Peter Dag & Friends: February 2010

2/27/10

..and now it is time to relax...

George Dagnino

Poor Europe! What a mess!

News. A team of officials from the EU, the European Central Bank and the International Monetary Fund wrapped up a three-day visit Thursday. Athens faces a March 16 deadline from the EU to show signs of fiscal improvement or take further action to boost revenues and cut spending.

My point. The European idea does not work. European problems should be solved by Europe. The IMF should not be involved. It is a sign Europeans do not have the will, wisdom, energy, skills to solve their own problems. They deserve to fail.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

When politicians see an opportunity ....

News. The head of the IMF is today arguing the case to redefine and expand its role.

The Fund must better detect risks that individual economies pose to the rest of the world, as well as offering liquidity early during a financial crisis, Dominique Strauss-Kahn is saying. The institution should also better monitor large, interconnected financial firms to construct a “risk map”.

My point. These are the same people who were in power when the mess we are in started. Now they want even more power to solve the problems they created.

The outcome is that the bureaucracy will grow bigger and bigger and will control an enormously increasing amount of our money.

Do you see what I mean? Do you recognize the implications? Everybody is running to the trough!

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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

The dollar index lost 35.8% from 2002 to 2008. Some observers cherish this development because it helps our exports. One way to look at it, however, is that it makes everything we buy from other countries 35.8% more expensive, hurting businesses needing foreign technology.

A more complete way to look at the implications of changes in a currency is the following.

Any economy is the aggregate result of many industries. Make a list of all the industries and stack them from most productive to least competitive in the world markets. Draw a line dividing the two classes of industries. The trend of a currency tells you how many industries are above this line.

A declining currency suggests that most of the industries are below the line dividing competitive and noncompetitive industries. A country with a strong currency has the most important industries above this imaginary line.

Trading partners buy the currency of countries with competitive industries and sell the currency of the countries with noncompetitive industries. If a country has mostly noncompetitive industries, its currency is bound to weaken. Reason? The products of the countries with competitive industries offer more value.

Greece is like the “weak industry” of Europe. Companies would rather do business with Germany than Greece. Germany offers the products and services needed to remain competitive. Greece does not. Money flows away from Greece into Germany or France. Greek politicians focused on developing social programs that appealed to the population. They forgot however to encourage investments in the infrastructure needed to create the wealth to pay for the social programs.

The outcome is that Greece now does not have the money to pay for its accumulated debt. Is the problem going to be solved by bailing out the country? Certainly not, because Greece, like Italy, will find it very difficult to dismantle their social infrastructure. Some states in the USA have the same problems.

It looks like the time has come to pay the piper.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/26/10

Interesting gold chart

Gold has moved above an important trendline (click on the chart to enlarge it). The trend seems to have changed, at least in the near future.

This development is particularly relevant since gold did not break below a crucial support level.

Is gold trying to tell us commodities are likely to strengthen in the coming weeks?

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/25/10

Business cycles and stock sectors

Is the Fed raising interest rates? Is it time to worry? Think business cycle.

The Fed raises interest rates when th economy strengthens. This is the time when the business cycle moves in Phase 2. This is the time when commodities and technology stocks are strong.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

Commodities and the dollar

There is no question about it. A strong dollar is bearish for commodities (click on the chart to enlarge it).

A strong dollar is good news for us. It suggests international investors like the opportunities we offeer. And this, more ofen than not, is good news for stocks over the long-term.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/24/10

Morning patterns

It must a professional habit. I look at patterns. I see prices move. I read a lot. All this information is stored in my brain. I do not act on it. Just sits there. In my brain.

Suddenly, slowly and steadily, I find myself looking more and more at some screens. Then I know I may have found something interesting.

This is what I have been doing often in the past several days. I look at the market futures, early in the morning. They are suggesting -- as of now -- we may have a weak opening. I learned not to trust this info. Is useful, but I do not make buy or sell decisions based on it.

Then I look at commodities. This morning they are weak. I found myself relying more and more on the trend of commodities to understand the mood of the market. They confirm the market is likely to be weak because more often than not they move in the same direction.

Am I right? Wrong? I do not know. What I know is that this is a pattern I will continue following. It is one of my mental habits.

Have a good day!

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/23/10

This is how I read it ....

I had several feedbacks about the 4-week cycle.

This is how I read its position as of today's closing. The market (and most stocks) started rallying on the first week of February. After two weeks into the cycle, it is reasonable to expect some consolidation.

This is what is happening right now. Stocks are sputtering -- a sign the 4-week cycle has reached a peak.

What does it mean? The market, in the best case, is not going to do anything for at least another week.

If it declines precipitously, the correction could last at least a couple of weeks before we see the bottom.

Either way, the odds are that your are not going to make much money in the coming sessions.

Of course, the usual caveat ...I have been wrong many times before.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/22/10

On education

News from Fox Business. (Source: John Stossel's take). It's not impossible to get rid of bad teachers, but it's extremely hard and expensive.

A report this month in LA Weekly noted that in the past decade the Los Angeles Unified School District "spent $3.5 million trying to fire just seven of the district's 33,000 teachers for poor classroom performance."

The result? Four were fired, two others were paid large settlements and one was reinstated. The paper also reported that 32 underperforming teachers were initially targeted for removal "but then secretly paid $50,000 by the district, on average, to leave without a fight."

There will be no meaningful school reform if the teachers’ unions continue to call the shots.

My point. I like Stossel's comments. They are well documented and emphasize the ridiculous and sadly true aspects of our social and economic fiber.

The unfortunate experience I have had is that good education belongs to wealthy families with high standards in term of what really drives the achievement of their children.

Is it fair? Absolutely not! But this is how our system works and there is no chance it is going to change any time soon.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

For traders only

I have noticed a pattern that has been quite consistent.

I am intrigued by the concept of market cycle. There are several of them with many durations.

Recently, however, the four week cycle caught my attention. It starts in the first half of the month and bottoms after four weeks (plus or minus a few days).

How do I use this pattern? First of all I choose a stock displaying this distinctive cycle. After I buy it, I know that I can make money the first two weeks of the price increase. If I do not, I sell immediately.

Why? It is quite typical for the stock to show no major appreciation during the last two weeks of the four week cycle.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/21/10

The Asian markets

News. Feb. 22 (Bloomberg) -- Asian stocks rallied from the biggest decline in two weeks after a smaller-than-estimated increase in U.S. consumer prices eased concern the Federal Reserve will increase interest rates.

BHP Billiton Ltd., Australia’s top oil producer and the world’s largest mining company, gained 2.3 percent after metal and crude oil prices rose.

My thoughts. Commodities are strong in Asia. This is good news for our markets tomorrow (Monday 2/22/10). I wrote several times that our stock market has been closely correlated to commodities since 2002. It is nor supposed to be this way. But it is now.

Well, whatever the reason, we will make money (if commodities stay strong).

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/19/10

Late night thoughts

This is what is left in my brain after reading all the news of the past few days.

***China will be slowing down.
***The US economy will slow down in the second half.
***Commodities are strong.
***Investors are too worried about the market.
***Financial risk is declining.
***The financial system is still in disarray.
***Market volatility is declining, a sign of confidence.
***Europe seems in trouble with the idea of one market one currency.
***The leading indicators point to stronger growth, but few believe in their message.
***The PPI is soaring, but core CPI shows deflation.
***People are touting gold, but as a commodity it is under performing XME.
***The president keeps traveling the country campaigning and giving billions away.
***Fast trains, nuclear power are in vogue.
***The debt of the richest countries will explode in the next few years.
***Employment will be disappointing.
***Consumers are under pressure -- financially and psychologically.

What does it mean? Confusion in our heads. And this worries me. Too many crosscurrents. This is not normal.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

Inflation in the pipeline?

Look carefully at this chart (click on the chart to enlarge it).

Please note the two scales on the left and the right. It seems incredible that inflation could be so high with the economy growing so slowly. Is it because of the inventory cycle? Quite possible.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

Is this a strong expansion?

This chart compares the recent recession/expansion to previous ones (click on the chart to enlarge it).

It shows the recession was uniquely severe and long. There is no doubt about it.

The graphs also show the strength of the recovery. It is quite clear that the economy started expanding. Growth, however, has been lukewarm at best.

Production has been driving this expansion because of the inventory cycle, correctly anticipated in The Peter Dag Portfolio.

The big question is: what is going to happen when inventories are replenished?

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/18/10

It is the same old story

News. There’s a $1 trillion dollar gap between what states have promised their workers in pension benefits and what they’ve actually set aside to pay those bills.

That’s the finding of a newly released report by the Pew Center on the States. States have set aside only $2.35 trillion of the $3.35 trillion they’ve promised their current and retired workers in pension, healthcare, and other retirement benefits.

According to the report, the gap is due to states’ own policy choices and lack of discipline, including:

– failing to make annual payments for pension systems at the levels recommended by their own actuaries;

– expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them;

– providing retiree healthcare without adequately funding it.

My point. It is the same old story. People ask. Politicians give to gain power and wealth. Politicians do not know how to create the infrastructures to produce the money they have promised. The house of cards collapses.

Bottom line? The markets always win. They always have a way of showing what went wrong. Will we have ever learn? No!

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/17/10

What's next?

I think the market cannot keep rising without the financial sector (ETF: XLF) leading the pack. It will be a sign our system has healed.

The problem is that XLF has not been going anywhere since August of last year (click on the chart to enlarge it). Right now it seems to attempt penetrating important resistance levels.

This is a chart I follow closely (together with that of commodities) to tell me about the strength of the market.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/16/10

An interesting chart pattern

I like to watch unusual volume patterns.

This chart (click on it to enlarge it) shows a fairly reliable pattern -- strong and above average volume following a correction. It signals capitulation and, more often than not, the beginning of a profitable rally.

The time to worry, as I pointed out in a previous post about gold, is when you see a spike in the price accompanied by strong and above average volume. The meaning is distribution and an inevitable period of disappointing price performance.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/15/10

Playing with numbers

These are some numbers that can be found on the Standard and Poor's official website. You can download a spreadsheet showing current earnings estimates.

They are free for everybody to peruse.

Current S&P500:1076,PE 85.77 Earnings 12.54

Estimate 2010: earnings: 58.46 (Source: Standard and Poor's)
Assume PE=20 Estimate S&P500 2010: 1169
Assume PE=17 Estimate S&P500 2010: 994

Estimate 2011: Earnings: 68.91 (Source: Standard and Poor's)
Assume PE=20 Estimate S&P500 2010: 1378
Assume PE=17 Estimate S&P500 2010: 1171

You can plug your PE and make your own S&P 500 projections. The main "given", of course, is the projected earnings for the S&P 500.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/13/10

Observations

The big thinkers -- without realizing it -- tried to understand the struggles between the power groups of their times. I think there are three main power groups – government, entrepreneurs, and the rest of the population.

The government should be the umpire, setting the rules of the game and making sure we respect them. It is difficult, however, to remain an impartial referee because of the pressure of the other two power groups. Rules become more complex. Bureaucracy increases to the point of becoming autocracy and despotism.

Entrepreneurs are the wealth generators. Creative, independently minded, they have the drive to achieve. They invent products. They manage or start new companies. They adjust to risk and hire people to help them. They are usually well educated and wealthy.

The third power group is the rest of the population. They depend on the other two groups for jobs and security. The strength, productiveness, and competitiveness of the country depend on this group.

Salaries in government are soaring, a sign our government is gaining too much power. The highest-paid federal employees are doing best of all on salary increases -- $100,000 or more up 46%, $150,000 or more up 119%, $170,000 or more up 93% (Source: USA Today, 2007-2009). This is a sign of the increased reach of the bureaucracy. It is becoming the strong player.

The risk for the economy is when one of the three groups becomes dominant. When this happens, the economy stagnates. The country has decided to let the government solve our problems, authorizing the deployment of an enormous amount of resources.

The outcome is a historic increase in their power, supposedly needed to solve our problems. In other words, government is changing from umpire to active problem solver. There is a lot on the government’s plate.

Shifts in population sentiment and faulty “rules of the game” are creating a new bubble. The bubble being inflated is government. The only valid lesson of history is that the dominant position of the government will cause the economy to grow slowly. Its message has important investment implications.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

Incredible weather patterns

News. Snow has been falling steadily over Rome for the first time since 2005—and at its heaviest in 24 years. The snow has naturally thrilled Romans and tourists alike; Reuters reports that the Pope himself was spotted peering out of a Vatican window, foreign media reported.

Like D.C., Rome isn’t used to dealing with more than a few flurries, so roads are backed up with traffic. Buses and the metro are running with limited delays and the Colosseum is temporarily shut. Ciampino airport was closed this morning, but has since reopened.

My point. Incredible! It snows in Rome (Italy). It snows in the Florida panhandle. It looks like unusual cold is covering a big part of the planet.

I know it sounds far fetched. But on 5/14/08 I posted a blog suggesting that the sharp drop in sunspots could create a protracted period of unusual cold weather, according to some scientists.

I think we should keep our minds open to all the possibilities when we talk about climate change. Even if these possibilities seem implausible.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

Confession

Yes, I have to make a confession. Inside me there is a bear growling. There is too much bad news to digest.

Yet, watching CNBC, I become overwhelmed by the bearishness of the great majority of pundits.

How can it be? Can I be in the same camp? Can all these people be right that the world is going to collapse? Is there a middle ground somewhere?

Time to be bullish?

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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 road to serfdom

(From an article by Josh Barro of the Mahattan Institute of Policy Research)

The problem: During the recession, public employees have continued to see strong wage growth, well ahead of the private sector. From the first quarter of 2007 through the last quarter of 2009, the average value of hourly compensation (wages plus benefits) rose by 9.8 percent for employees of state and local governments, compared to 6.9 percent in the private sector

After adjusting for inflation, public employees have seen a rise in real hourly income over this period, while private employees have not.

Over this period, public-employee compensation has risen nearly 50 percent faster than private-employee compensation. Governments are aggressively increasing public-employee compensation even though labor markets are loose and states face record budget deficits.

My point. And then we wonder why states have a budget problem.

You can read the whole article by clicking here

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/11/10

This is why ...

This is the reason I follow commodities very closely. Their move mirrors exactly the move of the broad market (click on the chart to enlarge it).

The chart shows quite clearly the correlation between stocks and commodities. If the market is strong and commodities are strong, the market has good momentum.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

A bearish sign?

Financial stocks are an important leading indicator of the market.

What caught my eyes is the fact that XLF broke below a trading range in effect since last August (click on the chart to enlarge it).

Further weakness in XLF may signal a problem for the market. I would like to see this important ETF moving higher, of course. It would be a healthy bull signal.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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 markets always win

News. BRUSSELS (Reuters) - European leaders struck a deal to provide financial aid to Greece on Thursday, in an unprecedented move to stave off a broader crisis in the 16-nation bloc that shares the euro single currency.

Germany and France are expected to take the lead in providing support, in part because other big euro zone economies like Italy and Spain are themselves under financial pressure.

My point. I have maintained, over and over again, that common currency areas cannot put together low productivity countries and high productivity countries under the same economic umbrella.

The low productivity countries will pay a dear price because investment capital will flow from low productivity to high productivity areas.

Make no mistake about it. The problems of Greece, Spain, Portugal, Italy, and the UK are not budgetary. They are related to their spend, spend, spend programs to pacify the population completely disregarding the policies needed to improve their competitive position and create the wealth needed to meet the largess of their social programs.

The problems of Europe are immense and are not going to be solved with short-term financial aid.

The markets always win.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

Talk, talk, talk

News. Congressional leaders of both parties share a “common commitment” with President Barack Obama to promote employment and help small businesses, Lawrence Summers, director of the White House’s National Economic Council, said in a Feb. 9 interview with Bloomberg Television.

My point. After more than a year, they are still talking about jobs. I still have to see a "common commitment" to jobs of the same dimension it was given to health care.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/10/10

How naive.....

News from Europe. By declining to come to Spain for a trans-Atlantic summit, President Barack Obama made it clear that Brussels is far down on his priority list.

The president has plenty of time in his schedule to visit Australia and Indonesia in March. The Wall Street Journal recently sneered that the Europeans, so enamored of Obama, must be missing the Bush years. Bush, at least, diligently attended each EU-US summit.

My point. It is almost embarrassing the emotional acceptance and naivete' of the Europeans. Even a Nobel prize.

It is unbelievable. These are the European leaders. A bunch of kids that get all excited because a President of the USA pays them attention during his campaign. And now they are disappointed. What's next?

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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 economy is strong

The economy is strong.

Sales are growing faster than inventories. This is the reason the inventory to sales ratio is plunging (click on the chart to enlarge it).

This is good news for earnings.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

It is a big game. The objective is to gain power and wealth.

News. Greece on Tuesday cut salaries of chief executives at state-controlled corporations as part of new tax and income measures aimed at reducing the budget deficit and averting an international bail-out.

There will also be a pay freeze and a 10 per cut in allowances that together amount to a 4 per cent pay cut for more than 500,000 public sector workers.

Legislation to increase the excise tax on petrol – a measure demanded by the Commission – was rushed into parliament on Tuesday night.

Greek Prime Minister George Papandreou held government talks Tuesday on accelerating those cuts with reforms to pensions and wages.

EU governments do not want to let Greece off the hook — and that any option would force Greece to make long-delayed reforms to rife tax evasion, rigid labor market rules and an inefficient and high-spending pension and health care system.

My Point.People ask. Politicians give. People ask again. Politicians give again. People want more. Politician give more. Until the system cracks.

Who gains? The politicians, of course. They gain power and wealth as the size of the government increases its reach. This is the ultimate objective of the game.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/9/10

Double dip?

I like to follow commodities because their trend gives a sense of the strength of the business cycle.

Copper is an important metal because it is very sensitive to demand and overall business conditions.

What caught my attention is the recent weakness of copper (click on the chart to enlarge it). Its price broke on the downside an important moving average. This is a trend that should be followed closely. Continued weakness in copper suggests the economy is not as strong as most analysts are predicting.

Time will tell, of course.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

Technically speaking

Gold is facing some interesting challenges (click on the chart to enlarge it). Its price is close to resolve them.

Gold (ETF: GLD) could break below a very important support line. Or could break on the upside, moving above the downtrend line.

A decline below the support level of $104 is a bearish sign for the commodity sensitive investment.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/8/10

One of the strongest ETFs since the beginning of the year?

EUM -- ProShares Short MSCI Emerging Markets.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

This time is different

Three years ago I heard the Fed governor in charge of monitoring the developments of sub-prime lending. I still remember vividly how she assured the reporter that everything was under control and we should not worry.

Next page: Greece. They are telling us we should not worry. Greece? Forget it. It is just about the size of Alabama.

Greece and Portugal and Spain and Italy and the UK, and California and...

They tell us we should not worry. The market, meanwhile, is tanking. Oops!

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

An ugly picture

The trend of XLF (Financials Sector SPDR) is an ugly one (click on the graph to enlarge it).

XLF violated on the downside the crucial $14 level, a very important support level.

The second trend to notice is that XLF is starting a possible pattern of lower highs and lower lows.

A down-sloped trendline in financial stocks and weak commodities is not what happens in a rising market. Hopefully, these trends will change soon.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/7/10

Commodity trends

It is Monday morning in Asia. Commodities are strong. Crude is moving higher. Copper is up 1.7%. Gold is rising, up 1.5%. Agriculturals are mostly up.

Commodities and stocks are closely related since 2002. XME, in spite of market weakness, soared 2.0% last Friday.

Does this mean the market is going to come alive this week?

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/6/10

Talk, talk, talk....

News. WASHINGTON (AP) -- Republicans sparred with President Barack Obama in their Saturday media addresses over proposals to create jobs, further evidence of the difficulty of bipartisan solutions to the nation's pressing problems.

Obama pushed Congress to use $30 billion that had been set aside to bail out Wall Street to start a new program that provides loans to small businesses, which the White House calls the engine for job growth. Republicans, meanwhile, taunted Obama with a familiar refrain: Where are the jobs the president promised in exchange for the billions of dollars already spent?

My point. After more than a year in power they are still talking about "jobs". What are they waiting for? A sharp decline in stocks?

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

Political evolution

Once you get into debt you become slave of (owned by) the lender. The lender owns you and keeps you alive so you can pay him.

The same story is repeating at the national level. The strong countries of Europe will save Greece, Portugal, ..... But these countries will be owned by the liberators.

They will not be free. The liberators will dictate what they can and cannot do. Slowly power will be transferred to Brussels. This is Europe's destiny. A centralized European government will be achieved not by choice. But by gradual financial strangulation.

This is how the game is played.

People ask. Governments give. There are always rescuers. But they will ask to be paid. And the reward is wealth and power. And we (you and I) will pay the price through loss of purchasing power. We always forget that when we ask we will eventually have to pay the piper.

Does it sound crazy? Just look around you.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/5/10

What worries me

What bothers me is the weakness of the commodity complex (click on the chart to enlarge it).

Commodities are correcting ... sharply. What does it mean? Forget about the strength of the dollar.

Commodity trends are closely correlated with the economy. A strengthening economy is accompanied by higher commodities. A weak economy drives commodities down.

What bothers me is that the weakness in commodities may reflect a weakening economy.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/4/10

Bill Gross comments to ponder

Leverage has been transferred from private investors to governments with the dollar carry trade being unwound.

The main issue, in my view, is how the various governments will liquidate all the debt they have been accumulating. Higher taxes and inflation (which are two different sides of the same coin)?

I firmly believe that when all is said and done our purchasing power will be reduced by a considerable amount. This is the real risk we are facing.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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 problem with Europe

News.

Feb. 4 (Bloomberg) -- Stocks and bonds fell in Spain, Portugal and eastern Europe on concern governments will struggle to fund their budget deficits as spending cuts in Greece trigger labor strikes.

Feb. 4 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said he’s confident Greece can get its budget deficit under control and signaled officials have no plans to raise their key interest rate from a record low of 1 percent.

For peripheral European countries that have spent beyond their means, it appears that there is no easy way out, no matter what choice they made about the currency(Financial Times).

My point. I have been saying for a long time that countries with low productivity cannot live in the same economic/monetary area of countries with high productivity and have the same currency.

Why? Investors avoid low productivity countries and go in high productivity countries. Historically, the low productivity countries would devalue and maintain -- artificially and for a short-time -- a resemblance of competitive advantage.

Now, these countries cannot devalue because of the common currency. The outcome is that they are economically crashed by the high productivity countries.

The same adjustments take place -- in a much minor scale than in Europe -- also in the US. Ohio or Michigan or West Virginia are at a competitive disadvantage relative to, say, North Carolina because of the policies followed in those 3 states. Life in these 3 states (weak dollar areas) is in fact less expensive than, say, New Jersey or Connecticut.

The bottom line is that countries low productivity countries like Greece, Spain, Portugal, Italy, and the UK are being "crashed" by the higher productivity countries of the EU.

This is the main reason Milton Friedman believed the EU would not survive.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

2/3/10

The outlook for crude oil

Jeff Rubin, the former Chief Economist of CIBC World Markets and the author of Why Your World Is About To Get A Whole Lot Smaller built his reputation as one of Canada's top economists based on a number of successful predictions including the housing bust of the early 90s and the rise of oil prices. In his recent book, Mr. Rubin predicts $225 per barrel oil by 2012 and with it the end of globalization, a movement towards local sourcing and a need for massive scaling up of energy efficiency.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.

Higher taxes are coming.

Headline on the Financial Times. Obama to target overseas tax breaks. Multinationals face fees on excess returns. Move aimed at cutting record $1.6 trillion deficit.

My point. Make no mistake about it. Corporation do not pay taxes. We do. If their costs rise they are forced to pass these costs to us. We are going to pay the price.

It all comes down to loss of our purchasing power as I have been screaming on this blog. The outcome is slower economic growth with its huge impact on our investment strategy.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked Top Market Timer in 2009 and 2010 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.