March 25, 2012 Go Away In May

BAGAKOAA; 25 March 2012 Go Away In May?

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March/2012

Hey what another fun weekend. Friday night Man Child wanted a down night to chill away from homework and football and parents and tutors, so he stayed home while Devin and I had a meatless Friday night at Roses Cantina, down in Trabuco Canyon. My liver adjustment came in the form of one Margarita and one Corona Lite. It was a fun relaxing night.

Saturday morning, at about 5:25AM, our little Italian Greyhound Bocelli, decided that he was done with the big cat gunker he ate during the night and returned it to our bed sheets right between my legs. It was time to get up.

I made my way to the club to join the guys for coffee and cholesterol. I was not going to play and explained that I was going to the Orange County Swap Meet. Yes my son had never had the pleasure, so Kristin, Devin, Jack, and I (Ryan has this marriage thing figured out as he got out of having to go. Brilliant guy. Not sure how he did it?)

I found it necessary to bloviate about the days when as a mere lad, Ben and I would steal things out of our respective homes and use my Dad's company (US Divers) van and sell things out at the swap meet. I also remember accompanying readers and friends, Butch and Deb to the swap meet and on a couple of occasions was asked to walk around the swap meet promoting a product called the "Invisible Dog." It was a color with a stiff leash and it appeared as though you actually had an invisible dog at the end.

If I had been a little more worldly, I would have realized what a "chick magnet" that thing was. I know it sounds dorky now, but we are talking about the 70s.

Then there was the day that Ben and I went to the swap meet and one of our items was a couch. We had been up playing chess to wee hours of the morning (heck he did not get off work until the wee hours of the morning so I guess we were up to the wee wee hours of the morning.) and you had to be in line by 4:30 AM to get a decent spot to sell. We set up our booth, sat on the couch and fell asleep till about 1:00PM. I can't imagine what the shoppers were thinking as they walked past our booth. They were so polite not to wake us and buy anything.

Then there was the day when I found 4 boxes of Otarie Scuba Fins distributed by US Divers Company in the early 70s. I also had a Cousteau book called The World Without Sun. I set up the book with a picture on Cousteau wearing Otarie Fins. Now I never said Cousteau actually wore the fins in the book, but somehow people got that impression and were willing to pay a premium for this old fins.

Now US Divers aka Aqua-Lung, was a manufacturer and had a network of dealers who sold their products. Monday morning, I get a call from my Dad. He asked how I was doing and what I had done that weekend. I reminded him I borrowed the company van and was at the Swap Meet. He asked me if I was selling scuba equipment and I laughed and said no. He asked again if I was selling scuba equipment at the swap meet and realized he was not joking, but I still said no way. Then he pointedly asked, "Then you were not selling fins at the Swap Meet this weekend."

As Scooby doo says, "Wuh woe!" We I told my dad that I did sell some old Otarie fins that I found in our attic. Then I explained that I had possibly implied that they may have been used by Capt. Cousteau. He then told me he had received about 6 calls from Dealers in Orange County threatening to drop the US Diver line because they were selling scuba equipment at the Swap Meet.

He then asked me to explain again what I had done with Cousteau and the fins. I told him and he laughed and said I might have a future in marketing if I wasn't such a Frickin half-wit. He never used the word frickin'.

Anyway the day brought back fond memories and I could not resist taking the photo below and sending it to Ben, Butch and Deb and ask, "Guess Where I am?" In minutes Ben said "OC Swap Meet". Butch and Deb followed a few hours later with the correct response as well.

Every visit to the swap meet creates a life memory. Yesterday, I watched a feeble 85-90 year old Hispanic woman in a wheel chair and her family go up to a booth and look at those Power Balance bracelets. You know the ones. The rubber bracelets with the hologram and they are supposed it increase your inner balance and make you more athletic. There is a word for that, mmmm, oh yeah, SCAM. That explains why these bracelets that stupid people were paying 30 dollars for just a short time ago (Guilty as charged) were at the swap meet for $8.00. BUT I digress or ACORN.

This family began picking out a color for the older lady in the wheel chair. Think about it. Got the image? Yeah, guess you had to be there. Yes they did buy her one.

We did score some 1500 thread sheets for 20 dollars a set. Now I was skeptical, but I must say, they were all of 1480 threads or more. We used them last night and they were very comfortable.

My boy has a collection of Zippo lighters. He was thrilled to see several dealers there selling some very collectible Zippos. (Yes I find it peculiar that he does not smoke and he does not do drugs, but collects Zippos. In fact, Friday night as we left him home I asked him what do we say about drugs? His response was "Never generics and only with your permission." I added, only the expensive ones and make sure your friends try it first in case they are tainted) We were at this one booth that was selling all kinds of smoking paraphernalia like bongs, and paper, and there were lots of pro marijuana T-shirts and stuff. I saw an interesting Zippo Jack may have liked so I asked the young man in the back of the booth for help. Well, you know the public service announcement about "A mind is a terrible thing to waste?" Who ever said that did not know this kid. His mind could have been wasted and the world would be a better place. My guess is he was the after of the before and after public service announcement "This is your brain. This is your brain on drugs."

We made it home after about 4 and half hours, and because we had our Golden, Jacee, in the Vet for two days this week, she did not make it for the time we were gone. We discovered her gonkeria and spent quite a while cleaning it. (Thank God for Bissel Geeen Machines.) Then Devin and I slipped way for a quick scotch and salad at our "just outside the gates" pub Friends. We got home and watched a little TV together.

This morning, I had breakfast with a couple of the guys and actually played nine holes of something resembling golf. Well, I played 7 ¾ holes of golf as I picked up on a couple of them. I did get one par.

Then it was home to find out that Man Child was all caught up on his homework. Thank you Kristin and Mr. Napoli and anyone else who had a hand in this wonderful event. It was then that I almost guilt free enjoyed a few minutes of Golf as Mr. Tiger Woods won his first tournament in almost 3 years.

Tonight we will be entertaining the Boones with home made chicken tacos, beans, and rice. Devin was baking a cake today. Let me type that again because even I did not believe it at first. Devin was baking a cake today. Though she says it has not been that long since she baked a cake, none of us remember it happening in a very long time. Kristin said something about her fourth birthday, but I do not think it was that long ago.

Anywho, we wanted to get this done before dinner. So let me get to the investment stuff as I have been researching a question from one of readers.

Go away in May.

I have been lax in addressing a topic one of regular readers suggested as a topic for discussion. In opening my BAGAKOAA folder in Microsoft Exchange, I see I have been lax in addressing several of the suggestions Bob (Hutch) has floated. Sorry guy.

Anyway he sent me one about a week ago concerning the old time stock market adage "Go Away In May". It is based upon a centuries worth of historical data that supports the anecdotal assumption that you make much of your gains between November through April and return those gains Between May and October.

Most of you know me and I love a homework assignment. I did a lot of digging to determine if you were going continue to get a Salve Lucrum Blog between May and October. Finding reliable empirical data was a bit of a challenge, and as Sy Harding said in his streetsmartreport.com blog, most of the brokerage firms and fund managers do not want investors to know that it might be in their best interest to take 6 months off every year. He explains the adage's empirical data as a result of 401K and mutual fund distributions whose normal fiscal year ends in October as well as year end bonuses and Christmas fund (Do people still do that?) going into the market place during that time frame giving a nice boost to the equities market.

Well OK, I can accept that, but the data shows this trend going back to 1900. There were no 401K funds or ETFs or mutual fund before say 1960?

His blog helped me discover a new book (great now Brian has yet another new book) called The 2012 Stock Traders Almanac and it suggests exiting the market when the MACD (remember some of our dissertations on technical trading Moving Average Convergence Divergence) for the Dow crosses downward in the April-June time frame. According to Harding, citing the book, "Since 1950, November 1st to April 30th has produced 11,703 DOW points. May 1st to October 31st has LOST 9,090 DOW points." When you apply the MACD crosses to that equation, the gains triple. The Almanac shows that for the Nasdaq the eight months between November and June since 1971 a 10 grand bet would get you $351,706 dollars and using the MACD cross indicator the number would be $874,360.

So, it looks as though there is some empirical support for taking those six or so months off. But I was still not convinced until I discovered some very compelling evidence put together by Thomas Hellström in his 2002 doctoral thesis Trends and Calendar Effects in Stock Returns. In his study of 207 stocks from the Swedish stock exchange in Stockholm he sums it up quite clearly. Let me simplify it and boil it down to basics:

April 19, 2002

The k-step return Rk(t) is defined as the relative increase in price for the previous k days:

Rk(t) = 100 ·y(t) − y(t − k)y(t − k). (1)

The basic statistical properties of Rk(t) for 207 stocks from the Swedish stock market for the period 1987-1996 are listed in Table 1. The values in the table are mean values for all stocks. Each column shows data for one particular value of k. The last six lines in the tables show the distribution of signs for the returns. "Return = 0" is the fraction of returns equal to zero. "Return > 0" is the fraction of returns greater than zero and "Return < 0" is the fraction of returns less than zero.

"Up fraction" is defined as:100 · "Return > 0" "Return > 0" + "Return < 0", (2) which is the positive fraction of all non-zero moves. "Up fraction" is a relevant measure, when it comes to evaluating the hit rate of prediction algorithms. Looking at one-step returns in the tables, the "Up fraction" for the for the 207 stocks is 50.6%. The "Mean Up" and "Mean Down" columns show the mean value of the positive and negative returns respectively. The fractions of zero returns in the data material are somewhat surprisingly high 23.4%. The zero returns must be dealt with in a proper way when evaluating hit rates for prediction algorithms. The "Up fraction"circumvents the zero returns by simply removing them before calculating the hit rate. In this way, the zero returns are counted as both increases and decreases, in equal proportions.

We suggest the following definition for the k-trend Tk(t): Tk(t) = 100k · y(t) − y(t − k) y(t − k)

It is convenient to divide by k in order to get the daily increase in price. Trend values for different values of k can then be analyzed on an equal basis.

To see if Tk(t) is connected to future changes, define the profit Ph(t) computed h days ahead as:

Ph(t) = 100 · y(t + h) − y(t) y(t). (4)

Ph(t) is obviously equal to Rh(t+h) (i.e. it is achieved by shifting the returns h days backwards).

Ph(t) can be interpreted as the profit gained, if buying a stock at day t and selling it at day t+h.

So now you know what to do in May. I hope this answers your question Hutch.

The Week (Day) Ahead

As usual, I wanted to give you a heads up about data points and market direction for the week ahead. However, I had a special meeting at the Swap Meet and I wanted to digest all I learned during this get together so you will only get the heads up for Monday.

As you might know, President Obama is doing a great job of raising money, almost two to one against his other GOP candidates. Well I found out how. He was at the Swap Meet and asks for 10 dollars to have your picture taken with him. I haggled with him and go it down to $2.00. One of the incentives he threw in so I would have my picture taken with him was a promise that I would be exempt from all new tax increase set forth by his administration or that of Jerry Brown's.

While waiting for the picture, I had the chance to ask some questions about the economy and the general business environment. I will be reviewing his replies this evening.

It is a relatively quiet week for economic data points this week, but we are wrapping up a quarter. As we mentioned, fund managers may be taking some profits to make their quarterly reports looks sexy, which could put downward pressure on the market.

Monday we have The pending home sales survey and while January's number was very strong, we feel we will see a positive number but down from the year on year pace of 10.5%. Look for a YOY pace of 3%. This will dampen the market. Also look for the Dallas Manufacturer number to disappoint. This as well as any other bad news out of China or Europe will provide more of a catalyst to take money off the table. Look for a drop of 1.2% in the market tomorrow.

Salve Lucrum

Since 12/21/2011

BAGAKOAA;

I am not a professional investment advisor. Anybody reading my blog and investing accordingly must be out of their minds. I have made more money than I have lost. There are many more qualified people than I to actually tell you how to invest your money.

BAGAKOAA=Boys And Girls And Kids Of All Ages

Salve Lucrum=Latin for Hurrah for Profit.

2012 Year Ending

Dow 13,073

S&P 500 1,358

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