Labour day is here, labour pains are also just around the corner for the equity markets.

Writing this post while I am waiting for my basketball game to start in the middle of the night. You guys like the new look? I wanted to give it a sleeker look with more beef. What inspired me to do so was the realisation of the importance in packaging during the elections. So I decided to have a makeover on the blog. Expect more changes in the near future as I try add improvements in most aspects of my life.

While doing up my blog's latest look, I realised that I have only had 10 posts for the year of 2011. That means I have been really slacking and I just wanted to do some catching up while I can.

Labour day is here and this month will be important for me and my credibility because I predicted a weaker May going into June.

Is it a wise prediction? Let's look. Well, April gives the impressions of a solid market rally. The S&P 500 (SPY) rose, 4%, 4% and 10% respectively in each of the past three years and is up another 2.2% this month. That rally has recently extended into May, as the S&P 500 has rallied an average of 3% in the past three years. But by the end of May, the party seems to end. Some say its the summer holidays that cause the sell down but I believe this year there are better reasons than this.

The market has fallen in six of the past 10 Junes of the past decade, three times the rate at which the various positive months have risen. Was there a July bounce-back? Well, the five Julys of the last decade were split, but the average loss was greater than the average gain.

An analysis by Standard & Poor's shows that in the past 60 years, the market has fallen by 0.04% on average in August. It's even worse in September, with that figure dropping to 0.78%. In fact, September is the only month to produce negative average results through the past 80 years, according to Ibbotson & Associates. Lastly, here's a sobering stat: according to S&P, since 1950, the Dow Jones Industrial Average has produced an average gain of 7.4% from November through April and 0.4% from May through October, I hope this will not be true this year because that would mean the best part of the year has already come to an end. What makes things worse is that I have not made my returns for the year yet.

Commodities such as precious and industrial metals tend to slump as major purchasers compete their full-year purchasing needs in the spring. China is said to be sitting on more-than-ample supplies of copper, silver and other surging commodities, right at a time when the Chinese government is trying to cool its economy. A drop in demand would pull the rug out from some of the highest-flying commodities. Watch the commodity sector, especially as it should be fairly priced in the short term and highly vulnerable to any pull back.

From my previous posts, you guys would know that I believe that the USD weakness is the main reason to why the market is so strong. The USD carry trade has moved markets and I love the fact that Tim Geithner had the nerve to claim that the US still wants to have a strong dollar. How many times have we heard this from Paulson, Geithner and Bernanke over the past 3 years? Which way has the USD gone? Down into the sewers.

In the latest Fed reserve policy statement, they decided that QE2 would end as per scheduled but the balance sheet of the Fed will remain the same size because the money from the maturing securities held in their books will be recycled. So that means continued buying of treasury securities by the Fed. Now that is similar to continued quantitative easing just that there is no more expansion in the money supply. What that means is that the USD will continue to be weak but will it weaken more from here? I find it hard to see how it will be. Support levels are being hit right now and I believe a short term bounce is in sight. What that means is that commodities and equities will experience the sell off soon.

According to the Fed, they see inflationary pressures rising but they believe its transitory and that the economic strength although decent may be slowing a little. Personally, I feel that the Fed is getting a little complacent on inflation and they are really putting the US in a perilous position. But who am I to say? I am no PHD or bonafide genius like those on the Fed committee. There are things in this world however, that are so obvious that you do not need to be a genius to see and this is one of them. The US is in deep trouble and we all know that in the long run, all these actions will come back to haunt them. All I can hope for is that they do not drag the rest of the world down with it. Knowing the US, I bet they will. Do not forget, they were the ones that managed to convince the world to use their USD as the reserve currency. So basically what they did was to tie the world's fate with theirs. Scary to even think about how bad the next crisis is going to be. But like what Keynes said, "in the long run, we are all dead." Lets hope he is right.

Well just wanted to post something while waiting for my game. Game is starting.

Have a great night and labour day holiday ahead!

Best,

SVI