Peter Dag & Friends: May 2010

5/31/10

A reminder

A reminder.

This is what happens to the equity markets of countries in financial distress (click on the chart to enlarge it).

And it looks like we are not done with financial crises.

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 subscribe to The Peter Dag Portfolio. You can also call me at 1-800-833-2782 to discuss your specific investment portfolio.

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.

5/30/10

Is the Fed too tight?

There is only one way to answer this question. Look at the current message of the markets.

1. Commodity prices are falling and inflation is gradually becoming deflation.
2. Bond yields are declining, surprising all those who shorted bonds.
3. Equity prices are weak, with the S&P 500 down for the year.
4. The dollar is firm.
5. The ECRI leading indicators (see a previous post) are pointing to an economic slowdown.

This is what is happening now and this is what we experience when the Fed is tight.

The markets are always right.

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

5/29/10

Long-term investing is nonsense

This excellent chart by Seeking Alpha (click on the chart to enlarge it) proves a point a tried to make in all my talks in the past 30 years.

Long-term investing is nonsense.

It is true the market rises 6.75% per year. This, however, is the average growth over the past 70 year. If you look carefully, however, the chart shows that the time the market went nowhere is almost the same as the time it moved higher. The number of years when the market was flat is close to 15 years in each instance.

The point is that you have to "time" your investments. Your investment strategy must be in tune with the times.

Are we in a period like 1900-1920,1929-1950,1969-1982, or 1998-20xx when the market went nowhere? Or, are we in a period when market growth averaged more than 15% per year?

I know, no one said investing was easy.

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

Interesting graphs from Fidelity

The market is oversold, no question about it (click on chart to enlarge it).

One of my gauges, however, says we are not completely out of the woods. I will be discussing it in detail in my next weekly Market Update.

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

I love it!!!!

This is a superb execution of an exciting piece by Albeniz.

It makes you forget for six minutes about financial risk, market corrections, market bubbles, China's problems, deficits, taxes, .....

Enjoy it!

George

5/28/10

Who is paying?

Most global governments are busy finding solutions to their debt problems.

Did you notice a typical approach followed by all of them?

The first and most important steps are to squeeze the population with new taxes and reduced benefits.

The politicians, however, never start the process by announcing cuts to their salaries and benefits. New agencies are formed, new levels of bureaucracies are added. They never announce major cuts in the government structure. And we have to pay. They are a really privileged class.

This is one of the reasons government's share of GDP soared from 20% in the 1950s to the current 35%. And rising.

This is exactly how government was conceived in ancient Greece. The politicians are a privileged class because of the many responsibility they are perceived to have.

And we have to pay. The rich and the poor. The old and the young.

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

Markets are always right

You know I have been saying for some time that the trend of commodities -- unchanged since June 2009 and down 10% since January -- was reflecting a weak economy.

Commodities are very sensitive gauges and they rise when the economy is strong and decline when the economy is weak.

The growth of the weekly leading economic indicator published by ECRI (chart courtesy of The Pragmatic Capitalist) fell to a 39-week low in the latest week. This gauge is pointing to an economic slowdown (click on the chart to enlarge it).

This is the main reason why all commodities --from gold to natgas to lumber to copper to crude to bond yields -- have been showing disappointing performance.

Let me repeat this idea one more time, Those observers who were expecting soaring inflation have been proven wrong, Deflation is more likely that inflation.

Your investment strategy should reflect these trends.

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

It does not sound right

News. NEW YORK — Stocks surged Thursday after China reassured investors it doesn't plan to sell any of the European debt it holds.

The Dow Jones industrial average surged more than 280 points by late trading, while Treasury prices tumbled as traders pumped money into stocks.

My point. In the good old days stocks would rise if economic news and companies' valuation were positive.

Now the markets ignore, or seem to ignore, the hard facts and react instead to what various governments around the world are saying about their role in the market place.

It is not healthy. It does not sound right.

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

5/27/10

What is going on?

First of all I apologize for not keeping in touch. I needed a couple of days off.

Back to business. What are the markets telling us? The markets are nervous, very nervous. The swings are incredible and they reflect concern. Concern about everything. The markets know they are being rigged by the global governments – US, Germany, Europe, China,…...

My subscribers are aware I was expecting a bottom in May or June. I have been writing about this for a long time. My research of market cycles seems to be producing the right results.

An important indicator I share with my readers is a proprietary indicator "financial risk". The markets do well when financial risk tops and declines. Right now is still going up.

Subscribers will be able to see the current chart on my Market Update , which I will publish on Sunday.

Rising financial risk and market volatility go hand in hand. Be careful. Do not get too excited because the market soars 3% in one day.

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

5/23/10

Who is right?

RICHARD RUSSELL: “SELL ANYTHING”. Russell has become increasingly bearish since early April. He says the market is crumbling and believes the internals are so bad that the market is very vulnerable to substantial downside.

Kass: Fear Is the Rational Buyer's Friend, A conservatively constructed valuation model produces a S&P objective of about 1,250 to 1,270 (15 times P/E, which is lower than the long-term average but higher than the current 13 times), for about a 15% upside

Birinyi. Today the S&P 500 traded down to a low of 1076.12, that's 8.2% below (3 standard deviations!) the 50-day moving average. In February the S&P reached similar levels intra day on 2/5, and then again on 5/6, but each time the market rallied back to close above that 3 standard deviation threshold.

My view. These are uncertain times. Like always. There no "certain" times. Investing implies flexibility. especially now that the markets have unquestionably shown that investing "over the long term" is nonsense.

Flexibility means you have to have an investment process. One that you feel comfortable with. That fits your psychological profile. Flexibility is based on gradualism, adapting your exposure to various asset classes depending on fundamental and technical evidence.

One of my rules is :When in doubt do something.

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

5/22/10

Let's hope so.

Geithner: global economy can handle Europe strains(Reuters) - Treasury Secretary Timothy Geithner said a strengthened global economy is now in better shape to handle the strains emanating from Europe's crisis, China's Xinhua news agency reported on Saturday

My point. We have to believe him. On the other hand, he was president of the New York Fed when the mess we are in unraveled.

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

Latest from Germany and Europe from Spiegel Online

Despite some pre-vote grumbling, the German parliament on Friday voted to back the 750 billion euro package put together last week in an effort to stabilize Europe's common currency. EU ministers in Brussels are hoping to strengthen budget rules to win back market confidence.

There had been some jitters in Berlin that the bill might not go through -- but in the end Chancellor Angela Merkel's governing coalition had more than enough parliamentary votes to approve Germany's share of the massive €750 billion ($1 trillion) rescue deal to save the euro.

Merkel's conservative Christian Democrats and her partners from the pro-business Free Democrats (FDP) succeeded in pushing the bill through the lower house of parliament, the Bundestag, despite some renegades in their ranks. The final tally was 319 in favor of the bill, 73 against and 195 abstentions. Germany's upper legislative chamber, the Bundesrat, also passed the bill, which now awaits the signature of President Horst Köhler before becoming law.

The Social Democrats (SPD) and the Green Party had decided to abstain from the vote, while the hard-left Left Party opposed the rescue package. While the Greens objected to the speed with which the bill was being pushed through parliament, the Social Democrats abstained on the grounds that the government's undertakings to seek a tax on financial markets were not specific enough.

SPD leader Sigmar Gabriel attacked the government for its handling of the euro crisis. "You have no line, no aim and you don't know where you are taking this country or Europe," he said during floor debate in comments directed at Merkel.

Public Resentment

A senior member of the SPD, Thomas Opermann, attacked Merkel for not moving fast enough to regulate markets, which many blame for worsening both the current sovereign debt crisis in Europe and the banking crisis. "It is noticeable that we move at different speeds depending on whether it's about saving banks or calming nervous financial markets, or whether it's about defending citizens against these financial markets by regulating," he said.

Finance Minister Wolfgang Schäuble welcomed the approval of the package, which the government has had to defend in the face of public anger. "We are not doing this out of generosity toward others," he told lawmakers on Friday. "We are doing this in our own best national interest."

Europe's biggest economy will now contribute between €123 billion and €147.6 billion in loan guarantees for the euro zone, in addition to the previously approved contribution to the bailout for Greece. Germany's contribution of that €110 billion package is €22.4 billion.

Many Germans are resentful of having to bail out weaker euro-zone countries like Greece and there are concerns that the rescue deal will simply cause a huge budget deficit at home. Earlier this month voters in North Rhine-Westphalia punished the ruling coalition in a state election there, partially in frustration with Merkel's handling of the crisis.

New European Rules

Later on Friday European finance ministers gathered in Brussels for a task force meeting to help support the euro, which has come under huge pressure amid worries about soaring public debt in the euro zone. The ministers will begin to thrash out tighter budget rules and sanctions against those who repeatedly flaunt rules against bloated national debts. Germany is suggesting that all countries be legally required to limit their deficits to 3 percent of GDP as part of a tough package which could include persistent offenders being ejected from the euro zone.

There will be deep concern in many European capitals at the prospect that any new measures would require amending the EU treaty, triggering parliament votes and even referendums, something that raises the specter of the tribulations of the Lisbon Treaty. EU officials are pushing for far less ambitious measures that would not require any tinkering with the treaty.

5/21/10

About financial risk

I love to find new indicators. I work very hard to find them. This is what I really enjoy and keeps me moving.

The enclosed chart, for instance, shows what I call financial risk (click on the chart to enlarge it). I check it daily, I am unable to tell you how I compute it but what I can say is that every time this gauge rises the markets, after a few days, declines. When risk declines the equity market rises.

I show this indicator in each issue of The Peter dag Portfolio, which I edit since 1977.

One more note for the option traders. A rise or decline in financial risk is accompanied by rising or declining volatility.

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

Change of trend?

Interesting development.

The S&P 500 has kept above the red line (moving average) most of the times for many years. The break of the S&P 500 below this moving average may signal an important change in trend (click on the chart to enlarge it).

At 1:03 pm EST the S&P 500 was standing at 1080.49 and the moving average level was 1108.02. In other words, the S&P 500 is now below the moving average.

Is it signaling an important change in trend?

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

5/19/10

Double dip in housing?

The price of housing weakened and it looks like a resumption of the decline in housing is under way (click on the chart to enlarge it).

The weakness in housing is consistent with current market volatility and the sharp decline in commodities.

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

As I mentioned in previous posts....

I like to follow the pattern of volume. Especially when there is a sharp decline or a spike in the price of a stock or, in this case, in the price of gold (click on the chart to enlarge it and see also my previous posts on the subject).

The pattern is clear on the chart. The last spike was almost telegraphed by the great euphoria about gold and its store of value concept. I personally think it is nonsense.

Gold behaves like all other commodities. Oil, copper,....all the commodity complex was weak. Gold had to follow, trading volume was an important indicator of things to come.

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

Typical Teutonic approach

News. May 19 (Bloomberg) -- Credit-default swaps rose as German Chancellor Angela Merkel’s curb on using the contracts to speculate on European sovereign debt sparked concern among investors about increasing government regulation.

My view. It is disruptive. That you agree or not the Germans went to the core of the problem in spite of what Mr. Greenspan thinks (years ago he testified in Congress that derivatives were not disruptive).

Now we have to wait for the response of the markets, keeping in mind that 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

Chaos

News. May 19 (Bloomberg) -- Stocks around the world dropped and metals fell as the euro traded near a four-year low after Germany banned speculators from some bets against government bonds and banks. Treasuries and German bunds rallied.

Merkel’s coalition stopped traders buying default protection on government bonds they don’t own, so-called naked swaps, as German lawmakers prepare to debate a bill authorizing a $1 trillion bailout to backstop the euro. The unexpected ban, done independently of the European Union, came after the rescue package failed to stop the 16-nation common currency from weakening to a four-year low and as banks became increasingly reluctant to lend to one another.

My view. The markets are in disarray. The markets are catching up with ineptitude. The initiative of fixing the markets has been in the USA in the past two years.

The Europeans waited, saying the financial crisis was our problem. The markets are finally catching up with them and with a bad idea -- the European Monetary Union.

I have been writing for years that you cannot put in the same monetary union countries with major differences in productivity growth. Always and everywhere currencies are dictated over the long run by productivity differentials. Make no mistake about it.

People who do not understand this simple law are bound to destroy nations. And the European are finally succeeding in this historic feat.

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

5/18/10

Gold patterns

Above average trading volume is found at major tops or bottoms (click on the chart to enlarge it).

Strong volume after a period of weakness signals a bottom. Strong volume after a sharp rally suggests it is time to take some profits.

Gold seems a crowded trade. There is too much volume and the price pattern is not one of a bottom. Time will tell.

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

5/17/10

The nonsense about VIX

There is a lot being printed trying to explain volatility (VIX).

VIX rises when stocks decline and declines when stocks rise. But what is driving volatility? Most analysts say it measures fear. It rises sharply when there is a crisis as in 2008 and now (click on the chart to enlarge it).

The trend of volatility is closely related to financial risk. I show this relationship in each issue of my The Peter Dag Portfolio.

The markets recognize there is an increase in financial risk. Two things happen. The first one is that my indicator measuring financial risk rises. Then VIX rises. Finally, stocks decline.

My point is that VIX reflects financial risk, not fear. And financial risk can be quantified.

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

Inflation? Check the trends.

Those of you who follow this blog and my The Peter Dag Portfolio know that I doubt inflation is on the horizon.

Large government deficits are deflationary because they impoverish countries by reducing the purchasing power of their citizens.

The trend of the CRB confirms my view. Commodities are sinking (click on the graph to enlarge it). It is very difficult to experience inflation when commodities are sagging.

I will change my view when commodities move higher accompanied by a strong economy. Right now this is not what I see.

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

I am right on the "inflation" issue

News (Bloomberg). Commodities dropped on speculation that austerity measures planned by indebted European nations including Spain and Greece will cut growth. Crude oil traded at a three-month low, boosting the appeal of synthetic rubber made from petroleum.

My point. I have been writing to my clients in The Peter Dag Portfolio and on this blog that the enormous budget deficits are deflationary. Not inflationary as feared by most observers.

The sharp decline in oil and commodities suggests I am right. Why?

We will have to pay the bond holders of our deficits. The interest we will have to pay is a transfer of wealth from us to the bond holders.

We will have less money in our pockets. It means we lose purchasing power. We will have to spend less. And this situation is deflationary. Not inflationary. This is the meaning of the decline of commodities. This is also the reason why bond yields are not rising in the USA, as feared by most.

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

The markets always win

News. May 17 (Bloomberg) -- Asian stocks fell the most in more than three months, the euro dropped to its lowest against the dollar since 2006 and the cost of insuring bonds from default jumped on concern European austerity measures will derail the economic recovery.

My point. The markets are the ultimate umpire. The politicians can make a mess out of their countries. The only way we, the people, finally realize the grotesque situation we are in is if the markets let us know.

Yet, there are some luminaries who believe the markets should be harnessed. There is no way this can be done.

The "smart" people in government should listen to the markets because the markets are always right. They always win.

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

5/16/10

Markets open sharply lower in Asia

Monday 17. The Australian stock market was more than two per cent lower in early afternoon trade, weighed down by declines among mining and financial stocks.

The benchmark S&P/ASX200 index was 100 points, or 2.17 per cent, lower at 4511.1 points, while the broader All Ordinaries index had fallen 99 points, or 2.13 per cent, at 4544.0 points.

Materials stocks fell 3.2 per cent, financials dropped 2.7 per cent and the industrials index was 2.2 per cent lower.

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

About long-term investing

It is true that over the long term stocks have risen an average of 6.75% (see chart). The graph shows, however, that there are long stretches of time such as 1930-1950, 1969-1982, and 1998-2010 when the market shows no appreciation (click on the chart to enlarge it).

The point is that the concept of “long-term investing” is deeply flawed. It makes the investors’ life easier. But if you happen to save for your retirement during the long stretches of time when stocks go nowhere, the results could be painful.

This is the main reason The Peter Dag Portfolio uses the concept of business and financial cycles, an short-term and long-term technical and fundamental indicators as a guide to measuring risk.

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

5/15/10

Observations

The worldly philosophers tried to tell us how a country should be organized. History proved them wrong – from Plato to Marx. Why? Because there is no solution. Government, wealth producers, and the rest of us struggle to gain wealth and power. When one group becomes the dominant player, crises erupt.

This is the time when economic growth stagnates and the country becomes restless. “Greek anger rises over austerity program”, Bloomberg reports. In other countries, “general” strikes are part of the political landscape. Governments give generously. The bondholders, however, need to be paid. But countries fail to generate the wealth needed to pay the coupon.

Taxes and austerity programs are initiated. Much of the generous benefits have to be paid back through a sleuth of myriads of new taxes. Purchasing power declines, generating discontent. This is the time when people revolt. Sometimes in a peaceful way. Other times violently.

In the US, we are different. More civilized. We have tea parties. But the meaning and implications are the same. It is a revolt. A complaint against the loss of purchasing power. Against the favored groups of society. The “tea party” is spreading around the country. It is a civilized way of telling Washington that something is deeply wrong.

Mr. Clinton took a jab at these groups rallying against taxes, big government, and government overspending. The fact that Mr. Clinton mentioned them in his speech means that the politicians are taking this development seriously.
What is confusing is that first we demand social security, Medicare, Medicaid, housing and borrowing subsidies, student loans, bailouts of car manufacturing, the financial system and unions, subsidies for education and lofty pensions for municipal workers, teachers, and union members.

Then we protest because the government is overspending. And the nonsensical fight for wealth and power continues until the markets identify the winners and the losers.

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

Interesting chart pattern

In the past three years a strong rise in gold prices accompanied by above average trading volume has signaled a pause of several months in gold (click on the chart to enlarge it).

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.

Time to pay the piper for Spain

News. MADRID (AP) — Spain will cut civil servants' salaries this year as part of a deficit-reduction plan to ease worries the country will slide into a debt crisis like that of Greece, the prime minister said Wednesday.

My point. Time to pay the piper. Now people have to give back what they received lavishly from their government plus interest.

Will we ever learn? How can we learn? The problem is that there will always be another politician promising bigger and better things and the "audacity of change" and we will believe him/her. And so the wheel turns and the pendulum swings. The survivors will survive and the naive of us will pay.

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.

5/14/10

One more thought

In 2008 the USA was in deep trouble. The people in charge acted quickly to tackle our financial problems.

The Europeans stood there saying they had not our problems. They were OK because their banking system was more conservative (read: exclusive and secretive).

What we are witnessing is the delayed reaction of the European ineptitude in reacting and tackling their problems.

I am not surprised!

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.

Not good

The market was down 2.3% at 12:24pm (click on the chart to enlarge it). Not a pretty picture.

The international community is reassessing the impact of a disintegrating Europe. So far the verdict is unfavorable. Why? Because the global economic strength is like a chain. It is as strong as the weakest link.

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.

I told you so

News. May 14 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker said he’s concerned that the euro area may break up after the Greek fiscal crisis that sparked an unprecedented bailout by the region’s members.

My point. I said it (and wrote about) as soon as the EU was created that it could not last. If you lived in Europe as long as I did you know that productivity differentials between European countries is so huge that some countries are bound to be crushed by the most productive ones.

This is exactly what is happening. Why invest in Spain or Greece or Portugal when you can have higher returns in the more efficient northern European countries? A country cannot survive of tourism alone.

Many years ago Milton Friedman said it very clearly that the European experiment was bound to fail. And it has failed.

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.

5/13/10

An intriguing picture

This picture on Reuters' website intrigued me.

I understand the meaning of it and the rage of the people for the BP spill. It is ugly and should not happen.

The reason it intrigued me because it reminded me the French Revolution (1789-1799), which ended with the coming of a dictatorship (Napoleon) because "the people", after gaining independence from the king, started killing each other.

What does it mean "power to the people"? Who are "the people"? Is it you and I? Or is it "them"? How would "the people" find more energy? Ethanol? An idea that makes a lot of money for the big corn producers and ruins engines.

Who is going to rule "the people"? Isn't Obama enough. This is also a soviet slogan. Does it mean there are no parties, just one political party .. "the people"? Do we want a dictatorship?

I am raising these questions because I was surprised that Reuters was intrigued enough by the slogan to place the picture on the home page of their website.

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.

Sell in May and go away

News from Reuters. A chief acolyte of the sell-in-May school is Jeff Hirsch, editor of the Stock Trader's Almanac. He has analyzed data from 1950 through 2008 and determined the following: In the years since then, the Dow Jones Industrial Average gained an average 7.3 percent for the November-through-April periods. Total returns during the May-through-October periods were barely positive, at 0.1 percent.History doesn't always repeat itself.

However, .....the sell-in-May axiom doesn't always hold true.

My view. Over the long term the finding is true. It is a warning sign that the markets may disappoint. They become a trader's environment during the summer months.

What happens in summer depends on valuations, monetary policy, direction of interest rates, the trend of financial risk, and unemployment claims.

Some years these trends are market friendly, and stocks rise in summer. When they are unfriendly, stocks decline. On balance, over the long term, the returns are close to zero.

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.

5/12/10

How come....

Some commodity indexes are close to the same levels as June 2009 (click on the chart to enlarge it).

If the global economy was really so strong, how come commodities have not been rising?

Food for thought.

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.

Like Greece

News. May 11 (Bloomberg) -- California Governor Arnold Schwarzenegger will seek “terrible cuts” to eliminate an $18.6 billion budget deficit facing the most-populous U.S. state through June 2011, his spokesman said.

My point. This is what happens when governments lack the leadership it takes to tell people what they can or cannot afford.

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.

5/11/10

Interesting chart patterns

Trading volume is grossly misunderstood. Why? The conventional wisdom believes strong markets have to rise with strong volume. I do not share this view. This is why.

The attached chart (click on the chart to enlarge it) shows the typical volume patterns useful for short-term and long-term investors.

Above average volume following a sharp rally signals distribution and a top formation.

Above average volume following a sharp decline signals the beginning of as bottom (accumulation, panic selling, "do not talk to me about investing anymore" type of sentiment).

The attached chart shows these two patterns quite clearly. My point? Watch for above average volume. It may signal a bottom or a top depending on the action of the market prior to soaring volume.

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.

5/10/10

This is not the way to run a ship,,,,

News. Governments of the 16 euro nations agreed today to lend as much as 750 billion euros ($959.4 billion) to the most-indebted countries. The European Central Bank said it will counter “severe tensions” in “certain” markets by purchasing government and private debt. Concerns that the Greek financial crisis will spread wiped $3.7 trillion from the value of global stock markets last week.

My point. The markets are driving monetary policy. The European "leaders" were talking and talking and talking until the markets tanked.

Finally they decided to come up with a "bold" plan. We bailed out banks. They are bailing out countries. The main common theme is to print money until the problem goes away.

Is this leadership?

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.

I told you so....

On my post of 5/3/10 I told you that markets love crises. Why?

Because when there is a crisis politicians react the only way they know. They print money.

They know that the only way to solve bank crises, municipalities problems due to unfunded pension funds and budgets deficits, country defaults, .... is to throw money at the problems.

They will keep printing money until soaring equity markets will replenish the coffers of the pension funds and bankrupt countries.

Enjoy until it lasts! You know as well as I do that they are engineering the next bubble. Oh, well, we will worry about it when we get there.

Yes, you are correct. It is a big scam!

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.

5/7/10

Interesting pattern

You know by now I like to look at volume pattern. This is another interesting example (click on the chart to enlarge it).

Last December GLD spiked with above average volume. It was a sign GLD was doomed and was likely to go nowhere for a few months.

Above average volume appeared again as GLD went through a 12% correction. It signaled the correction was close to the end.

Now GLD spiked again as investors panicked because of the European crisis. Volume soared taking GLD close to the December high.

It is going to be interesting to see if GLD is going to pause again as it did in December.

Stay tuned.

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.

5/6/10

The human predicament

It is not what Larry Kudlow called "the unions protest" in Greece. It is the human predicament.

I am absolutely shattered by what is going on in Europe and watching the Greeks fighting in the streets for something they never could afford.

We bailed out GM and the financial system. We are in the process of bailing out California, New Jersey,... Now we are moving to bailing out whole countries and regions of the world.

What is sad about the human predicament is that the populace does not understand, and no one makes an effort to explain the real issues.

We (a company or country) have to earn the benefits we receive. If we do not earn and able to pay for the benefits, we are doomed. This is what happened to GM and Greece.

The politicians, instead, hide behind the stupid concept of "ideology" and give everything we need and we want. This is the real social injustice.

Now, as in the ad on TV (showing the kid disappointed because he/she was never told), the people of Greece are facing reality. They never afforded all the benefits they enjoyed. An ugly and unneeded shock.

Now the Greek government has to attract industries to produce the wealth they failed to generate.

We do not realize it, but it is also happening to us. The steady, slow, and gradual loss of purchasing power is a sign that we are paying out of our pockets for all the bail outs and benefits we do not afford.

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.

If the global economy is so strong ....

It is a fact that commodities rise when the economy is strong helped -- initially -- by easy monetary policy.

How come then that the CRB index is at the same levels as of August of last year (click on the chart to enlarge it)? Maybe this is the reason Treasury bond yields are going nowhere.

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.

5/5/10

Interesting chart from Bespoke Investment Group -

The market corrected 4.41%, in line with previous corrections since March 2009 (click on the chart to enlarge it).

I like to look at trading volume to tell me if the correction is over. The recent above average volume following the decline may suggest we are close to a bottom.

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.

5/4/10

Poor Europe! I feel sorry for you.

Europe. I have been writing for years about your problems. I lived in Europe for many years. I know the different European races and what drives their achievements. You cannot put together Germans and Spanish people, or Greeks, or Italians.

They will be crushed by the focused Teutonic prowess to produce efficiently with awesome precision.

In other words, productivity differentials between the northern and southern countries of Europe is too big to make it possible for Europe -- as it is conceived -- to survive.

Why should businessmen go to Greece when they can invest their money in a much more productive country as Germany?

Today the equity markets "celebrated" the end of the European dream. They crashed. I knew it. Milton Freedman told us the European experiment could not last the test of time.

The domino effect will probably continue, dragging the global economy down.

I know. I sound pessimistic. But I am witnessing the collapse of the "social experiment" so much touted in Europe. This is the main reason I moved to the USA.

Are we trying to do the same thing 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.

A chart pattern revisited

The point I made yesterday was that trading volume can provide (not always) useful trading opportunities.

Strong volume following a sharp correction or a spirited rally may be a signal that we are close to a turning point.

The volume pattern of XME was suggesting "distribution" (click on the chart to enlarge it). What happened is history.

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.