It's official; everyone is now musing about the risk of a Fed "policy mistake" in light of the steadily flattening yield curve in the U.S. I have mused incessantly about this topic in recent weeks, so I will spare you the gory details of my view. It seems clear, though, that if markets were willing to offer the FOMC a rate hike in June for free, they are not going to roll over in September, let alone play along with a potentially fourth hike in December. In other words; the Fed is now on the spot. A swoon in risk assets over the summer—it has been known to happen—coupled with a further decline in long term bond yields would set up an interesting end of the year for the Federales. I am sympathetic to idea of one last deep dive in long-term bond yields to cement the fate of the late-comers to this rally. After all, we can't really talk about a policy mistake at the Fed before we are staring down the barrel of an inversion.
Read MoreGoogle informs me that the advice to "sell in May, and go away" comes from the tradition of British merchant bankers—I presume in the 19th century—to leave London for the country side in May and come back on St Leger's Day in September. I am partial to a good anecdote, but does it work? In order to check, I ran a little study using the S&P 500 going back to 1991. The first chart below shows the returns you would have foregone by selling in May and waiting 35 weeks and 17 weeks, respectively, before buying back. I have included both mean and median returns, because the outliers can skew the former when your sample size is not large. The second chart shows the results of a strategy which shorts the S&P 500 in May, buys the first week of October, and holds until year end.
Read MoreI am short on time this weekend, which is probably a good thing given that I have really struggled to share the excitement over last week's events. We had the swoon of the S&P 500 and its first 1% daily decline in more than <insert number here> days on Tuesday. Overall the index had temerity to post a 1.4% decline on the week, the biggest fall since the first week of November. It was with a tinge of embarrassment that I watched the overreaction of my fellow equity investors on both sides. For the bulls, this was the buy-the-dip of a lifetime and for the bears it was the signal that the bull market had come to an end. In truth of course, it was evidence of neither, although I suspect that the bulls will be the ones sleeping with most unease.
Read MoreIn this show I argue that paying less attention to Mr. Trump and the White House probably won't do you any harm. It might even do you good. I also respond to the idea that no credible alternatives are currently being offered to the surge in new populism and its policy suggestions. I offer three concrete proposals. Finally, I try to make an impossible transition to a brief discussion about financial markets. I will put up some charts in the next few days, but I am not sure that much has changed. The queue of bears at the abattoir is long as ever.
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