The European social system is cracking

Transport throughout Italy is paralysed today by a one-day strike affecting tens of thousands of people. Unions called the stoppage to protest over budget cutbacks in the public sector. "In principle I agree with them. But it's a shame that ordinary citizens, who have no share in the blame for this, have to suffer the consequences," said one traveller.

Rail and local public transport nationwide has ground to a halt. One rail worker said he felt let down by the trade unions: "Today's strike is all for show, it won't change anything."

The bottom line? As in France, when governments become too large and invasive, the system does not work. Stalls. Changes need to be made. But people do not want to give up the acquired rights.

They are finding our that there is no free lunch.

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

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

As I said before..the Fed is irrelevant

What is happening now proves my point.

The Fed signalled that is going to ease further. This is no news for my readers and followers of business cycle trends.

The rate on 13-week Treasury bills has been sagging for weeks.

The Fed follows the markets as it tries to maintain liquidity of the member banks.

Keep an eye on the dollar. This is the important trend. It is strengthening and it shows foreign capital is moving in to buy financial assets.

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

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

Interesting developments....

The dollar is strengthening.

Gold is weak.

Crude oil is weak.

Copper, aluminum, and natural gas have not been going anywhere for some time.

Interest rates are declining.

The Fed is way behind the curve with the rate on T. bills close to 3% and the fed fund rate at 4.5%.

These are interesting trends that spell solid profits ahead.

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

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

The real reason for the dollar debacle

A currency reflects the inflation or productivity differential between two countries.

The country with the lowest inflation and highest productivity has the strongest currency.

Inflation is soaring in the US. Inflation (at the consumer level) of medical care, transportation, and food ranges in the 4.4%-5.8% range. If you do not drive or eat, inflation is 2.2%.

Prices at the producer level (finished goods) are up torrid 6.1%. Prices of intermediate goods soared 5.6% in the past 12 months, and prices of raw materials leaped 25.7% in the same period.

The politicians keep promising and we keep asking. But prices are bound to rise if we do not produce efficiently the goods we want.

The dollar has been sinking because our priorities are absolutely wrong!

Hello! Is anyone listening!

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

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

A currency is an asset...This is why

Merrill Lynch & Co. predicts either the United Arab Emirates or Qatar will cut their dollar peg within half a year. Standard Chartered Plc says the six Gulf Cooperation Council nations need to raise the value of their currencies 20 percent. The difference between the price of the Saudi Arabian riyal and the cost of buying it in a year using forward contracts has widened 10-fold since October as traders bet the kingdom will sever its 21-year-old link to the dollar, according to data compiled by Bloomberg.

A currency is an important asset for any country. The Arabs understand this idea very well.

The reason they want to cut their dollar peg is that their currency will appreciate and they will be able to invest their enormous surplus by buying foreign assets at a discount.

Why not! Hello Mr. Bush, Mr. Paulson, Mr. Bernanke...are you listening?

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

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

Bad news for the dollar

Omar Bin Sulaiman, governor of the Dubai International Financial Centre, talked with Bloomberg's Will McSheehy in Dubai about the possibility that the United Arab Emirates and other countries in the Gulf region will revalue their currencies against the dollar.

Gulf states are under pressure to end their currency pegs to the dollar after the U.S. currency fell 10 percent against the euro in 2007. Inflation in the region is accelerating at the fastest pace in at least five years as the weak dollar drives up import costs. (Source: Bloomberg)

It looks like international investors are avoiding the dollar and are pleased with their strong currency status.

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

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

Oops!

Suddenly things do not look rosy.

U.S. industrial production was down 0.5%, the Fed said. Production was weak across the board in October. One of the only bright spots was civilian aircraft. The output of consumer goods fell 0.7% in October, led by the index for consumer durable goods. Output of automotive products, home electronics, appliances, furniture and carpeting all declined last month.

Implication No. 1. The Fed is way behind the curve as discussed in a previous blog.

Implication No. 2. If the US slows down, the world will also slow down (see previous blog).

Implication No. 3. If the global economy slows down, prices of hard assets become vulnerable.

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

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

This is the real problem

Forget about the strong growth in Asia.

If the US and Europe slow down (their leading indicators point to weakness ahead), what is China going to do? Where are they going to send their exports? Who is going to buy them?

Certainly not the Chinese population, which is earning close to $5,000/year.

So, how can Asia become the growth engine supporting the global economy from a painful readjustment?

Bottom line. If the US slows down, the global economy will be in trouble.

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

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

The Fed is falling behind the curve

The rate on 13-week Treasury bills has fallen to 3.27%. The Fed funds rate stands at 4.75%.

The two rates have always moved close together. They diverge in times of crisis as in 1998 and now. Reason: the Fed is slow in recognizing and understanding the problems.

This time is no exception. Implications? The Fed will be forced to a implement a major reflationary program and much lower short-term interest rates.

This is good news for the financial markets.

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

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

The dollar and the next recession

I enjoy Dr. Robert Reich's blog. He is a solid thinker with a lot of common sense. He is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley (blog: http://robertreich.blogspot.com). These are some of his latest notes. I take them seriously in light of the protracted and ominous decline of the dollar.

....the era of easy money is over. The housing bubble is bursting, and home equity is drying up. Credit card debt is next. Personal bankruptcies rose 48 percent in first half of 2007, likely even more in the second half – which means a wave of credit-card defaults. If you think the trillion dollars in sub-prime mortgage debt carried by big banks is large, think of the record nine hundred fifteen billion dollars Americans hold in credit-card debt.

The splurge is over, folks. As the days of easy money come to an end, what will America look like? Maybe we’ll see a recession in the short term, but more importantly over the long term: the American middle class will have a truer understanding of what it can and cannot afford; a truer sense of what’s really happened to its paychecks; and a more realistic view of where and to whom the economic gains of the last dozen years have actually gone.

I firmly, wholeheartedly believe that the decline of the dollar since 2003 is not a coincidence. The message of the international investment community is that opportunities will be found somewhere else.

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

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

A recession?

This is a summary of the reasons expressed by economists and the press.

1. Economist do not expect a recession. They are typically wrong. So, do not listen to them.

2. The economy seems to be stalling in the fourth quarter. Consumer confidence is slumping and unemployment claims jumped.

3. The housing market is imploding. I predicted it will remain weak until 2009-2010. Prices will continue to erode, inflicting serious damage to consumers' willingness to spend.

4. Credit conditions are and will remain tight because of the subprime/derivatives/Greenspan fiasco.

5. The increase in oil prices further dents the spending power of consumers. The big ticket items such as autos are the first victims of this retrenchment.

6. Weak productivity growth cannot absorb rising wages. The outcome is higher unit labor costs and downward pressure on profits.

7. The weak dollar and lower profits will hinder business investment in the US and overseas.

8. There seem almost uniform consensus of the waning power of the US in the global.

What to do from an investment viewpoint? I always believed that one of the best approaches is to listen very carefully to the message of the markets.

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

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

France and the survival of democracy

(Bloomberg) -- French President Nicolas Sarkozy may be gaining the upper hand in his confrontation with striking transit workers -- a fight he can ill afford to lose.

More employees reported to work on the walkout's third day today and train and bus service increased, though the strike over Sarkozy's proposal to rein in pension benefits may stretch into next week. The president is staking much of his economic agenda on the battle, which he says is essential to his plans for increasing France's competitiveness.

Sarkozy is trying to save France from socialism. Once democracy evolves into socialism it is difficult to go back because citizens do not want to give up their accrued rights.

We want more and more. The politicians give us more and more. And we lose our freedoms as socialism displaces democracy.

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

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

The economy is slowing down

(Bloomberg) -- FedEx Corp., the No. 2 U.S. package- shipping company, cut its profit forecast for a second time because of rising fuel costs and weak freight demand. The shares fell the most in 16 months.

FedEx and other transportation companies are among the first affected by economic slowdowns or expansions, making them leading indicators. The National Retail Federation anticipates the smallest holiday-sales increase in five years.

Bad news for the economy. The economic slowdown is becoming a reality. This is very important to know when you select your investment strategy.

The stock sectors strong in an economic slowdown are much different from the sectors you should invest in a period of economic strength.

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

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

The dollar is the fever chart of our country

(Bloomberg). Paulson, like his four predecessors, has stuck with former Treasury chief Robert E. Rubin's phrase that a ``strong'' dollar is in the U.S. interest. Officials repeated the phrase whether the dollar was rising or falling. Now, Paulson is under pressure from European policy makers to more forcefully defend the currency after it fell to a record low last week.

That strategy may meet with limited success because the Federal Reserve is cutting interest rates, while banks in Europe and Asia are either tightening or keeping them unchanged. Moreover, words may carry little weight in a market that's swollen to $3.2 trillion a day.

Interest rates differentials do not drive currencies. A weak currency is not inflationary.

It is exactly the opposite. Rising inflation forces interest rates to move higher and is conducive to a weak currency.

Cut taxes and regulations and stop our wars and the dollar will strengthen. It is the only way to be accepted again by the international community.

The trend of a currency is the ultimate fever chart of a country.

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

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

The dollar is an asset

Nov. 14 (Bloomberg) -- ``It may be our currency, but it's your problem'' was Treasury Secretary John Connally's taunt when the U.S. unhooked the dollar from the gold standard in 1971, unilaterally rewriting the rules of world business in America's favor.

Now the world is taunting back. Almost four decades after the U.S. tore up the monetary arrangements that governed the post-World War II international economy, the dollar's fall from grace amounts to a tectonic shift in the global hierarchy. This time, the U.S. currency is on the losing side.

Amen! When will we start thinking that a currency is a crucial asset? Business will find much more expensive investing oversea thus hindering even further our competitive advantage.

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

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

The forecasts of the Fed

Bernanke said yesterday that Fed officials will add a third year to their forecasts and double the frequency to once a quarter. The reports will give investors and companies more details on why interest rates were adjusted and offer a map for where they are likely to go.

Why do investors watch the Fed? The rate on 13-week Treasury bills is a superb leading indicator of where the interest rate set by the Fed is going.

The Fed will become less relevant by saying what other forecasters are saying so that investors will ignore it.

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

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

Recession?

Question: In your opinion, is this the reason for the dramatic fall of stock prices recently and do you agree that we are in or will have a recession?

The market is has not done much since February. So far the market is predicting a slowdown.

Recessions or slowdowns have the same effect on the markets. In either case commodities, interest rates, and inflation decline. These trends drive the sectors outperforming the market.

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

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

The Fed lacks leadership

Nov. 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke failed to convince investors that there's no need for further interest-rate cuts soon.

Bernanke told lawmakers in Washington yesterday that officials already expect the economy to ``slow noticeably'' this quarter, and warned of ``upside risks'' to inflation.

I agree. Mr. Bernanke failed to show leadership. He should have told Congress the Fed was in control and everything will be done to keep the unwinding of risk from getting out of control.

He hedged his statements giving the impression of being insecure. And the market sagged. Including the dollar.

Hopefully he learned the lesson.

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

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

Does the collapse of the dollar, the credit bubble, soaring gold and crude oil signal the beginning of the end of America's supremacy?

What if. I am constantly thinking about it.

The weakness of the dollar is the outcome of a situation.

It is not the consequences of a weak dollar that matters. Am I making myself clear?

The weakness of the dollar since 2004 is a strong message that we are becoming a socialist country. We are gradually losing our edge as a free market country.

The real free market economy is China, as Jimmy Rogers pointed out.

What should your investment strategy be?

Or ...how should you hedge your portfolio?

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

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

Interesting statistics about the BRICs

Nov. 5 (Bloomberg) -- For all the concern about stock-market bubbles in Brazil, Russia, India, China, the biggest emerging markets still may have more promise than anything in the developed world.

The simple math of comparing the value of companies with their countries' combined gross domestic product shows the so- called BRIC markets total $1.71 trillion, or 25 percent of their GDP. U.S. equities available for trading, by contrast, are worth $13.98 trillion, or about the same as comparable GDP, according to data compiled by Morgan Stanley and Bloomberg. Stocks in all industrialized nations account for 81 percent of GDP.

That helps explain why the BRICs are ``in the early stages of the rally,'' said Jeffrey Kleintop, who helps oversee $163 billion as chief market strategist at LPL Financial Services in Boston and is adding to his ``overweight'' in developing-nation stocks by selling shares in industrialized countries. ``You're seeing a lot of areas run up, but it's not gotten to the point where it is representative of the overall economy.''

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

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

....and China keeps moving ....

As we become increasingly tied in our Middle East venture, China keeps expanding in Africa. It looks to me that they keep their eyes on the ball. The outcome is that their currency is strong and our is weak.

A strong currency provides a formidable strategic advantage when a country wants to expand its business worldwide.

CAIRO, Nov. 5 (Xinhua) -- Chief of a Chinese car maker announced here on Monday that one more brand model of his company came into the Egyptian market for the first time as an important step forward for the company's international marketing strategy.

Liu Zhigang, President of China's Shenyang Brilliance Jinbei Automobile Co. Ltd, made the announcement at a press conference held Monday in the Egyptian capital of Cairo, saying his company has made great efforts on enlarging international market.

Following several models' well selling in Egypt during past years, the introduction of Brilliance Splendor into the Arab country is another major step for the Chinese car company to advance its marketing strategy in the Middle East and Africa, said Liu.

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

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

I am just wondering....

Years ago we were concerned about the derivative bubble.

Policy makers told us not to worry. They add liquidity to the markets.

Well, I am just wondering if we are witnessing the unwinding of the derivative bubble.

Nothing to do with the subprime. Much more serious. Time will tell.

I still believe this is good news for the markets. Gold and commodities in particular.

Why?

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

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

The Fed is acting

The US Federal Reserve was forced to pump $41 billion into the financial system, the largest cash infusion since the September 2001 terrorist attacks, as fears of a fresh round of massive banking writedowns added to concerns on Wall Street and in London.

Economists said that a clear signal from the Fed that its quarter-point rate cut on Wednesday may be the last for some months added to investors’ fears that the central bank’s scope to fend off a severe US slowdown may be hampered by its nagging worries over inflation dangers.

The Fed is acting to protect the financial institutions before the mess we are in gets us more into trouble. And will continue to do so in the future. This is their responsibility. To keep the financial institutions out of trouble. At all costs for the sake of the overall economic and financial system.

The good news for the markets continues as liquidity is pumped into the system. The dollar and inflation, however, will become the next policy issue. For the time being, however, the viability of the financial system of the USA remains the top priority of the government.

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

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

Crises and markets

Henry Paulson, the US Treasury Secretary, is seeking to persuade the White House to offer financial compensation to American mortgage lenders that try to help troubled homeowners by renegotiating the terms of their loans.

The Times has learnt that Mr Paulson is lobbying President Bush to provide funds so that mortgage lenders can reduce the loss that they would incur from either reducing the rate of an adjustable home loan or extending the life of the mortgage to make it cheaper for the property owner.

It is understood that Mr Paulson’s proposals are meeting significant resistance within Washington, where it is perceived that such a move would be a bank bail-out scheme.

It is going to happen. I always believed it (see previous blogs). The government will bail out the financial institutions and some borrowers. That we like it or not.

The subprime/housing/derivative fiasco is a problem that will stay with us for several years, as the S&L collapse of the late 1980s.

Markets will enjoy this extra shot of liquidity. Now as then.

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

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

A bearish forecast

Goldman Sachs, Wall Street’s most bullish investment bank on oil, on Tuesday turned negative on the short-term outlook for crude, recommending investors take profits after prices jumped to a record above $90 a barrel.

West Texas Intermediate crude oil fell $2.73 to $90.80 a barrel in early trading in the US, partly in response to the warning from the investment bank, which has been influential on the oil market with upbeat price forecasts, including one in 2005 of a “super spike” in crude to $105 a barrel.

Jeffery Currie, head of commodities research at Goldman Sachs, said oil price “downside risks” were gaining momentum and he forecast a decline towards $80 a barrel in the first quarter of 2008.

This forecast, if correct, will coincide with my view of a possible broad market correction in the first quarter of 2008. Time will be tell.

Stay tuned.

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

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