Peter Dag & Friends: 2009

12/31/09

Happy New Year!!! ....

... and thank you for following my ideas and comments.

It was a good year for me. I finished Top Market Timer for the year.

It means a lot to me because the market may be trading in a broad range in the next 1-2 years. For this reason I have been focusing in "honing" my technical indicators and improving their reliability. It looks like I am getting there.

2010 will be a challenging year and investors will need to be focused.

Again, thank you for following my blog and I am looking forward to seeing you as one of our regular subscribers to The Peter Dag Portfolio. I should add that as a subscriber you can call me any time at the 800 phone number.

Have a wonderful and prosperous 2010!!!!

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

To find out more about my in depth views of the markets and my strategy just visit our website https://www.peterdag.com/ where you can review The Peter Dag Portfolio. You can also call me at 1-800-833-2782 to discuss your specific money management needs.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

Disclaimer. No material here constitutes "investment advice" nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

12/30/09

The markets always win

News. Dec. 30 (Bloomberg) -- Montclair, New Jersey, where the median family income is almost twice the U.S. average, may have to shut one of its two libraries. The Newark suburb of Irvington is considering firing police officers.

The towns are bracing for the impact of state aid cuts, after Governor-elect Christopher Christie said he may slash spending by as much as 25 percent next year amid declining tax revenue

My point. Governments give away services of all types. They are very generous with our money. There is a point, however, when money runs out because it was not invested to make more money.

Governments transfer wealth from us to the bond holders. Eventually they are sucking from us all the money they can -- until there is no other alternative. The pendulum has to swing the other way. And services have to be taken out, cancelled, cut.

Yes, the markets always win. Governments can distribute income up to a point. If the services do not produce wealth (or do not help to produce wealth), they have to be terminated. Which ones? The fat, useless fat.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

12/27/09

Time to relax...

I love this performance of the Fandango. It is energetic and passionate. Bravo!

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

12/25/09

An interesting Q&A to ponder

SPIEGEL: As chairman of the Economic Recovery Advisory Board, you advise President Barack Obama on how to prevent such a recurrence. Is he following your guidance?

Volcker: We have various working groups that work on and make recommendations on particular problems like retirement programs and social security. We made some recommendations on financial reforms, which were not accepted, but that is part of the game. The president is more eloquent than I can be on these issues. Getting it done as compared to talking about it is a problem, but we have some suggestions along that line.

My point. An interesting answer about this administration from a wise and loyal public servant. The complete interview can be read by clicking here.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

The importance of having a strong currency

News. The Dearborn, Mich., automaker said Wednesday that it expects to finalize the sale of Volvo to China's Geely Group early next year if financing and government approvals fall into place.

My point. A country with a strong currency will find it easy and profitable to buy assets of weak currency countries.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

12/24/09

Off-the-cuff

Any investment approach you follow is valid.

Let me explain. When you recognize you made a mistake, make a serious effort to find out why and how you made a mistake. And above all, do not forget it!

When you make a successful investment, ask yourself what you have done right. And above all, do not forget it!

Finally. Maintain your focus on your investment approach. Never tire to search how you can improve it by reviewing what you did right and what you did wrong in the past.

Merry Christmas!

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

What worries me?

The latest reports show too many bullish investors.

This is the first important sign the market may be close to a period of consolidation.

This is just one measure of markets excess. But I do not like to rely on just one indicator. My long-term market forecasts use information about employment growth, financial risk, short-term interest rates, corporate bond yields, corporate profits, and growth in monetary aggregates. All this measures are closely related to the business cycle.

To predict the near term market outlook, I use the 4-month cycle and many technical indicators monitoring the progress of the market.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

12/22/09

A bullish trend

A very bullish trend.

The Nasdaq composite index is soaring (click on the graph to enlarge it). The index moved decisively above 2200, an important resistance level.

The long-term channel is heading higher. The short-term trendline is also rising. This is definitely a bullish configuration for the Nasdaq index.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

12/21/09

Double dip?

Nobel Prize winner Joseph Stiglitz sees a significant chance the U.S. economy will contract again in the second half of 2010, and urged the government to prepare a second stimulus package:

"The likelihood of this slowdown is very, very high. There is a significant chance that the number will be in the negative range," said Stiglitz, a professor at Columbia University.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

Useful statistics

The S&P has increased an average of 1.5 percent during the seven trading days that start with Christmas Eve and end with the first two days in January since 1950. That's the widely recognized period for the Santa Claus rally, as first identified in 1972 by Stock Trader's Almanac founder Yale Hirsch.

Stocks went up in 12 of the last 15 of those year-end periods.

Think positive.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

They keep repeating the same mistake

News. One of the biggest challenges to ending the foreclosure crisis is this: A surprising number of homeowners who get their monthly payments reduced fall behind again within a year.

But nearly 40 percent of homeowners who had their monthly payments cut by 20 percent or more last year were delinquent again within a year, according to a report Monday from the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

Comment. If one does not have the money there is little he/she can do to repay his/her debt. The good news is that the markets always win. This is the safest assumption investors should use when planning their investments.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

12/19/09

This is another example....

News (USA Today). Out of the depths of housing's worst downturn, smaller new homes are turning into a bright spot for some home builders.

The trend toward more compact new homes is being driven partly by the fact that more customers are first-time buyers who have less to spend.

My point. I have discussed this point many times. A weak dollar and soaring deficits point to our loss of purchasing power.

Translation. We cannot afford the things we used to enjoy. Homes are getting smaller. Cars are becoming more fuel efficient and smaller. Prices are rising beyond our reach.

This is the problem with great social programs. We have to pay more for them. Our income declines and we can afford fewer things. Our money goes to the government to pay the interest on the bonds the government has to float to implement the grandiose social ideas.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

Observations

It is interesting to talk to my friends on Sunday morning. We explore the problems of the world. We know it is a way to keep us challenged. Nothing will change. But we have fun doing it.

Nothing matters, the Taoists believe. There are two ways to read this sentence. One way of interpreting it is that whatever you do is inconsequential. What really matters is now. In Zen meditation, you can use this sentence and make it a koan, a riddle. Another koan? What is the sound of one hand clapping?

On Sunday, we bombard each other with jokes, medical, financial, economic, and political issues. Anything goes. SNS, for instance, is a firm believer fashion captures the mood of the people.

Why are hemlines rising? A recent article on the subject shows that when the economy crashes, hemlines fall and hide the knees. This is a sign our mood becomes more somber and fashion adapts by covering more of our body.

In a strong economy, however, people feel better, and hemlines rise, clothes becomes tighter and skimpier. And when people are euphoric the stock market peaks -- in the best of times. Stocks are anticipating a slower economy and weaker profits. This could be a reason why high hemlines are typically found at market tops.

I have another interpretation, based on economics, not on behavior. When the economy is strong, commodity prices, interest rates, and overall costs rise. Fashion designers concoct a skimpier fashion to minimize costs. Prices rise with rising commodities as they try to defend profitability. This is how they maintain their margins. This is also the time when the market peaks as commodities, inflation and interest rates rise in a strong economic environment. Classic bear market signals.

As the economy weakens, costs and raw materials decline. Designers entice us with more complex fashion and hemlines fall. And it is in the worst of times that the market bottoms.

What is the impact of sunspots on all this? I am working on it because they influence the economy. Do they?

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

12/18/09

This is a positive trend

Good news. The transportation average broke on the upside an important resistance level (click on the chart to enlarge it).

Strong transportation stocks point to a robust economy. And this is good news for profits and stocks.

Note the volume pattern. Strong volume appears at tops and bottoms. Right now volume has no clear pattern. It may mean we will continue to see the continuation of the trend. Time will tell, of course.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

This is a problem

I do not like the fact that the bank index is going nowhere. Banks should be making a lot of money with short-term interest rates close to 0%.

Their stocks, however, remain in a dreadful downtrend (click on the chart to enlarge it).

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

12/6/09

Time to charge my batteries

It is time to take a few days off. Time to charge my batteries in a totally different place. I will continue to follow the markets, of course. This is my passion.

This is a good seasonal period for the markets. The first quarter, however, is typically a nasty one for stocks.

Time will tell, of course.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

12/5/09

The nonsensical attraction of gold

The chart shows the gains of the ETF GLD (gold) since March -- the market bottom (click on the chart to enlarge it).

The ETF for global financial stocks, REITs, and metals have outperformed GLD by a huge margin.

My point. Do not get too emotional about gold. You should treat gold as another commodity.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

12/4/09

An interesting pattern

The S&P 500 is struggling around 1100 (click on the chart to enlarge it). An interesting pattern caught my attention.

The S&P 500 is hitting 1100 and volume is increasing. Pressure is building up under the 1100 level. The possible outcome is that the market will explode on the upside.

Something to watch closely.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

Employment and the economy

Employment was almost unchanged. The unemployment rate declined to 10.0% from 10.2%.

Employment will continue to rise if industrial production improves in the coming months (click on the chart to enlarge it). Note: the change in industrial production leads the change in employment.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

12/3/09

Encouraging news!

News. The Obama administration's No. 1 job right now is to rev up economic growth and get companies to start creating jobs again, Treasury Secretary Timothy Geithner said Thursday.

My comment. Didn't they know that this was the real problem? Why did we spend so much time and energy and money on health care and all other programs? Why not focusing from the start (11 months ago) on creating jobs since we knew from the beginning we were in deep economic trouble? I am really confused!

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

The reappointment of Bernanke

If they were so smart, why are we in a mess and we go from crisis to crisis?

If they are so smart, how come the market is not voting for them? Instead stocks are sitting at the same levels as 11 years ago (click on the chart to enlarge it)!

I get the feeling they are under pressure to do something because the country is beginning to feel disappointed (click here),

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

12/2/09

Good news

Good news. The bank index is strengthening (click on the graph to enlarge it). This is an important development for the market, as I have mentioned several times.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

12/1/09

Just one of our indicators

This is one of the many indicators we review for our subscribers of The Peter Dag Portfolio.

This gauge turned bearish in summer 2007 and became bullish in March 2009 (click on the chart to enlarge it). It is still positive and will signal caution when it declines from current levels.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

Is it difficult to fix?

News. President Barack Obama's top economic adviser said on Monday that tackling high U.S. unemployment was vital but the problem would take time to fix.

Suggestion. What about giving business an incentive to hire?

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

Reminder

The trend is up until proven otherwise (click on the chart to enlarge it).

It is a simple idea I learned years ago. It kept me out of trouble many times.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

11/30/09

Observations

I was studying for my PhD in the 1960s. One day the Dean of Graduate Studies, at a welcoming session, added that we should worry only about studying. If we had concerns about money or anything else, we should go and see him. I really found America, I thought! I could not believe my ears. I went immediately to see him and asked for a raise in my research grant. And he gave it to me!

Many years have gone by since those naïve days full of hope and pleasant surprises. I changed with the country. Slowly but steadily, I learned to appreciate its grandeur, its many faceted aspects, its many ways to create wealth.

The toughest period for me were the 1970s. I was struggling like everybody else. War, inflation, soaring interest rates, discontent, young people going to Canada to avoid the draft, the Japanese opening production plants challenging mighty Detroit with their robots, the sorrowful decline of the dollar which mirrored exactly the inflation differential between the US and, say, Germany or Japan, the sharp back-to-back recessions.

People were telling me cars were rusting so quickly to keep the economy growing. Cars were so big when compared to the tiny European ones. I did not realize then how much of the purchasing power was created by leverage.

One of my first thoughts was that the banks owned consumers – or 70% of GDP. The sophistication of the credit markets and work ethics were the main reason for this availability of credit.

The pendulum never stands still. It swings slowly and steadily. Banks found new ways of lending and leveraging assets. Until everything cracked.

Now consumers are realizing debt is not a one-way street. Banks made similar miscalculations.

The pendulum is swinging back. We do not know when it will stop. But you can rest assured consumer spending is not going to be 70% of GDP in the future. Only a strong dollar will flag the return of the consumer and strong economic growth. It will signal we have learned to be competitive again as we were in the 1950s and 1960s.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

The problem of this Administration

Government expenditures are rising close to a 12% pace year on year.

Government receipts, because of the weak economic conditions, have been sagging at a 10% pace for some time (click on the chart to enlarge it).

How will we fill the gap? Increase taxes? Will the economy weaken even further if they increase taxes?

The dollar, meanwhile, reflecting this dilemma is sinking.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

11/29/09

A bullish update from UAE (see also previous post)

Nov. 29 (Bloomberg) -- The United Arab Emirates’ central bank said it “stands behind” the country’s local and foreign banks, which face losses from Dubai World’s possible default, and offered them access to more money under a new facility.

The central bank will make available to banks “a special additional liquidity facility linked to the current accounts” at the central bank that can be drawn upon at a cost of 50 basis points above the three-month Emirates inter-bank offered rate, the Abu Dhabi-based regulator said in an e-mailed statement today.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

A "contrarian" view

News. Abu Dhabi, wealthy capital of the United Arab Emirates, will "pick and choose" how to assist debt-laden neighbor Dubai, a senior official said Saturday, after fears of a Dubai default sent global markets reeling.

"We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts," the official of the Abu Dhabi government told Reuters.

As world markets absorbed the shock of Dubai's debt crisis, Sheik Mohammed bin Rashid Al-Maktoum, the ruler of the once-booming city-state left town for an important meeting in a desert palace. His hosts: the leaders of neighboring Abu Dhabi whose balance sheets are flush with oil revenue.

A "contrarian" view. If this one remains an isolated case, the amounts involved are minuscule when compared to last year problems. The markets will soon recognize they over-reacted and will rise again soon.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

11/25/09

The business cycle works

The business cycle works.

1...During the recession productivity increases as business cuts costs and becomes more efficient.
2...Labor costs adjusted for productivity improvements decline sharply.
3...Profits improve.
4...The Fed eases.
5...Bond prices rise.
6...The yield curve is steep.
7...The stock market rises.
8...Strong financial stocks.
9...The recession ends.

This is exactly what is happening now and it has always happened in phase 4 of the business cycle (click on the chart to enlarge it). Some trusted business cycle relationships repeat themselves because reflect human response to the changing economic environment.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

11/23/09

The China-USA currency debate

China is more competitive than the US. I know --cheap labor, imported technology,..... The fact is that they are amassing foreign exchange because the Chinese leadership is using local resources more efficiently.

China allowed the Yuan to rise by 23% against the Dollar in the 3 years to July 2008. Since then the Yuan was pegged to the dollar --- and it sagged with the Dollar.

Enter the other currencies. The Brazilian Real and the South Korean Won soared 42% and 36% respectively against the Yuan and the Dollar.

The outcome. It is true -- the weakness of the Yuan makes imports much more expensive for China. But they do not care because they have huge reserves to pay for imports.

The real strategic feat is that China is making uncompetitive the rest of the world. In other words, the world has to adjust to the Chinese standards, that Mr. Obama likes it or not.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

Volatility

I like to develop new indicators. The most recent one is about market volatility.

Incredible as it may sound this is what this indicator is saying.

1.... Volatility will remain low.
2.... Investors will continue buying risk assets until my indicator points to higher volatility.

Stay in touch.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 by Timer Digest

The making of another bubble

News. Stock futures were off to a strong start Monday morning as a weaker dollar helped lift the commodity markets.

As of 8 a.m. in New York, the Dow Jones Industrial Average futures were up 93 points, or 0.9%, to 10,396 while the S&P 500 futures rose 11.1 points to 1,101.20 and the Nasdaq 100 futures were up 16.50 points to 1780.

Gold, once again, struck a new all-time high in Monday trading as the weakness in the U.S. dollar pushed more traders into hard assets. The precious metal was up 1.65% to $1,165.70 a troy ounce as the U.S. dollar index fell 0.8% -- the first time in three days.

My point. We will know this is a bubble when it implodes. It is interesting how we solve previous problems with new bubbles. All those experts in Washington seem the have decided this is the only way to manage our affairs.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked Top Market Timer in 2009 by Timer Digest

That sinking feeling

News. With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

My point. I said it earlier and I am going to say it again. The huge interest on the debt is a transfer of wealth from us to the bond holders of the US deficit.

This is the reason cars are getting smaller. Gas is becoming more expensive. Commodities are rising. The dollar is declining. Stocks have gone nowhere in more than 10 years.

These trends mean one and only one thing. Our purchasing power is going down the drain as the national interest bill increases in the name of things we cannot afford.

The markets always win.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked Top Market Timer in 2009 by Timer Digest

The fever chart of any economy

The rate on 13-week Treasury bills is 0%.

The average interest rate is close to 5% -- in any country at any time. This is what we should have. But we do not. Extreme levels of interest rates reflect serious problems.

0% interest rates reflect aggressive easing because of the problems we are still facing. We do not know them yet. But the markets do. This is why we have 0% interest rates.

The contrarian conclusion is that this is bullish news because we will continue to slosh in a sea of liquidity. And financial markets strive on liquidity.

There no doubt we are living in unique times. Act accordingly.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked as Top Market Timer by Timer Digest

11/21/09

Observations

Budget deficits occur when governments spend more money than they take in. Many industrialized countries have about the same deficit as percent of GDP (the details appear on my blog). These countries have the same low inflation and same long-term interest rates and strong currencies. Why is the dollar weak?

Deficits make us poorer. We ask and the politicians give. This is no surprise. It is the main reason we voted for them. They sell bonds. The bondholders provide the money and the politicians deliver the goods we asked for. Now, you and I have to pay the interest to the bondholders.

We have to pay the bondholders for the goods and services provided by the government. There is a transfer of wealth from us to the bondholders.

Deficits do not cause inflation because industrialized countries have no problem in floating their bonds. Zimbabwe, instead, has to print money, and this is the reason their deficits cause inflation. Deficits, in other words, have little impact on inflation. Government spending does create inflation (see details later).

Why do European economies have a much stronger currency since 2004 with the same low inflation and similar deficits? Currencies reflect competitive differentials between countries. They have a stronger currency because their economies are more competitive. They fought the loss of purchasing power due to the deficits by becoming more efficient. The Euro is strong because Europe has more industries that are competitive in the global markets – more than we do.

My point is that in order to fight the loss of purchasing power caused by deficits, we need to become more productive. Only then will our standard of living rise and the dollar strengthen.

Meanwhile, our loss of purchasing power will translate into lower prices and possibly deflation because, as our standard of living declines, we can afford only to pay lower prices. If the Fed prints too much money, however, all the bets are off and inflation will rise.

The markets always win.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked Top Market Timer in 2009 by Timer Digest

11/20/09

Interesting day

Today the market was broadly weak with the Dow down sharply at the opening. Around 11:00am the market started strengthening until the closing.

I found most encouraging that the bank index moved higher in spite of a weak tape (click on the chart to enlarge it).

I am still baffled by the 0% yield on 13-week Treasury bills. Free money cannot be a good omen. Time will tell.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

11/19/09

Incredible!!!!!

Incredible! I have never seen it.

The rate on 13-week Treasury bills fell to 0%. Today the 13-week rate on Treasury bills was negative.

Incredible! It means that you have to pay the government to own the piece of pater called Treasury bill.

Something is wrong out there. Very wrong. Should Geithner and the whole financial team of the USA resign?

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

I made it to the top

I was ranked as the best market timer for my performance over the past 12 months by Timer Digest.

I turned bullish on March 12. My fundamental indicators were telling me the conditions were ripe for an important bottom. I remained bullish since then.

I follow two types of indicators. The first type are fundamental. They are based on monetary statistics, interest rates, business cycle, and economic indicators. I use them to give me the "big picture".

I have also developed many technical indicators based on the 4-month market cycle to forecast swings lasting about two months.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

Good news for the market

The bank index is rallying and is much stronger than the market (click on the chart to enlarge it).

This is good news. The overall market cannot rise without the participation of this important sector.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

Consumer credit is plunging. Bad news for retail sales.

Consumer credit is plunging. Consumers' finances are stretched too thin. Consumers cannot increase borrowing as long as the labor market remains so weak.

The chart (click on the chart to enlarge it) shows in fact that borrowing will remain weak as long as the unemployment rate is rising.

Washington must give incentives to business to increase hiring. Stimulating demand is not working.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

11/17/09

A major bull market signal

News. Nov. 17 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke’s diagnosis of a weak U.S. economy and labor market signaled that the central bank’s extended period of low borrowing costs may get even longer.

Bernanke said “significant economic challenges remain,” with lending constrained and the jobless rate above 10 percent. Speaking in New York yesterday, he said U.S. asset prices aren’t out of line with underlying values, and central bank policy will ensure that the “dollar is strong.”

My point. The Fed is determined to restore optimism. The only way is to send stocks to new highs. How? By keeping interest rates close to zero percent as long as it takes to get the job done.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

The business cycle works

The business cycle works. You should be aware of the close relation between asset classes and business cycle (read: economic growth).

A weak economy favors asset classes sensitive to a steep yield curve. A strong economy favors commodity-sensitive sectors.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

11/16/09

The bank index is strengthening

In previous posts I have outlined the importance of the banking index in confirming the trend of the market.

It is interesting to note, as I expected, that the bank index bounced off the lower channel line. The strength of this index may bode well for the overall market (click on the graph to enlarge it).

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

11/15/09

A constructive approach

In 1993, President Clinton created the President's Council on Sustainable Development (PCSD) to advise the administration on sustainable development and to devise "bold, new approaches to achieve various economic, environmental, and equity goals".

The purposes of this advisory committee included educating communities about sustainable development; bringing together industry, environmental groups, and administrative agencies to form consensus on policy; and implementing programs that promote sustainable development.

16 years later......

The summit, announced by Obama for a yet-to-be-determined date in December, is designed to bring together economic specialists from big and small business, labor, academia, nonprofit groups, and government. The unemployment rate climbed to 10.2 percent in October, up from 9.8 percent in September and the highest in more than two decades, and it appears to be undermining faith in the president's economic policies, according the public-opinion polls.

My point. See the connection? President Clinton had a great idea. It took 10 months but finally the administration has decided to listen to the markets and have a job's summit meeting. This is very good news!

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest