Sell in May and Go Away?
Jun 1, 2010
Posted by Jody Eisenman | Filed under Uncategorized
The merry month of May has generally been a good one for the DJIA. Unfortunately, that wasn’t the case this year. Capped by Fridays’ 122 point loss, the Dow lost almost 8% for the month to close at 10,136. All told, this was the worst May in 70 years. For the year, we are now down about 2.8%. Last week, Spain joined the Euro crisis party when they lost their AAA rating. In addition, the European Central Bank (ECB) announced that euro zone banks could face additional losses of almost 200 billion for 2010 and 2011; this is on top of the 238 billion euros in losses through the end of last year. As the Fed has done here, the ECB has been purchasing massive amounts of the weak bonds. In the case of Europe, they have been buying huge amounts of Greek, Spanish and Portugese binds in order to prop up the credit markets. As in the United States, the European governments have spent massively in order to restart their respective economies. Unfortunately, as here, this money had to be borrowed; none of the ECB countries were running surpluses before the crisis of 2008 hit. As such, they were forced to borrow even more. Now, partly due to the nature of their socialist systems, they cannot easily repay their debts. Greece has already been forced to be bailed out. Spain now lost its’ coveted AAA rating. France has admitted they will hard pressed to maintain its’ top rating. Could this spread throughout the continent? While the future is still uncertain, if it does, we could be in for a very painful rest of the year.
