The Dollar is sagging as the Euro (FXE) reaches new highs (see above chart; click on the graph to enlarge).
Strong commodities, soaring money supply, rising gold prices, and inflationary pressures are all pointing to one main issue.
Fed's monetary policy is too easy. Are the markets saying the Fed should raise short-term interest rates?
A weak currency is bad news for the US because it gives too much competitive advantage to our competitors.
Furthermore, it is a bearish sign for stocks and bonds.
More on http://www.peterdag.com/
George Dagnino, PhD
Editor, The Peter Dag Portfolio on http://www.peterdag.com/
Since 1977
9 comments:
I've been tracking changes in M1 and M2 compared to the same month the of the prior year. I've been doing this ever since I've read your excellent book. The change has been below 4% for more than a year. Doesn't this mean that liquidity is slowing which would reduce the supply of money for the stock market. Thus we should eventually get a market correction? This is why I'm in bonds and cash now. I have only a small amount a money in stocks. Is this the correct strategy?
Stephen,
It will be interesting to see if you get an answer to your question here, others have asked, the suggested answer is subscribe to the advisory service.
IMHO now is the time to be in stocks, emphasis on International funds. Global growth is strong, and not likely to slow. For US markets, there is a ton in cash on the sidelines, and many positives near term including cycles (up likely into mid-late June), sentiment (Put buyers still plentiful), and FED flooding with liquidity in an attempt to normalize the yield curve. IMHO the kind of environment where P/E ratios more likely to expand, meaning higher prices ahead. A weaker US Dollar (long term down trend in place) is supportive to investments in overseas stocks.
There are plenty of negatives, ...reduced earnings expectations, the sub-prime woes, potential recesssion, etc. etc. as widely touted in the media, and mostly factored into the market IMHO. Watch what is going on around the world, especially Europe, Asia and emerging markets like Latin America.
If we advance from here into late June, I would be wary of stocks after July into the mid-October time frame. This is based on other analysis (Bradley turn dates, cycles, seasonality, etc.)
These are just my thoughts.
Also, for anyone interested in another qualified perspective on money supply, bond quality spreads, technical indicators, likely market direction, etc., I have found Deb Weir's blog to be very worthwhile:
http://timingthemarket.blogspot.com/
jim-
Thank you for expounding upon your thinking. As you can readily see, I took offense to your tone to me, which I felt condescending. However, I see from your post that you are a "sharer" and probably only meant to be helpful.
I am long international stocks here, some emerging, some PMs. I don't like this action one bit. I consider it reckless BUT I'LL TRADE IT. I fear that a lot of buy and hold investors will get burned by the coming shakeout.
But I consider your post and argument to be well-constructed and wanted to explain myself.
Cheers.
Mark
Jim and Mark,
Thanks for your comments. I think Peter answered my question with his April 2007 presentation on www.peterdag.com. At least as best as anyone can. I say this because it's very difficult to make predictions.
I'm also in commodities via some long only mutual funds which I forgot to list in my post.
I don't know how to measure global growth except that the EFA is going up. The global averages look very extended.
I do not know how to measure cash on the sidelines.
I see the put buying is still high as reported in Investors Daily.
I don't know how M3 can be measured. I use M1 and M2 which is reported by the Federal Reserve. I do have the M3 data until they stopped reporting it. The M1 and M2 are usefull in themselves. I know that some web site reports M3. I don't know how they know.
M1 and M2 go up each month because the population goes up. It's the year over year comparison of the non-seasonally adgusted is what matters.
The dollar is trading near a long term lows. Look for a rally. I know that Bill Gates is short but that's what I see in the chart.
If the dollar continues to decline it will probably be good for stocks. I also note that short term rates have stabalized. Good for stocks according to Peter Dag and Gerald Appel who wrote the book, Power investing for active traders.
I don't understand the Peter Dag comment in the about the seasonality of bonds vs stocks. The saying "Sell in may and go away until after labor day" is supported by looking at the long term charts. The 2006 peak was May 10th in 2006. The yearly rally has been starting earlier. August in 2006.
All this being said. The market still seems to be going up.
Steve
Thanks for the market timing blog.
Steve
MarkM, Thanks for the note,…Best Regards, Jim P.
NYSE Cumm. A/D good leading indicator:
http://www.technicalwatch.com/cum07/cum041307.htm
My favorite economist, James Paulsen, Wells Fargo,
Click on March 2007 PDF file at:
https://www.wellsfargo.com/com/research/investments/
This perhaps the most timely (video) discussion of what
we experienced at the recent March lows, very worthwhile:
http://www.sentimentrader.com/subscriber/chart_in_focus/videos/volume_thrust/volume_thrust.html
A nice, concise weekly letter, free to anyone who signs up:
http://themarketmessenger.com/Purely_Technical_20070325.pdf
Uggh. I see the links did not paste correctly in the above note. If anyone wants them, drop me an email at
pilliod6182yahoo.com
and I will send them to you.
Jim P.
should be pilliod618@yahoo.com
Post a Comment