Why?
Let's look at two previous episodes: 1978- 1982 and 1986-1990 (click on the chart to enlarge).
They show that when housing has a cyclical downswing, the decline lasts about four years.
The current housing contraction began in 2006. History tells us that the housing sector will have problems until 2009-2010.
This trend will have major implications for the economy and financial markets.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Don't be!
Why?
Because as soon as our leaders smell bad economic times ahead, they open the spigot and pour a lot of money in the markets.
Outcome?
Lower interest rates and rising stock prices.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Answer. Do not forget that the markets always win. You should not make decisions based on what the Fed will do.
Interest rates are collapsing right now. The rate on 13-week T. bills sagged below 3% (from a high close to 5%)!!!
The 10-year T. bond yields are also sinking from 5.2% to 4.62% as of this writing.
My point is that the markets respond promptly to emerging trends. Bureaucrats are always and consistently behind the curve.
My advice: follow the markets!
As far as the dollar is concerned I have been quite correct. For a completee discussion please read my The Peter Dag Portfolio.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
The market volatility index (click on graph to enlarge) will have to go above 35 for the market to hit an important bottom.
As you can see in the above chart, the 35 level is crucial. Major bottoms have taken place when the index rose above this level.
In times like this one it pays to be patient.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Re "catching falling knives", is it your experience that one waits for the trend to turn, ie don't try to catch bottoms?
Answer: YES! I like to wait for my indicators to tell me that the market is likely to move higher.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
The market is headed for 12,500 and maybe 12,000 after breaking the neckline of a head and shoulders top. I would like to read opposing opinions.
My view is that you do not try to set levels in your mind that can be broken. In other words, do not try to catch a falling knife. My point is one should focus on trends, not levels.
Another thought. It is important to have a buying strategy. Investors sometime forget to have a selling or hedging strategy. It is just as important to protect your capital.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
According to my findings discussed below in great detail more than once, the decline in the stock market is anticipating much lower bond yields and higher bond prices.
Only then will the market attempt to find a bottom.
The markets are going to ease aggressively. The Fed has little relevance at this point.
We have these problems because the Maestro tried to find the solution to the 2000 market debacle. Let's hope they do not interfere with the markets. The distortions they create are painful, as we are experiencing.
The markets always do what they have done in the past. Lower stock prices are followed by lower interest rates. It is happening.
Treasury bills are plunging. They will be followed by lower bond yields.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
What to do?
Why are we afraid to sell?
The markets are always right. T. bills are sinking precipitously. The markets are easing in spite of the Fed.
Protect your capital. This is rule number one in a down market. You can always buy later.
And above all, follow the indicators shown below. Strategy and timing are the key ingredients for financial survival.
By the way, concerned about your money market account?You may want to look at SHY. Talk about it with your financial advisor.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
I like to follow my proprietary indicator. It signalled a top in May.
And now? It will become bullish when it starts rising.
Meanwhile, what can you do to minimize the pain? Raise some cash , slowly! I have been recommending this strategy to my readers for some time. You can always buy back the stocks you like once the situation has normalized.
Did you notice how well have bonds performed? See blogs below for the reason for this strength.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Question. Did the Fed not cut rates and inject liquidity all the way down from 2000-2002? Why do you believe this to be fail proof?
Answer. Lower short-term interest rates and increased liquidity never failed to support the financial markets. The issue is what kind of problems it will create if the Fed eases too aggressively as Greenspan did after the 2000 market peak.
The 2000-2002 easing is the main cause for the commodity boom and the collapse of the dollar.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Trendlines are a simple tool, but at times like the current one could help us gain some perspective.
The above chart (click to enlarge) shows that the QQQQ broke the trendline on the downside after four months of trading above it. The correction should last about the same time.
When do you become positive?
The QQQQ is now trading below a down trending trendline. Watch for QQQQ breaking on the upside this trendline. This is a good time to start becoming positive.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
I am glad I am following my indicators in managing money. This is the reaosn I like a flexible investment strategy.
Start selling when my indicators are saying the market is too high. Start buying when the market is oversold.
Long-term investment strategies are great...but cause a lot of pain during times of market volatility.
Did you notice the bond market is outperforming stocks? (see blogs below on this subject).
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Do not panic. Financial crises are great for stocks. These are the times when stocks bottom and rise sharply.
Why? Because central banks panic and inject huge amounts of liquidity in the banking system to cushion the economy from serious setbacks. And protect the lenders.
This is what is happening exactly at this point in time. The European Central Bank is putting Euros 130 billion in the economy to protect banks in crisis such as BNP. The Fed is also active. The Treasury is lending some of the huge cash receipts to primary Treasury bond brokers.
The global financial authorities are doing what they are supposed to be doing during crises. Flooding the markets with liquidity.
And yes, you guess it right. Liquidity is the lifeline of the stock market.
Be patient, a powerful move on the upside is just around the corner.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Short-term interest rates will have to move higher.
Why? Short-term interest rates are too low. As in 2002-2004 when commodities were booming and the Fed lowered them to 1%.
Commodities and commodity sensitive stocks are soaring and the dollar is sinking. This is the classic picture associated with low interest rates.
I hope to be wrong. So far I have been right. I am deeply worried about the weakness of the dollar (and the strength of commodities).
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
If you followed my discussion on the relationship between bond yields and stock prices in previous numerous blogs you would understand what is happening.
Stocks are declining and bond prices are rising. Exactly as I suggested in my analysis.
Investing is not about returns. It is about the probability you have to make money. And investing in bonds has been a high probability play in the past two months.
As long as stocks keep heading lower, bonds will be OK. Bonds will keep rising even after a substantial rise in stocks. See charts below on this site.
Stay tuned.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Answer: No.
The economy is robust enough to place upward pressure on prices. The CPI was up a strong 5.2% in the past three months at annual rate.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Accredited Home Lenders Holding Co., a subprime mortgage lender that agreed in June to be acquired, said its survival is in doubt and that bankruptcy is possible, sending its shares down as much as 52.5 percent.
Accredited Home (down $2.93 to $5.28) shares plunged 38 percent in early afternoon trading on the Nasdaq, after earlier falling to $3.90. They traded as high as $47.82 last Aug. 4, according to Reuters.
The decline raised speculation that Accredited might need to renegotiate its June 4 agreement to be acquired by private equity firm Lone Star. That transaction valued Accredited at $400 million, equal to $15.10 per share.
The crisis continues. Will the market ignore these problems? Is there enough liquidity in the system to cushion the credit problems becoming increasingly more visible?
A few astute observers maintain we are at the peak of the credit cycle, as the S&L-based real estate boom and bust in the late 1980s and the tech bubble and bust in the late 1990? The high yield bond market, meanwhile, is tanking because of the selling pressure.
Beware of the Ides of August.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
