Is it time to worry Mr. Bernanke?

Sales of new one-family houses in January 2007 were at a seasonally adjusted annual rate of 937,000. This is 16.6% below the revised December 2006 figure of 1,123,000.

The decline in home sales is worrisome. At recession levels.

More on http://www.peterdag.com/

George Dagnino, PhD
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Keep your cool

Yes! Times of crisis have always offered superb investment opportunities.

Remember 1997? The Asian Tigers collapsed. Russia defaulted on their bonds. The Latin America financial crisis.

Well? The Fed opened the liquidity spigots and here we go...we got the 2000 stock market bubble.

Again, times of crisis offer a great buy opportunity.

Keep your cool. Let the market settle down. Then buy!

More on www.peterdag.com

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

When do short-term interest rates decline?

The answer is quite simple if look carefully at the above graph.
And the anwer is: when there is a recession or very slow economic growth.

One more lesson provided by history. Extreme levels of interest rates (close to 1% or above 8%) have been associated with serious economic and financial problems.

More on www.peterdag.com.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

The best investment in a recession?

Buy long-term Treasury bonds (e.g. TLT).

More on www.peterdag.com.

Best.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Investment trends confirm slowdown

Fixed private investment includes non residential (structures, equipment, software) and residential investment.

Its growth over 12 months is declining quite rapidly, suggesting the US economy is in the midst of a serious slowdown.

It is unlikely the Fed will raise interest rates with business activity heading in the wrong direction.

More on www.peterdag.com.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Do they want to increase taxes? Why?

Tax receipts are soaring. Their growth is record breaking. Yet, some politicians want to raise them. Why?

How can you make them grow faster when they are already growing at a record breaking pace?

The real issue is redistribution of tax receipts.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Housing starts point to trouble ahead

The decline in housing starts is worrisome.

The enclosed graph is self explanatory. Declines of this magnitude have occurred ahead of a recession.

Can this time be different?

More on http://www.peterdag.com/.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

The creative Chinese

An exhaustive list of chinese inventions can be found here....

http://bbs.chinadaily.com.cn/viewthread.php?tid=551173&extra=page%3D1

I was told that the lack of acceptance of the decimal system eventually hindered their creativity.


George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

OOPS!

A new report issued by the United Nations Children's Fund (UNICEF) regards Britain as the worst place among all developed countries for a child to grow up.

UNICEF says Britain has the unhappiest, poorest, unhealthiest and most neglected children of the world's 21 richest nation, ranking at the bottom of 40 different indicators for child welfare, Sky news reported on Wednesday.

Despite its higher rank for educational well being, Britain still stayed at the bottom third for each of the other measures, earning it the bottom place among the 21 countries.

North European countries such as Sweden, Denmark and Finland ranked highest in child welfare, dominating the top half of the league table.

Why? How can we avoid the same predicament?

More on www.peterdag.com.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Bernanke's message

Enjoy!

Everything is fine. Inflation is under control. The economy is growing at an average non-inflationary pace. Short-term interest rates will stay where they are ... close to 5%.

The stock market loves it. Stocks and bonds are soaring.

What is bothering me? Commodity based stocks, gold, and industrial stocks are very strong. And yes, the dollar sagged!

Are they saying the economy is going to grow at a much faster and inflationary pace and the place to be is in hard assets? In other words, is the Fed asleep at the wheel?

More on www.peterdag.com.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Why is the money supply soaring?

HSBC Holdings Plc, one of the world's biggest banks, said it will set aside $1.76 billion more for bad debts than expected, largely for problems in U.S. "sub-prime" loans. (Reuters)

New Century Financial Corp., a big California sub-prime lender, forecast a surprise fourth-quarter loss and said it will reduce profit in the prior three quarters because defaults are rising. Its stock sank 36 percent Thursday. (Reuters)

"Sub-prime was a business (where) you take inferior credit, but you'd require superior equity," Angelo Mozilo, chief executive of Countrywide Financial Corp., the largest mortgage lender and No. 4 sub-prime lender, said on Jan. 30. "That all disappeared in the last couple of years and you get a 100 percent loan with marginal credit and that doesn't work." (Reuters)

ABM Amro Holding NV, KeyCorp and National City Corp. decided to sell subprime units. Ameriquest Mortgage Co. and H&R Block Inc.'s Option One unit are up for sale. Wachovia Corp. last week shut its sub-prime unit. Sebring Capital Partners LLC closed. Mortgage Lenders Network Inc. and Ownit Mortgage Solutions Inc. filed for bankruptcy protection. (Reuters)

The markets strive on crises.

1. Bankers do not want sub-prime borrowers to go under. They will keep them financially afloat for as long as it takes to get their money back. Implication: the housing crisis will drag for a long time.
2. The Fed is allowing the money supply to soar, up close to 9% (as in Europe). This strong growth in liquidity will help the banking system to survive this crisis.
3. Financial crises have been good news for the stock market…eventually. All this liquidity finds its way in the equity market and stocks rise.

More on www.peterdag.com .

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

How to judge the strength of a country

These are the conditions a country must meet in order to show healthy growth. History is quite clear on this.

1. Property rights…to stimulate inventions and reward inventors;
2. Education … to develop the knowledge to innovate and produce effectively;
3. Communication … to efficiently transmit information and move goods;
4. Financial system … to finance the growth of the country.

Use this list to assess the strength of a country. China and India, for instance. They have a long way to go.

We are a dynamic country because we excel in all four areas.

More on http://www.peterdag.com/.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Crisis: sub-prime mortgage lending

Crisis in the making. This is what happens at the end of a bubble ... the housing bubble.

Lenders report problems lending. Crises are great for the financial markets. Why? The Fed prints money aggressively to cushion and protect the banking system. And this is good news for the stock market.

It has happened consistently in the past. It will happen again.

I love crises.

More on http://www.peterdag.com/.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Earnings and stocks: a flimsy relationship

The bullish crowd talks about the strength of earnings and their relationship with the stock market. The graphs they show are compelling -- earnings rise and stocks rise. Then they go on and say earnings are bound to rise. Outcome: the market will rise.

There is only one big problem with their logic. They always show the section of the chart when earnings and stocks go up together.

They do not show the periods when earnings rose and the market declined or when earnings declined and the market rose.

How can you trust a relationship that is correct some of the times?

More on www.peterdag.com.

George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Extreme views are seldom correct

There have been several prominent economists who expressed extreme views for the economy. They told us to expect zero growth in the fourth quarter and an economic collapse to begin in early 2007.

The outcome should be a meltdown in our financial system with stocks sagging 20-30%.

They might be right. Eventually. Maybe. It is a fact, however, that their dire scenario did not materialize. Investors who followed their advice would have missed a great move in stocks in the past 6 months.

I like to follow some indicators that in the past have had a good batting average in keeping me out of trouble.

The trend in short-term interest rates can be assessed daily. The same can be said for bond yields and commodities. Their level and trend represent the market view of what is happening and is likely to happen.

And right now they seem to depict a fairly stable environment. If their message changes, I will gradually change my investment strategy.

Excessive views are seldom correct. If they happen to be correct, the markets have a way of warning you.

More on www.peterdag.com.


George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977

Seasonality of bond yields ... revisited

Yields (bond prices decline) in the first half of the year and decline (bond prices rise) in the second half of the year. Exactly like stock prices. Sometimes even commodities follow this pattern.

2006 was no exception. It looks like 2007 is also following the seasonality of the past.

This is no time to be in bonds. We should wait until May-June.

More on www.peterdag.com.

Best.

George Dagnino, PhD
aka Peter Dag