Is It Just an Expression?

Investors incessantly say:
"Sell in May, and then go away,"
And stock market nerds
Who heeded these words
Are 6% richer today.

Via the FT's Alphaville blog, we learn that May 2012 was a very bad month indeed for US equities:

The Dow Jones Industrial Average had its worst month in two years in May. The index fell 6.2 per cent, the largest decline since dropping 7.9 per cent in May 2010 (Wall Street Journal). Closing down 0.23 per cent at 1,310 on Thursday, the S&P 500 had its worst month since last September (Reuters).

A strict observance of the "Sell in May then go away" rule, executed on the first of the month, would therefore have yielded the best results.

Bloomberg vs the Big Gulp

Mayor Bloomberg despaired of obesity:
"What's fattening up NYC," said he,
"Is the public presumption
That soda consumption
Is better in servings of three," said he.

In a city known for swelled skylines and clogged vehicular arteries, Mayor Michael Bloomberg aims to slim waist lines and clear cardiac arteries. The mayor announced that New York would soon ban extra-large servings of sweet soft drinks in public places, having found that their consumption is linked to the city's growing obesity problem. Brushing aside criticism of the "nanny city", Mayor Bloomberg declared that New York City would not "wring its hands" over the obesity epidemic, but rather "do something."

Loss of Face in the Options Market

An Internet social sensation
Went to market with high expectation;
Before many fortnights,
The traders had bought rights
To sell it (without obligation).

The Wall Street Journal's options reporter Kaitlyn Kiernan writes that the put-call ratio on shares of Facebook turned decidedly bearish on the first day of options trading after the company's controversial IPO. Options traders bought 20.3 millions puts (the right, but not the obligation, to sell shares at a fixed "strike" price) but only 16.2 million calls (the right, but not the obligation, to buy shares at the strike price). The preponderance of puts indicates the prevailing sentiment that the price of $FB shares will continue to fall. The stock market took note, and Facebook shares slid another 9.6% to $28.84, a 24% drop from the initial public offer price of $38.

More Made in the USA

Though more work on the factory line
Is always a positive sign,
Manufacturing's rise
In the US belies
That wages are on the decline.

The headline in The Wall Street Journal reads: Flat US Wages Help Fuel Rebound in Manufacturing," but, looking a little behind the headline, it becomes apparent that the rebound is fueled by a sharp decline in starting wages. Two-tier wage agreements have become a common practice in union factories, with new hires earning $8-10 an hour less than "legacy" workers. Coupled with the strong rise in Chinese manufacturing wages, as well as increases south of the border, this development has led to the migration of factory jobs back to the US, and a 4.3% overall increase since 2010.

Economic Driver

Sales of new vehicles, typically,
Recede in recession terrifically,
'Til recovery beckons,
And that's when, we reckon,
They amplify upswings pro-cyclically.

Courtesy of FT Alphaville, we learn that auto sales have comprised 30% of GDP growth in the last two quarters of our tepid, ongoing recovery. Mining a gem from the research of Credit Suisse economists, Alphaville spotlights an interesting insight:

Motor vehicle output is less than 3% of GDP. But its standard deviation is more than nine times the overall GDP’s standard deviation. So in the world of growth rates, the auto sector will tend to punch well above its weight in expansions (and well below during recessions).

To all those who would worry that the surge in US auto sales is unsustainable, Alphaville points out that, as shown in the accompanying graph, the seasonally adjusted auto sales volume is still below the level of typical recessions such as that of 2001.

Own to Rent

Said a real estate vulture from Texas,
Buying properties out of his Lexus:
"Though it hardly may seem
The American Dream,
It's a help in reducing the excess."

Over at The Wall Street Journal, Dawn Wotapka and her colleagues on the real estate beat had a busy Wednesday, as they dug into the implications of strong increases in both new- and existing-home sales in the USA. New homes are now selling at an annualized rate of 343,000, 9.9% higher than a year ago. It's "another sign that the long-beleaguered housing market is in recovery mode," and suggests that "the industry's improvements are widespread." Existing home sales increased 3.4% in April, to an annual rate of 4.62 million, and the median home price has risen 10.1% in the last year, to $177,000. It almost goes without saying that sales volumes and prices are far lower than in the pre-crisis times.

Meanwhile, the Journal's Real Time Economics blog shows the cloud behind the silver lining: "Investors have accounted for about 20% of existing-home sales over the past few years. Speculators are taking advantage of falling home prices and low borrowing rates, as well as the shift from owning to renting. With demand for rental properties rising, landlord incomes increased 15% in the year ended in the first quarter." If losing your home and renting a new one is The New American Dream (as Dr. Goose put it), then investors have been quick to turn the dream into a reality.

On the Down Low at the Roadshow

An analyst had a quick word
With investors his bankers preferred:
"We've cut our projections
For those with connections,
But won't tell the rest of the herd."

The fallout from the Facebook IPO continues. On Tuesday a spotlight was shown on the practice of IPO underwriters' not disclosing their analysts' estimates of companies' earnings, except to a small group of large institutional clients. Already a troubling practice, these quiet revelations appeared to skirt the letter of the law in the Facebook case. Analysts for Morgan Stanley and the other underwriters all made substantial cuts in their Facebook earnings forecasts during the pre-IPO roadshow, evidently based on information quietly provided by the still-private company. Joining Goldman Sachs in contempt for the retail "muppets" clamoring for $FB shares, the Morgans - J.P. and Stanley - have still not disclosed their estimates, as indeed they may not until 40 days after the IPO date. Reuters finance blogger Felix Salmon gives a full explanation of the issues and facts of the case, in a post that is worth the time of those who would like to gain insight into the world of stock underwriting.

Can You Have It All?

Politicians who like popularity
May advocate "growth with austerity",
An odd formulation
Of vague calculation,
But perfect political clarity.

European growth vs. fiscal austerity? "We need both," says ECB Executive Board member Jörg Asmussen. Mr. Asmussen, who recently joined the European Central Bank from the German finance ministry, maintained in a speech in Berlin that "the fiscal compact can be complemented by growth-enhancing measures." However, it is clear that, as a good German, he advocates fealty to fiscal discipline first and foremost; growth measures "make sense as a supplement, but the fiscal compact cannot be renegotiated or softened." Most likely Mr. Asmussen is just doing his bit to calm the political waters that have recently swept away such austerity advocates as Nicholas Sarkozy, as well as his own Christian Democrats in a recent regional election. After all, even an elite central banker would have trouble explaining how a government could simultaneously grow the economy while shrinking itself.

A Whale of a Tale

Said the boss of a trading facility,
Whose job was to crimp volatility:
"While I'm away jettin',
Be sure you don't threaten
The global financial stability."

Though much has been written about JP Morgan's "London Whale" and the $2-billion-and-growing loss that arose from his credit index trades, there has not been much focus on the interpersonal management dynamics of the case, until yesterday. The New York Times' Jessica Silver-Greenberg and Nelson Schwartz looked into the story and concluded that "Discord at J.P. Morgan Unit is Faulted at Loss." In a modern, highly-leveraged twist on "when the cat's away, the mice will play," it appears that the egos and ambitions of Bruno Iksil (the Whale) and his boss Achilles Macris could not be contained once the bank's chief investment officer, Ina Drew, was out sick for an extended period. Without Ms. Drew's "coolheaded, steely resolve", the internecine tensions between the CIO's New York and London offices devolved into daily screaming matches with no clear leader to to set limits and keep discipline.