Peter Dag & Friends: November 2009

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.

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.

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

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.

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

Is risk rising?

News from Bloomberg.

The cost to hedge against rising yields on Treasuries as measured by the so-called skew in options on interest rate swaps is at a record high, according to Barclays Plc data. At more than 37 basis points, the measure is almost 40 times higher than the average before credit markets seized up in August 2007.

My point. Rising spreads reflect rising risk. Yields on low grade bonds, meanwhile, have stopped declining. This is another potentially bearish trend.

Rising risk is bad news for the markets. It is too early to worry about it, but I am paying close attention to this type of trends.

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

11/13/09

A populist comment

"The US economy is expected to lead the way", according to Mr. Bill Gates.

The truth is that overseas economy from Italy to China are much stronger than the US economy. They are on their way to very strong growth as we keep busy implementing social programs instead of thinking on how to generate growth.

We are lagging and the leading indicators published by international organizations -- and they have been quite correct in the past several months -- point to continued outperformance of foreign economies.

The Obama administration must have noticed this detail because now they are convening a summit on how to create jobs. Hopefully they mean "economic growth".

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 earning growth

News. Economic consulting firm Moody's Economy.com has forecasted U.S. job growth by geographic region and by industry (click on the chart to enlarge it). This interactive was updated Nov. 3, 2009. We will update it each month.

This graphic shows actual job growth through third-quarter 2009 and Moody's Economy.com's forecasted job growth for fourth-quarter 2009 through third-quarter 2013. It covers every state, the District of Columbia and 384 metro areas, broken down by fourteen industry sectors. The data are seasonally adjusted. (Source: USA Today).

Comment. According to Moody's forecast the economy will expand until 2012. Another forecast presented by USA Today suggests instead the economy will slowdown in 2010. These forecasts indicate the odds favor the economy to grow quite strongly at least until 2010.

This is good news for earnings. 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, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

Not bad!

I am the second best market timer over the last 12 months according to Timer Digest.

My indicators have done a nice job.

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

11/12/09

They got it wrong!

Comments from a CNBC blog. "Rising gold prices don’t portend doom as they once did. In fact, Cramer said Wednesday, these days they trumpet good news."
"..... expensive gold equals a weak dollar, and that’s good for American business. The lagging greenback keeps our exports cheap, thereby making our companies more competitive overseas. "

My view. Wrong, wrong, wrong! It is the other way around! The dollar is weak because it reflects the lack of competitiveness of most of our industries. Just look at what happened to our auto industry.

Investors are selling dollars (the dollar declines) and buying other currencies (other currencies rise) because they find better opportunities in non-dollar areas of the world.

The dollar will strengthen when our industries become more competitive. The dollar does not strengthen just because our leaders say it should. It is plainly preposterous and shows lack of understanding of what drives currencies!

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

11/11/09

Interesting statistics from CNBC

"In the 10 months from the first time unemployment hit 10% until it crossed back below 4.4%, the Dow and S&P gained a whopping 36% and 41% respectively (annual rates of 44% and 51%). [The] Unemployment [rate] is a lagging indicator so even though the rate increased, the economy was already recovering and stocks gained. Not surprisingly, some of the biggest gainers over the period were consumer discretionary stocks."

Why? Because the Fed prints a lot of money to make sure the economy has all the liquidity it need to grow and generate jobs. This is exactly what has been happening in this business cycle. And the stock market is driven by liquidity.

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

An important survey

The Fed just published an important survey.

The July 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months.

Both domestic and foreign institutions indicated that they had eased terms on commercial and industrial (C&I) loans over the past three months, while a small net fraction of banks reported having tightened credit standards on such loans over the same period.

Respondents also noted in the July survey that they had tightened standards on commercial real estate loans. Regarding the demand for business loans, a moderate net fraction of domestic institutions reported weaker demand for C&I loans over the past three months. Branches and agencies of foreign institutions, by contrast, experienced stronger demand for such loans, on balance, over the same period. Both domestic and foreign institutions noted that the demand for commercial real estate loans had weakened, on net, since April.

This survey is very important because is closely related to the trend in business activity, commodities, and the stock market. Is available from the Federal Reserve. I will discuss it in detail in our next issue of The Peter Dag Portfolio.

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

Another example

News. Nov. 10 (Bloomberg) -- At least three U.S. banks failed in the past year after the Federal Deposit Insurance Corp. deemed them healthy enough to qualify for a program that reduced the time examiners spent on reviews by at least 20 percent.

The three lenders -- FirstCity Bank in Stockbridge, Georgia, Security Pacific Bank in Los Angeles and 1st Centennial Bank in Redlands, California -- were among the banks included in the agency’s Merit program, designed to increase efficiency by focusing examiners’ attention on weaker firms. The program, launched in 2002, was terminated in March 2008 after examiners complained that the guidelines usurped their judgment.

My point. This is another example of how the government protects us. The bigger the government, the more numerous the regulations, the more complex the task of enforcing them becomes. Unfortunately command economies do not last, cannot exist in real life. They are bound to collapse. The outcome is bubbles. But we will never learn.

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

11/10/09

Do not fight the trend

More often than not the market stays above the 30-week moving average (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, since 1977
Ranked in the Top 10 for 12, 6, and 3 months for market timing by Timer Digest

11/9/09

Off-the-cuff thought

The Fed and those in power will make sure the market continues to rise until the country believes the problems faced in the past 3 years are over.

When we finally feel comfortable with what is happening here and in the global economy, then the markets may find some strong headwinds.

In other words, what is driving this market is not the outlook for the economy or other esoteric measures.

The market is driven by obscene amounts of liquidity.

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

As I discussed in a previous post, the market needed the strength of the bank index.

Today, after a few days of uncertainty, the index soared after hitting the lower channel line (click on the chart to enlarge it). It is no coincidence the market is very strong and promises more strength in the coming weeks.

But keep an eye on the bank index.

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

More bullish signals

Benchmark indexes from New York to Tokyo to Frankfurt have lost an average of 4.4 percent since Oct. 19 on speculation policy makers will curtail stimulus measures before the global economy revives.

History shows stocks have climbed 92 percent of the time in the six months before government borrowing costs began the biggest increases, data compiled by Bloomberg show.(Source: Bloomberg)

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

11/8/09

Unemployment claims and stocks

News. WASHINGTON (Reuters) — The number of workers filing new claims for jobless insurance fell more than expected last week to a 10-month low, government data showed Thursday, pointing to a gradual improvement in the labor market (click on the chart to enlarge it).

Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 512,000 in the week ended Oct. 31, the lowest since early January, the Labor Department said.

Bottom line. The decline in unemployment claims is bullish for stocks.

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

Interesting comments

From an article written by John Mauldin.

"I am outraged at the paltry proposed financial "reforms." Rahm Emanuel said that no crisis should be allowed to go to waste. The Obama administration is wasting this one.

How can we allow banks to be too big to fail? Where is the reinstatement of Glass-Steagall? If we are going to allow large banks to exist, then their leverage must be reduced to the point where their failure would not risk the system and require taxpayer dollars. I don't care if that makes them less profitable. They are making those large profits because they have taxpayers implicitly behind them, and I get no dividend payments from them, the last time I checked.

Where is Fannie and Freddie reform (and their breakup)? No mention of an exchange for credit default swaps? (And yes, I know that such an exchange would reduce the number of swaps and the profitability of them. That is the point. They are dangerous if allowed to become too big a market.)

This bill reads as if bank lobbyists wrote it. Where is the populist outrage? We have let the fox set up the rules for running the hen house. Shame on us all if we allow this to happen."

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

11/7/09

Stock prices, recessions, and unemployment rate

This is an interesting chart (click on chart to enlarge it) (courtesy of Schwab).

It shows what happens on average to stock prices ahead, during, and after recessions. It shows also the typical behavior of the unemployment rate relative to recessions.

What I find interesting is that the market keeps rising at least until the unemployment rate peaks.

History shows also that short-term interest rates rise after the unemployment rate peaks.

Do you see my point? We need to follow the unemployment rate. The first sign the market is in trouble from a long-term erspective is that the unemployment rate declines.

The next signal is the rise in short-term interest rates. This is the time to be very careful.

Let's see if history repeats itself.

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

11/6/09

Easy money is goood for global equity markets

News. FRANKFURT (AP) — The European Central Bank and the Bank of England kept interest rates at record lows Thursday as their economies struggle to emerge from recession.

The British central bank added an extra boost by adding 25 billion pounds ($41 billion) to the supply of money, following disappointing data last week that showed Britain unexpectedly shrank in the third quarter.

The European moves come a day after the U.S. Federal Reserve also left rates at a record low of 0-0.25% and said it would keep them there for "an extended period" even as growth picks up after a deep recession. The world's central banks have slashed interest rates and pumped extra money into their economies and banking systems since the crisis began to bit in late 2007.

My comment. They look so important. Yet we keep sliding from crisis to crisis. Do they really know what do do? They will keep pumping money to keep stocks rising and re-build our confidence in the system. Until the next crisis.

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

11/4/09

Employment shows steady "improvement"

Employment data keep reflecting a poor labor market. ADP reports job losses amounted to more than 200k last month.

Yet, employment losses are declining and things are improving (click on the chart to enlarge it).

The bottom line is that things look bad, bad visibly improving.

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

11/3/09

Observations

It must be a professional bias. I look for patterns every time I read opinions, ponder about recent events, and analyze data,. Then I ask myself if the pattern has been repeated in history enough times to become useful.

History does not repeat itself, but it rhymes. Or, those that do not learn from the past are bound to repeat it. OK, it sounds reasonable. But, what are the patterns we can use and profit from them?

We know the dramatic events of the past 10 years. We know the details. How did we get here? What happened?

The brightest and smartest people in the world live in the USA. We have the most Nobel prizes, students from all over the world flock here to enroll in our superb universities. I was one of them. Washington is the premier magnet for all this brainpower. Yet, in less than 100 years, we have been going through disastrous events of cataclysmic proportions.

The stock market is a sad testimonial. Market crashes, depressions, and wars from 1910 to 1950; inflation, war, periodic recessions during the depressing 1970s; from 1995 to 2009 we have experienced financial crises in Latin America, Russia, the fall of the Asian tigers, a back-to-back real estate, tech, and financial crash. Yet, we still believe the same people (leaders?) will solve our problems – however we perceive them.

History rhymes, but we keep repeating the same mistakes. Why? There is something else at work transcending the historical patterns. The naïveté of the population and shrewdness of those seeking power cause those less prepared to pay the price. We will never learn from history because history is the outcome of power struggles that cannot be controlled.

Take the “too-big-to-fail” concept. We are in this mess because of this idea. Why didn’t we break down the too-big-to-fail companies? Why did we make them even bigger by letting them absorb other institutions? This is exactly why I say we cannot learn from history. The pursuit of power cannot be stopped. It follows random patterns as we seek to profit from current opportunities.

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

A sign of hope?

Bank stocks have to rise for the market to go up.

The bank index has declined badly during the recent correction (click on the chart to enlarge it).

The index has reached oversold level and may be close to a reversal. It is an encouraging sign. We will have to wait and see.

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