Score one for the bulls!  As May nears its end, the markets to this point have thrown water on the Sell in May crowd.  It has been an improbable run (or has it?).  We are in largely uncharted waters as the Federal Reserve continues its unprecedented easy money policies and governments around the world have joined the party with easing of their own.  While the U.S. and world economies continue to slowly improve, it certainly has not been enough growth to justify the tremendous run we have been enjoying.  But with the support of governments around the globe, the markets have refused to go down.  Good news has been well received (economy improving) and bad news has been well received (continued government intervention).  Over the recent few weeks, many market pundits have been talking about a market melt-up similar to the tech bubble in 1999 and early 2000.   While we aren't ready to proclaim our agreement, there are certainly similarities. 

WHERE WE ARE HEADED 

We continue to be wary of these markets.  As a good friend and peer of ours recently said, "we are dancing close to the door."  We could not agree more.  As we have mentioned here before, markets are like rubber bands.  They can stretch and stretch but always snap back.  The further they are stretched, the more violent the snap back.  The analogy applies to both up and down markets.  Currently, the markets are significantly stretched.  A reversion to the mean is guaranteed at some point.  The markets could definitely move higher from here but, by our work, we continue to believe a correction of some significance is near.  Frankly, we have been surprised at the extreme resilience of these markets.  There have been a number of "opportunities" for the market to correct - bad economic news, scandals in Washington, Japan's 7% flash crash, etc.  However, to this point the markets have largely shrugged off everything thrown its way.  That will change at some point and those investors that blindly forge into the market will be very disappointed (and a little lighter in their wallets).  Our job is to dance as long as possible but to be as close to the door as we can.

HOW WE ARE DOING

One of the benefits of technical analysis is that emotions and what one thinks should happen are largely irrelevant.  Emotions are discounted and logical conclusions can be gathered from all available evidence.  Accordingly, though we have largely been pessimistic (our opinion) about the markets we have continued to stay invested (technical analysis).  Market action earlier this week threw up some large technical red flags so we are watching the markets carefully here.  We remain largely invested and continue to enjoy the market's run upward.  A correction is coming; and the further the market rises, the more significant that correction will likely be.  Despite the headlines of record market highs, it is not a time to be complacent.   In short, what can go right is less than what can go wrong.

UP-FRONT MONEY - The median down payment (stated as a percentage of the home purchase price) made by first-time home buyers in calendar year 2012 was just 4% (source: National Association of Realtors).

A REAL PROBLEM - The number of insured banks on the FDIC's "problem list" was 651 as of 12/31/12, roughly 2 � times the 252 banks on the list as of 12/31/08, but equal to 44% of the 1,496 problem banks from 12/31/90. Historically, just 5% of banks on the "problem list" fail (source: FDIC).

BUT WHAT IF? - The average interest rate that Uncle Sam is paying on its interest bearing debt is 2.464% as of 4/30/13, approximately half the cost the government was paying (4.838%) as of 12/31/07 (source: Treasury Department).

CAN I TAKE A MULLIGAN? - At Thursday's (5/23/13) close of 16, the S&P 500 is at a higher value than what 9 of 10 Wall Street equity strategists forecasted for the stock index for 12/31/13. The year-end 2013 predictions were made on 12/17/12. The close of stock trading yesterday completes just 21 weeks of calendar year 2013 (source: Barron's).

I (Bo) will be making a few trips to Knoxville over the summer months and Sam and I would welcome the opportunity to meet with you together.  If you have an interest in scheduling a visit, please let either of us know.  We hope each of you enjoys this long Memorial Day weekend.

Sam and Bo

We continue to make posts to our blog throughout the week so check it regularly if you want to see our thoughts.  You can access it by following the link below. 

THE GREATEST COMPLIMENT

In these uncertain times, a trusted financial adviser is more important than ever.  Whatever comes over the upcoming months and quarters, the markets are certain to have lots of volatility and wild swings.  Europe, the US economy and dysfunction in Washington, and continued trouble in Iran and the Middle East to name just a few.  If you have family, friends and neighbors that may benefit from our services, would you please forward this email and/or provide our contact information to them.  We purposefully do not spend time marketing our services so that we can devote all of our resources to managing your assets.  Thank you to all who have provided us referrals - it truly is the greatest compliment you can give us.      

Remember to visit our blog for market comments and observations in between newsletters.  We try to provide a few comments in between newsletters and certainly when there is a particularly interesting market day.  You can access it by clicking here. 

Published by Sam C. Bills, Jr.  Copyright � 2008 Bills Asset Management.  All rights reserved.

BAM Market Wrap is produced and distributed regularly via email by Sam C. Bills, Jr. of Bills Asset Management  3001 Flagstone Drive, Franklin, TN 37069 Phone (615) 371-5928 Fax (615) 250-4903 - www.Billsasset.com

Bills Asset Management  is an independent registered investment advisor (RIA) not associated with any financial institution.  Data used in this publication is gathered from reliable sources, although completeness and accuracy cannot be guaranteed.  Performance results do not take into account any tax consequences and are not predictive of future results.  This publication does not give any specific investment advice, does not provide financial planning services, or consider any individual's financial situation, needs or goals.  This publication may not be reproduced or retransmitted in whole or in part without the consent of the author, Sam C. Bills, Jr.

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