April went out with a bang--a $68 billion fiscal drain from taxes and what appears to be a slowing rate of spending. Because April is tax month it's "normal" to see a net fiscal drain during the month and that's the reason for the old Wall Street adage, "Sell in May and go away." (Fiscal drain sets up a market downturn over the ensuing several months, until deficit spending restores private sector savings.)
However, May is so far shaping up to be a decent month and the reason for that is the huge, $455 billion stash of private sector savings that has been built up as a result of high levels of deficit spending. Were it not for this, the recent trend towards fiscal drain would have already tanked the market.
The thing to remember, though, is that private sector savings can only be sustained over the long-term through deficit spending and if the fiscal conservatives are in control then it is only a matter of time before private sector savings are drained and another downturn ensues.
For the time being we are okay, so enjoy the rally and continue to buy stocks on dips!
No comments:
Post a Comment