Sell in May and go away!

You might also care to consider the fact that leverage or margin is now at its highest level in the US since 1929, the year of the Great Wall Street Crash. Or care to note that 90 per cent of stocks are not trading at all-time highs. It is only the performance of the top 10 per cent that produce these record index readings.

Profits may look good but this is history. The US housing crash that is working its way through the economy is surely going to weaken profits for many companies in the coming years, and 60 per cent of the US public thinks there will be a recession, although after such a long period of rising prosperity many people have forgotten that tomorrow always comes.

What will it take to trigger this obvious realization? It might need nothing more than a feeling that stocks have shot too high and that a prudent investor would bank some profits.

Oil price consequences

What relevance does such talk have to the Middle East? Well, oil prices have been weaker since May last year which ought to be a warning bell. If the US capital markets turn down and a recession emerges in the world's biggest economy then that will be bad news for the oil price.

For the oil price would be squeezed from two directions: speculative funds liquidating positions that perhaps account for half the present price; and a shift in the demand curve for oil with a downturn first in the US and then among the economies like China that rely on its consumers.

Indeed, the high oil price can not escape some of the blame for a likely recession. The world economy has borne higher and higher oil prices this century, but there has always to be a tipping point when high oil prices are too much for the global economy to handle.

Tipping point?

Have we reached that tipping point? Some would suggest that it actually happened a year ago when oil touched $78 a barrel and the US housing market first started showing signs of strain, and more recently with the weakening dollar.

We can now hope that the US economy muddles through and the US consumer spends its way out of this slowdown. The problem is that an inflated stock market is juxtaposed with a falling US dollar and housing market. In that case one might at least expect a correction in the US stock market rather than further upside.

Besides the bull market run in US stocks is more than four years' old and well overdue for a summer correction. So perhaps this will be another year when you should indeed, 'Sell in May and stay away!'