for an equity warning. May arrives tomorrow, so you have been reminded! This may be a good time to start cleaning up your equity portfolio.
Learn how to track leveraged bond portfolios as you reduce equities. See why these portfolios have performed so well. See International Investments Course with Multi Currency Investments and Portfolios
Until next message good international investing.
You can get our upcoming portfolio updates and thoughts on the six months ahead at our upcoming IBEZ in N.C. Join us May 25 – 27, 2007 at the International Business and Investing Course in North Carolina . Thomas Fischer joins me to update global economics there. International Investments and International Business Course, West Jefferson, North Carolina, May 25-26-27, 2007