I like to watch the high-yield market to tell me if there is enough liquidity in the system.
Although I am predicting a period of pause in the equity markets, high-yield bonds are saying there is plenty of liquidity.
This is good news for stocks.
More on The Peter Dag Portfolio at www.peterdag.com.
George Dagnino
aka Peter Dag
www.peterdag.com
1/26/07
1/18/07
I am intrigued by XLE
XLE, the energy ETF, has declined since early December.
My indicators are saying XLE has declined to oversold levels.
What does it mean? Any strength of a few days and XLE is a buy.
I will let you know from NZ (I cannot stay away from the markets).
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
My indicators are saying XLE has declined to oversold levels.
What does it mean? Any strength of a few days and XLE is a buy.
I will let you know from NZ (I cannot stay away from the markets).
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
I feel guilty
Yes, I feel guilty. But everyone needs a few days off. Especially in this business.
I just uploaded my last issue of The Peter Dag Portfolio on the website and now it is time to relax. I am not sure I can knowing the market is at a top.
I am going to the other side of the globe -- to New Zealand to visit my uncle, another Dagnino. We see each other almost everyday by using Skype and a web cam. We talk for a long time. And all this is absolutely free. Yes, free. The time has come to have a drink together around the same table.
Now I am connected using Skype with people in other parts of the world. We have conference sessions. The technology is absolutely amazing. And it works!
I will try to keep in touch from there. If not, you know I am having fun!
Best to you all.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
I just uploaded my last issue of The Peter Dag Portfolio on the website and now it is time to relax. I am not sure I can knowing the market is at a top.
I am going to the other side of the globe -- to New Zealand to visit my uncle, another Dagnino. We see each other almost everyday by using Skype and a web cam. We talk for a long time. And all this is absolutely free. Yes, free. The time has come to have a drink together around the same table.
Now I am connected using Skype with people in other parts of the world. We have conference sessions. The technology is absolutely amazing. And it works!
I will try to keep in touch from there. If not, you know I am having fun!
Best to you all.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
Chavez is scrambling
Why? Because crude oil is sinking.
OPEC cannot do anything about it. The real reason is that the world economy is expanding, but at a slower pace.
Slower growth in demand is taking crude oil and all other commodities down.
How will Mr. Chavez pay for his grandiose socialist schemes if oil keeps tumbling? More debt and the debasing of the Bolivar.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
OPEC cannot do anything about it. The real reason is that the world economy is expanding, but at a slower pace.
Slower growth in demand is taking crude oil and all other commodities down.
How will Mr. Chavez pay for his grandiose socialist schemes if oil keeps tumbling? More debt and the debasing of the Bolivar.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
The seasonality of bond yields
Bonds have a distinct seasonality, which is very similar to that of stocks.
I discovered it many years ago when I was managing $3 billion of interest rates derivatives for a large corporation. I always benefited when I followed this simple rule.
Yields tend to rise (bond prices decline) in the first half of the year. Yields tend to decline (bond prices rise) in the second half of the year.
Why? My guess is that large corporations arrange their borrowings in the first half of the year, following the approval of investment budgets by the board at the end of the fourth quarter.
What is really interesting is that stocks have the opposite seasonality. They tend to rise in first half of the year and become dormant in the second half.
George Dagnino
aka Peter Dag
www.peterdag.com
I discovered it many years ago when I was managing $3 billion of interest rates derivatives for a large corporation. I always benefited when I followed this simple rule.
Yields tend to rise (bond prices decline) in the first half of the year. Yields tend to decline (bond prices rise) in the second half of the year.
Why? My guess is that large corporations arrange their borrowings in the first half of the year, following the approval of investment budgets by the board at the end of the fourth quarter.
What is really interesting is that stocks have the opposite seasonality. They tend to rise in first half of the year and become dormant in the second half.
George Dagnino
aka Peter Dag
www.peterdag.com
1/17/07
Should we worry about the US economy?
Should we worry about the US economy when the global economy is doing so well? Or is it?
The world economy is proving to be a lot more resilient than many economists predicted, top IMF officials said on Tuesday, expressing confidence that global growth would remain “solid” at close to 5 per cent this year.
The same message is sent by the international purchasing managers.
Economic recovery in Europe has broadened, Japan is broadly on track and emerging market growth remaines vigorous, particularly in India and China.
Overall, he judged, the global environment looks quite favorable.
There has to be a positive impact on the US economy.
More on my "The Global Business Cycle" on www.peterdag.com.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
The world economy is proving to be a lot more resilient than many economists predicted, top IMF officials said on Tuesday, expressing confidence that global growth would remain “solid” at close to 5 per cent this year.
The same message is sent by the international purchasing managers.
Economic recovery in Europe has broadened, Japan is broadly on track and emerging market growth remaines vigorous, particularly in India and China.
Overall, he judged, the global environment looks quite favorable.
There has to be a positive impact on the US economy.
More on my "The Global Business Cycle" on www.peterdag.com.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
1/15/07
Transportation and energy crisis
After completing a trial run in Shanghai, the new China railway high-speed bullet train will be tested for operation on the Shanghai-Beijing route.
When we talk about high-speed trains in the US the press supports the idea that the market has to be the final judge.
Yet, we ignore the enormous amount of money spent on the highway system.
Energy crisis? What about trains.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
When we talk about high-speed trains in the US the press supports the idea that the market has to be the final judge.
Yet, we ignore the enormous amount of money spent on the highway system.
Energy crisis? What about trains.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
The US is trying hard
Secretary of State Condoleezza Rice will attend a three-way summit with the Israeli and Palestinian leaders in the coming weeks in an effort to boost Mideast peace efforts, U.S. officials said Monday. The announcement came shortly after Rice wrapped up a brief visit to Israel and the West Bank.
A senior U.S. official in Rice's delegation said the "trilateral meeting" will be aimed at "having a conversation about the political horizon leading to the establishment of a Palestinian state."
The US is really trying hard, I think. What is needed is more flexibility on both sides and realize that peace is a wonderful, enriching, magnificent, and rewarding experience.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
A senior U.S. official in Rice's delegation said the "trilateral meeting" will be aimed at "having a conversation about the political horizon leading to the establishment of a Palestinian state."
The US is really trying hard, I think. What is needed is more flexibility on both sides and realize that peace is a wonderful, enriching, magnificent, and rewarding experience.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
Japan's economy keeps strengthening
Japan sees further signs of recovery as short-term interest rates keep rising slowly, but steadily. It may signal the beginning of the end of the "carry" trade.
Machinery orders in Japan rose faster than expected in November, official figures have shown, indicating rising strength in the economy.
Core machinery orders, which were up 3.8% in November from the month before, are a key indicator of investment.
The latest figure reinforces the view that Japan's economic recovery will be based more on corporate than on consumer spending in months to come.
More global economic trends on The Peter Dag Portfolio (www.peterdag.com).
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
Machinery orders in Japan rose faster than expected in November, official figures have shown, indicating rising strength in the economy.
Core machinery orders, which were up 3.8% in November from the month before, are a key indicator of investment.
The latest figure reinforces the view that Japan's economic recovery will be based more on corporate than on consumer spending in months to come.
More global economic trends on The Peter Dag Portfolio (www.peterdag.com).
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
Interesting comments taken from a Chinese magazine
Could the Renminbi become a reserve currency?
RMB is not fully convertible. It is still too dangerous to use RMB as a forex reserve storage vehicle.
What does "inconvertible" mean? It means today you buy a house at 1 million Yuan. It's possible that tomorrow you can't buy a coke with the same amount, depending on changes in monetary policy of the central bank.
What does "fully convertible" mean? It means that a single country can't manipulate its own currency by itself. Who dare to use RMB as a forex reserve now? In the future, only after when it is fully convertible, maybe.
Is the U.S. bankrupt?
No! Countries using foreign currencies as reserves are not looking at the foreign country's actual balance sheet. They are using the expectation over the country's solvency and future earnings. As long as people believe that the US is ABLE to pay the debt, they will keep on lending to the US (by buying US T-bonds etc) and holding US dollars as reserves. It is an indeed rational act.
In addition, the price of a RMB (the exchange rate of Yuan against other currencies) does not mean how wealthy China is. It only reflects the supply and demand relation of the currency.
It is GDP PER CAPITA rather than aggregate GDP that reflects the national economic strength. Although our great nation [China] now ranks No 4 in the world in absolute GDP figures, there is still a long way to go before we truly become an "advanced" economy. By reminding ourselves this, we could keep in mind the gap and take out more efforts for the country and ourselves. [Ed. GDP/capita per year in the US is about $35,000 while in China is $4,000.]
RMB is not fully convertible. It is still too dangerous to use RMB as a forex reserve storage vehicle.
What does "inconvertible" mean? It means today you buy a house at 1 million Yuan. It's possible that tomorrow you can't buy a coke with the same amount, depending on changes in monetary policy of the central bank.
What does "fully convertible" mean? It means that a single country can't manipulate its own currency by itself. Who dare to use RMB as a forex reserve now? In the future, only after when it is fully convertible, maybe.
Is the U.S. bankrupt?
No! Countries using foreign currencies as reserves are not looking at the foreign country's actual balance sheet. They are using the expectation over the country's solvency and future earnings. As long as people believe that the US is ABLE to pay the debt, they will keep on lending to the US (by buying US T-bonds etc) and holding US dollars as reserves. It is an indeed rational act.
In addition, the price of a RMB (the exchange rate of Yuan against other currencies) does not mean how wealthy China is. It only reflects the supply and demand relation of the currency.
It is GDP PER CAPITA rather than aggregate GDP that reflects the national economic strength. Although our great nation [China] now ranks No 4 in the world in absolute GDP figures, there is still a long way to go before we truly become an "advanced" economy. By reminding ourselves this, we could keep in mind the gap and take out more efforts for the country and ourselves. [Ed. GDP/capita per year in the US is about $35,000 while in China is $4,000.]
1/13/07
Fluctuations of commodity prices
Prices of all commodities (including the price of the commodity money) move in the same direction and have the same cyclical turning points and are driven by changes in the growth of the economy.
There is some hype right now about agricultural commodities. Be careful. If the economy keeps weakening and oil, gold, metals, and short-term interest rates decline, agricultural prices will follow the general trend of other commodities. The weather and the Fed have little or nothing to do with their long-term (one-two years) price trend.
For more details, see my presentations posted on www.peterdag.com.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
There is some hype right now about agricultural commodities. Be careful. If the economy keeps weakening and oil, gold, metals, and short-term interest rates decline, agricultural prices will follow the general trend of other commodities. The weather and the Fed have little or nothing to do with their long-term (one-two years) price trend.
For more details, see my presentations posted on www.peterdag.com.
George Dagnino, PhD
aka Peter Dag
www.peterdag.com
A humbling experience for many gurus
I save the forecast of the major gurus from various magazines. I put them in a folder and every once in a while I review them.
Where did everybody go amazingly wrong? The US consumer and the dollar. Most analysts expected very slow growth or a recession because the consumer was going to be squeezed in 2006. And the dollar was supposed to tank because of the trade deficit. Wrong! Wrong! Wrong!
Some major bond players expected lower yields… and were wrong. Including ourselves in the first half of 2006. Why? The economy was much stronger than expected.
Those who were right on stocks expected a mild economic slowdown and stable short-term interest rates. This is where we agreed. Stable short-term interest rates are good news for stocks.
Many big names (domestic and foreign) were embarrassingly wrong on the economy and the stock market. Extreme views (sharp recession, deflation, market meltdowns,…) are eye-catching, but usually wrong.
So? What is the lesson?
1. Watch short-term interest rates. If they rise, the market is going to go nowhere. If they stabilize (as it happened in mid-2006 just before the market took off), the market moves higher.
2. Slowdowns always follow rising commodities, inflation, and interest rates. See my The Peter Dag Portfolio on www.peterdag.com.
George Dagnino, PhD
Outlook for China's economy
China's economy will continue to grow at around 9.5 percent in 2007, with fixed asset investment up 20 percent on 2006.
China will maintain a prudent monetary policy in 2007, said central bank governor Zhou Xiaochuan in his New Year address.
The exchange rate of Renminbi, the Chinese currency, is expected to appreciate by some five percent to one U.S. dollar for 7.44 yuan.
The growth of China's exports is expected to show a substantive decline in 2007, with an annual growth rate that could be well under 20 percent.
China will face rising inflation pressures in 2007, with the consumer price index (CPI) expected to possibly reach 2.5 percent.
The growth of a major global player
China has overtaken Japan to become the world's second-largest car market after the US. Car sales jumped 37% in 2006, the China Association of Automobile Manufacturers (CAAM) said.
Total passenger car sales rose 30.02% to 5.18 million units. Analysts said that newly affluent drivers had boosted sales, with some predicting China may overtake the US by 2015. Overall, Chinese vehicle sales jumped 25% during 2006 to 7.22m units.
On Monday, General Motors said total annual sales in China totaled 876,747 units, up 32% from 2005.
Bottom line: amazing opportunities even if income per capita is less $5000/year.
Total passenger car sales rose 30.02% to 5.18 million units. Analysts said that newly affluent drivers had boosted sales, with some predicting China may overtake the US by 2015. Overall, Chinese vehicle sales jumped 25% during 2006 to 7.22m units.
On Monday, General Motors said total annual sales in China totaled 876,747 units, up 32% from 2005.
Bottom line: amazing opportunities even if income per capita is less $5000/year.
1/12/07
Energy stocks. What's happening?
Energy stocks have declined to extreme levels.
I am looking at some of my proprietary indicators and I am getting the feeling they are close to a nice bounce.
It could be a nice move. Indeed. Worth trading.
Are the markets saying the economy is much stronger than generally believed? More on the next issue of The Peter Dag Portfolio on www.peterdag.com.
George Dagnino
aka Peter Dag
www.peterdag.com
I am looking at some of my proprietary indicators and I am getting the feeling they are close to a nice bounce.
It could be a nice move. Indeed. Worth trading.
Are the markets saying the economy is much stronger than generally believed? More on the next issue of The Peter Dag Portfolio on www.peterdag.com.
George Dagnino
aka Peter Dag
www.peterdag.com
Commodities, interest rates, and cartels
The U.S. dollar and prices of Treasuries declined on Friday after government data showed consumers spent more than economists expected last month, triggering speculation about the outlook for interest rates. (Reuters)
Oil prices saw their sharpest drop in two years, shedding more than $2 a barrel as mild US weather led consumers to use less petrol and heating oil. (BBC News)
Oil prices started to climb on Friday, on speculation that oil cartel Opec could cut output in coming weeks. (BBC News)
Commodities reflect the strength of the US (about 27% of the global economy) and European economy (about 25% of the world economy).
The US economy slowed down in the second half of 2006, commodities declined, including gold and crude oil, and the bond market strengthened.
Commodities and short-term interest rates (they have the same cyclical turning points as shown in my presentation posted on http://www.peterdag.com/) will rise if the economy gains more momentum. Their rise will be accompanied by a weaker bond market.
On the other hand, if the economy slows down under the weight of the housing sector debacle and credit crunch caused by lenders’ tightening action, you can rest assured commodities and short-term interest rates will head down, and the bond market will strengthen.
My point: cartels create volatility. They do not control the cyclical trend of commodities and interest rates. This point has also been made in a study of the Federal Reserve of San Francisco long time ago.
George Dagnino
aka Peter Dag
http://www.peterdag.com/
Oil prices saw their sharpest drop in two years, shedding more than $2 a barrel as mild US weather led consumers to use less petrol and heating oil. (BBC News)
Oil prices started to climb on Friday, on speculation that oil cartel Opec could cut output in coming weeks. (BBC News)
Commodities reflect the strength of the US (about 27% of the global economy) and European economy (about 25% of the world economy).
The US economy slowed down in the second half of 2006, commodities declined, including gold and crude oil, and the bond market strengthened.
Commodities and short-term interest rates (they have the same cyclical turning points as shown in my presentation posted on http://www.peterdag.com/) will rise if the economy gains more momentum. Their rise will be accompanied by a weaker bond market.
On the other hand, if the economy slows down under the weight of the housing sector debacle and credit crunch caused by lenders’ tightening action, you can rest assured commodities and short-term interest rates will head down, and the bond market will strengthen.
My point: cartels create volatility. They do not control the cyclical trend of commodities and interest rates. This point has also been made in a study of the Federal Reserve of San Francisco long time ago.
George Dagnino
aka Peter Dag
http://www.peterdag.com/
The market is trying to prove we are all wrong
We are all watching the same indicators. Everybody is writing about why there is a major top in the making. Yet, stocks are moving higher.
The market will turn down when the overwhelming majority of seers starts questioning the validity of the indicators and the odds associated with their message.
When we look back, however, we will acknowledge the indicators were right and we missed another great opportunity.
George Dagnino
aka Peter Dag
www.peterdag.com
The market will turn down when the overwhelming majority of seers starts questioning the validity of the indicators and the odds associated with their message.
When we look back, however, we will acknowledge the indicators were right and we missed another great opportunity.
George Dagnino
aka Peter Dag
www.peterdag.com
1/11/07
Interesting angle on how housing impacts the economy
The Global Entrepreneurship Monitor, the world's most comprehensive study of start-up activity, found the percentage of people who were either thinking of going into business or had just started a new venture slid substantially in the US last year.
Rebecca Harding, executive director of GEM, said the decline in house prices had a particular impact in the US because people felt they had less of a financial cushion to support a business risk.
Wow! The housing debacle impacts production of goods needed in construction. The transport of these goods. Consumers, by reducing their capacity to borrow. Lenders. And now new start-ups. I find it very interesting.
George Dagnino
aka Peter Dag
www.peterdag.com
Rebecca Harding, executive director of GEM, said the decline in house prices had a particular impact in the US because people felt they had less of a financial cushion to support a business risk.
Wow! The housing debacle impacts production of goods needed in construction. The transport of these goods. Consumers, by reducing their capacity to borrow. Lenders. And now new start-ups. I find it very interesting.
George Dagnino
aka Peter Dag
www.peterdag.com
China stock market
In a word? Scary.
I was looking at the chart of FXI (the iShares for China 25 Index fund) and it reminds me of the chart of GLD (ETF for gold) in May. Parabolic rise with fantastic volume. GLD dropped 18% following that spectacular rise.
There is a lot of hype right now about China. The chart of FXI, however, suggests this may be a good to take some money off the table. Food for thought.
George Dagnino
aka Peter Dag
www.peterdag.com
I was looking at the chart of FXI (the iShares for China 25 Index fund) and it reminds me of the chart of GLD (ETF for gold) in May. Parabolic rise with fantastic volume. GLD dropped 18% following that spectacular rise.
There is a lot of hype right now about China. The chart of FXI, however, suggests this may be a good to take some money off the table. Food for thought.
George Dagnino
aka Peter Dag
www.peterdag.com
Latest news on the global economy. Implications.
England's central bank raised interest rates a quarter percentage point to 5.25 percent, citing diminished spare capacity in the economy and rising inflation pressure.
The US Labor Department said 299,000 people filed initial unemployment claims last week, down from 325,000 the week prior and fewer than the 320,000 expected by economists.
Bottom line:
1. Central banks keep tightening to slow down their economies. How long can the global bull market in equities last?
2. The US labor market remains strong reflecting a growing economy. Unemployment claims close to 300k represent very good news for the economy. But not for bonds.
George Dagnino
aka Peter Dag
www.peterdag.com
The US Labor Department said 299,000 people filed initial unemployment claims last week, down from 325,000 the week prior and fewer than the 320,000 expected by economists.
Bottom line:
1. Central banks keep tightening to slow down their economies. How long can the global bull market in equities last?
2. The US labor market remains strong reflecting a growing economy. Unemployment claims close to 300k represent very good news for the economy. But not for bonds.
George Dagnino
aka Peter Dag
www.peterdag.com
1/10/07
The recent strength of the dollar
The recent strength of the dollar is good news for the US economy. It reflects confidence of the international business comunity in our system.
Why do we care? The economy may be slowing down, but it remains on a sound footing as long as the dollar remains around current levels.
George Dagnino
aka Peter Dag
www.peterdag.com
Why do we care? The economy may be slowing down, but it remains on a sound footing as long as the dollar remains around current levels.
George Dagnino
aka Peter Dag
www.peterdag.com
Latest data about wholesalers' inventories
Wholesalers' inventories/sales ratio is rising.
Why do we care? Business is forced to cut production when inventories rise faster than sales.
It is another piece of information pointing to slower growth.
This is the main reason why commodities are so weak and short-term interest rates stopped rising.
George Dagnino
aka Peter Dag
www.peterdag.com
Why do we care? Business is forced to cut production when inventories rise faster than sales.
It is another piece of information pointing to slower growth.
This is the main reason why commodities are so weak and short-term interest rates stopped rising.
George Dagnino
aka Peter Dag
www.peterdag.com
The high yield bond market
High-yield bonds are giving mixed signals. It looks like they are breaking down after several months of strong performance.
What are they trying to tell us? This is one more signal suggesting caution -- at least in the near term .
George Dagnino
aka Peter Dag
www.peterdag.com
What are they trying to tell us? This is one more signal suggesting caution -- at least in the near term .
George Dagnino
aka Peter Dag
www.peterdag.com
The economy, commodities, and inflation
Today commodities continued to sag.
For those of you who read my books and saw my presentations (see www.peterdag.com), lower commodities reflect a weakening economy.
They also point to lower inflation.
Could we have deflation? We will have to wait and see the unwinding of the housing bubble later this year.
Interesting times. Certainly not favoring commodity sensitive assets.
George Dagnino
aka Peter Dag
www.peterdag.com
For those of you who read my books and saw my presentations (see www.peterdag.com), lower commodities reflect a weakening economy.
They also point to lower inflation.
Could we have deflation? We will have to wait and see the unwinding of the housing bubble later this year.
Interesting times. Certainly not favoring commodity sensitive assets.
George Dagnino
aka Peter Dag
www.peterdag.com
1/9/07
I am becoming even more cautious
Every night, after the close, I review my indicators to keep focused on the direction of the markets. The Asian markets are weak . Big declines. They keep heading lower, suggesting the global stock markets have strong headwinds.
Foreign markets cannot escape. Why? It is a fact that all equity markets have exactly the same turning points.
Do not illude yourself. When you buy foreign markets you buy volatility. If the US market declines, they will decline even more....and faster.
Be careful.
George Dagnino
aka Peter Dag
www.peterdag.com
Foreign markets cannot escape. Why? It is a fact that all equity markets have exactly the same turning points.
Do not illude yourself. When you buy foreign markets you buy volatility. If the US market declines, they will decline even more....and faster.
Be careful.
George Dagnino
aka Peter Dag
www.peterdag.com
1/8/07
Is it different this time?
China is raising reserve requirements against new loans, central banks around the world are tightening and short-term interest rates are moving higher and equity markets are soaring.
I have never seen anything like it. Equity markets invariably peak following an increase in short-term interest rates of this magnitude and breadth.
Is it different this time?
George Dagnino
aka Peter Dag
www.peterdag.com
I have never seen anything like it. Equity markets invariably peak following an increase in short-term interest rates of this magnitude and breadth.
Is it different this time?
George Dagnino
aka Peter Dag
www.peterdag.com
I do not feel comfortable
All the indicators I follow are turning down from overbought levels. This situation applies to all sectors.
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