SUMMARY. Should you “sell in May?”.  We shouldn’t be surprised by another series of stock market falls as complacency turns into crisis – just as in 2010, 2011, and 2012. And while Europe truns against austerity, Japan has gone the “shock and awe” route.

Should you “sell in May?”.  We shouldn’t be surprised by another series of stock market falls as complacency turns into crisis – just as in 2010, 2011, and 2012.  The falls from each Spring peak to the year’s low were approximately 18%, 19%, and 12% respectively.

Perhaps you believe recent stock market gains are sustainable?

“When it becomes serious you have to lie” said Luxembourg Prime Minister, Jean-Claude Juncker.

More recently “We don’t fully understand what is happening in advanced economies” stated former ECB board member Lorenzo Bini Smaghi.

When people like this say things like that, none of us should become complacent.

The macro economic battleground remains austerity.  The academic support for austerity was provided by Rogoff and Reinhart (RR) in a number of papers, and then some errors were highlighted by other academics with great fanfare a few weeks ago.  Most serious analysts reflected and then concluded that RR could be forgiven relatively minor issues in a huge excel spreadsheet, and that debt remains a fundamental problem subduing growth prospects.

But politicians, particularly in the eurozone, were not so forgiving and saw this as a great opportunity to build the anti-austerity case.  The problem is that although they don’t like austerity, they aren’t clear on alternatives, and even if they were clear, there is simply not the social, political or economic cohesion for successful implementation.

Contrast this with Japan.  Even though their debt level is more than twice that of the eurozone, the size of their new commitment (“Abenomics”) to find a solution is extraordinary.  It comprises “Three Arrows”, two of which are already known, and the third should be public in June , when a number of committees filled with the great and the good make wide-ranging recommendations.  Last but not least Japan has the cohesion (socially, politically, and economically) which could make their experiment work.

Yet there is also a positive precedent for this.  In the early 1930s Japan announced a similar “shock and awe” financial plan to pull Japan out of the jaws of the Great Depression.  In fact it was so successful that it inspired Roosevelt to take his much better known action to deal with the Great Depression in the US.  Watch this space.