Peter Dag & Friends: June 2010

6/30/10

Too late, gentlemen. Too late.

News from USA Today. TORONTO — The world's leaders agreed Sunday to begin transitioning from spending to saving as they walk what Canadian Prime Minister Stephen Harper called a "tightrope" between government stimulus and debt reduction.

My point. First they gave everything we asked. And more. Then we get in trouble. Now they take it away. Now we really get in trouble.

Is this the way to run the political ship? Incredible. But there is nothing we can do about it. That's how the world works.

Our government keeps still giving ... healthcare. Do we need it? Absolutely yea. Can we afford it? I do not know. They do not know.

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.The content on this site is provided as general information only and should not be taken as 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.

Always superb research from Birinyi

From Birinyi Associates, Inc.

Over the course of the last two months stocks have become toxic in the sense that nobody wants to buy them. ..... correlation is currently as high as it was in October and November 2008. This means that when the market is down most stocks are also down and even the best stock picker will have to accept the market's daily fate.

On the bright side, we saw in 2008 that correlation levels this high were not sustainable and since this is a trailing indicator the worst might be over. Correlation peaked at the end of the decline in late 2008; not at the beginning.

My point. They always find intriguing correlations. Great work!

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

Question

News from Bloomberg. China, the worst-performing stock market after Greece, looks like a buy by almost any measure, according to top-ranked analysts of the Asian nation’s shares.

The Shanghai Composite Index’s 27 percent plunge this year, including yesterday’s 4.3 percent slump, sent its price-earnings ratio to 18, the lowest level versus the MSCI Emerging Markets Index in a decade.

My question. If China is the great growth story people believe in, how come the stock market seems to suggest the opposite? Can the market be wrong?

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

A day to forget

Yesterday was an ugly day.

The enclosed chart (source: Google) tells the whole story (click on the chart to enlarge it).

Is the market trying to tell us something and we do not want to believe it?

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

6/29/10

Did you notice....?

News.Chancellor Angela Merkel faces the biggest test of her second term today in a secret ballot to elect Germany’s largely ceremonial president, a vote that threatens to rattle her coalition.

I am probably wrong. But...we never heard about Germany until this new crisis. It was always about the UK, Australia, New Zealand, Ireland, France, or Italy (if there ws a funny story happening there).

We finally find out what is going on in the most influential country in Europe. As I said, I am probably wrong.

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

The message of the markets

The dollar is firm.
Stocks weak.
Copper weak.
Lumber weak.
Crude holding up.
Consumer confidence plunged.
Volatility (fear, risk) soaring.

Interesting trends. There is only one answer.

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

A bearish pattern?

I showed this chart before. The S&P 500 (1041.07) is still below the moving average shown on the chart, which stands at 1111.60 (click on the chart to enlarge it).

Hopefully the market will soon move above the moving average (red line).

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

To my subscribers

The market is tumbling .. again.

It looks like my proprietary financial risk indicator was sending the right message. I will update it in my weekly Market Update next Sunday.

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

It looks like this problem will stay for us for some time.

From an interview with Ferguson, the noted Harvard historian, on CNBC.com.

Spain has been lobbying the European Central Bank (ECB) not to put an end to its 442 billion euros ($542 billion) funding program this week, but a central bank official said the ECB will make sure the process will go as smoothly as possible.

"I've been nervous about European banks for quite a long time," Ferguson said in an interview.

He added that he was "amazed" about how long it took markets to realize that there was a problem with European banks, which were more leveraged than US banks, and that the assumption had always been that European governments would never do something like the US did in the case of Lehman.

"But that assumed that European governments had very deep pockets… the Greek crisis revealed the limit of this largesse," Ferguson said.

My view. Today the futures are very weak. The news is that markets are realizing the European crisis is not going away in the near future. The concern also deals with China. Its growth seems to slow down. I have shown this for some time in my The Global Business Cycle to the subscribers of The Peter Dag Portfolio.

The impact of the this global crisis is very slow economic growth, according to Ferguson and Roghoff (financial historians). It translates in slow growth in personal income. I am not sure people are planning for this possibility.

Good luck to all of us!

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

6/28/10

You have to read this article (part of it) by Amity Schlaes

George Soros has been making what he calls a “grave accusation” against Germany. The financier- philanthropist said last week that Germany is endangering the European Union by keeping wages down and pursuing a balanced national budget too aggressively. Germany’s parsimonious attitude, Soros suggests, may bring down the euro.

You get the feeling that Soros is speaking directly to Angela Merkel, trying to give the German chancellor a kindly tutorial. In a speech at Humboldt University, Soros said that Germany had understandable reasons for pursuing thrift. But, he added, the country should spend more and advocate aggressive spending and looser money by the European Investment Bank and the European Central Bank, respectively.

Soros implied that Germany should look to the U.S., where President Barack Obama has spent vigorously and Federal Reserve Chairman Ben Bernanke has created money for the greater good. Soros, the tutor again, underscored that Germany clearly “does not know what it is doing.”

It is time to turn the question around, and make a grave accusation against Soros. It is Soros who is endangering the euro by advocating these spending and loosening policies. They are policies that may give Europe budget problems that render its currency vulnerable to attack by Soros-like traders. Perhaps, like Merkel, Soros is doing his endangering for understandable reasons. Nonetheless, the danger is there, and worth laying out.

My view. I do not understand why the Europeans (and the USA) keep spending when they cannot afford it. It makes sense politically. But we are paying the price. The Germans may be right.

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

Interesting pattern

GLD cannot make it!

The $122 resistance level is an insurmountable level for GLD (click on the chart to enlarge it). Watch it carefully ... it might be important.

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

6/27/10

Much ado about nothing?

Comments by Harvard University's Kenneth Rogoff, co-author with Carmen Reinhart of This Time Is Different: Eight Centuries of Financial Folly. Excerpt from USA TODAY.

Q: How well does the legislation address the main causes of the crisis?

A: My gut instinct is that it's done with a very light touch, whatever the spin on it is, and it leaves a lot to the regulators to really turn the screws — and gives them the option to do it or not. Or, possibly turn the screws now, but then as things seem better 10 years from now, they may start relaxing again. Just as they did this time. The regulators had a lot of levers to control things, and they didn't exercise them. We don't really seem to be seeing fundamental reform. We really don't.

My point. The more things change the more they stay the same. The last word is that of the markets.

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

6/26/10

Have a nice week-end

Exciting. Takes your mind away from all the problems. Enjoy!

George Dagnino

It's coming to America

News. “States are going to have to cut back spending and raise taxes the same way Greece and Spain are. That runs counter to stimulating the economy and will put a big damper on the recovery in the latter half of this year.”

-Dean Baker, co- director of the Center for Economic and Policy Research in Washington.

Even as the U.S. appears to be on the mend — gross domestic product has climbed three straight quarters — finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution. State spending is 12 percent of U.S. GDP . . .

State budget woes are a worsening drag on growth as the federal government tries to wean the economy from two years of extraordinary support. By Jan. 1, funds from the $787 billion federal stimulus bill will dry up. That money from Washington has helped cushion state budgets as tax revenue has plunged.

My view? 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

6/25/10

Interesting patterns

In today's dull market at best, the leading sectors were very strong.

The metals (XME) were up 2.67% (click on the chart to enlarge it), insurance (KIE)+ 2.15%, real estate (IYR) +2.55%, financials (XLF) + 2.70%, and regional banks (KRE) +2.48%.

I found interesting (constructive?) that metals, real state, and financial stocks -- a fairly diverse group of sectors -- were much stronger that the broad averages.

Is this pattern telling us to look for a summer rally? I sure hope so.

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

Double dip?

By Christopher S. Rugaber, AP Economics Writer. WASHINGTON — The government lowered its estimate of how much the economy grew in the first quarter of the year, noting that consumers spent less than it previously thought.

Gross domestic product rose at a 2.7% annual rate in the January-to-March period, the Commerce Department said Friday. That was less than the 3% estimate for the quarter that the government released last month. It was also much slower than the 5.6% pace in the previous quarter.

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

Observations

Events develop beyond our control. We seem to be smart. Nobel prizes. Plenty of PhD’s. Famous chairmen of the Fed adulated like gods. Presidents associated with the best of times. Executives thought to have exceptional managerial skills – to learn they left a company on the brink of bankruptcy. We like to believe. We need to believe. We are afraid of “revolting”, as the French thinker Camus would say. Because we do not know the outcome.

Asking for more is an expression of revolt. We want more because survival and well-being is our priority. We ask those controlling wealth and power for help. They give because it is a way to keep our revolt in check. Controlling the flow of resources is the ultimate expression of power. Power and wealth, however, have to deal with the dynamics of the markets.

GM workers asked and “revolted”. Management gave, recognizing the consequences, but letting the problems fall on the shoulders of the next generation. The Greeks asked and achieved their objectives through “revolt” (strikes). Portugal, Spain, the UK, and Italy have followed the same path.

Now the markets are catching up with the generosity of those in power. Slowly, whatever resemblance of wealth these countries enjoyed is being destroyed by forcing the populace to pay the bondholders.

We thought to be wealthy. It was a mirage. The demographics and the politicians encouraged our beliefs. Standards were lowered. The “revolt of the poor” was recognized. More and more was given. Power was slowly concentrating in Washington. Not by design. By necessity. People asked. Laws were passed to give.

Governments now control incredible sums of money (deficits). They are the intermediaries between us and the bondholders. Trillions of dollars go through the capitals of Italy, France, USA, Spain, Greece,….

It is in the lenders’ interest to keep us paying the interest. It is good business practice. But we have to produce the wealth to pay. The alternative is incredible loss of standards of living (which is already happening). Will most of us depend on the government’s largesse?

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

6/24/10

The problem with the housing sector

News from NAR. Existing home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, were at a seasonally adjusted annual rate of 5.66 million units in May, down 2.2 percent from an upwardly revised surge of 5.79 million units in April.

My view. The housing sector remains in trouble. Why?

There is a huge number of unsold homes -- 8.3 months supply. This figure is down from the 9.7 months supply at the beginning of the year.

It will take a long time for this huge inventory to decline to a normal 4 months supply. Why build new homes when there is still a huge number of them for sale?

This sector will continue to be a drag for the economy and could be the main cause for a double dip.

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

6/23/10

Global slowdown?

News. The eurozone’s economic growth spurt is showing fresh signs of losing momentum with a closely-watched survey flashing warnings of a slowdown ahead.

June’s purchasing managers’ indices for the 16-country region indicated that the brisk pace of export-led economic expansion seen in the second quarter of this year marked a peak in the upswing

My view. The FOMC comments are more cautious about the US economy. Europe seems to slow down.

What's next? Print more money! Which is good for the markets.

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

Moving averages

The market (S&P 500: 1092.67) is struggling to stay above this important moving average (1112.20). Click on the chart to enlarge it.

It is in the interest of the Fed and of the administration to keep the bull market going. It will help all those municipalities with their dangerously under-funded pension funds.

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

6/22/10

Thoughts

Why have we been obsessed by the "energy crisis" for decades and done nothing about it?

Just raise taxes on gas, as in Europe. People will be forced to consume less. Cars become more efficient. We will be forced to develop more intelligent ways to transport people. Trains anyone? What a wild and novel idea!

High government deficits? How about selling all those unproductive and poorly managed assets governments own?

But the bureaucrats do not want to let go their little empires.

It is all about power.

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

Just hide what you do and everything is going to be OK.

News from The Akron Beacon Journal. Despite spending more than $4 billion annually on state and local government pensions, Ohio taxpayers have little access to retirement records.

They cannot find out how much individual public retirees receive.

Or how much workers — and taxpayers — paid toward their pensions.

Or how many years they worked.

Or even, in some cases, who’s getting the benefits.

State law prevents Ohio’s five public pension systems from disclosing many details about individual retirees.

With state leaders discussing reforms for the pension systems and the possibility that taxpayers may be asked to contribute hundreds of millions of dollars more annually, that lack of openness raises questions (Information has been corrected to fix an error. See correction at end of story. 7:54 a.m., June 21, 2010).

How can taxpayers be assured that they aren’t being taken advantage of? How well do pension systems track and catch potential abuse? And how can state lawmakers consider changes without examining the specific details?

My point. People pay taxes and then they cannot find out what happened to their money.

My suspicion, and it is an educated guess, is that the politicians would make every effort to publicise it if the pension fund was doing spectacularly well .

One more point. This is the reason the Fed has to keep printing money. To revive pension funds around the country.

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

6/21/10

As I suspected (see a previous post)

News. June 22 (Bloomberg) -- China’s yuan declined the most since December 2008 on speculation the central bank will encourage more two-way fluctuations in the exchange rate after it pledged to expand flexibility.

My point. Currencies reflect differentials in economic growth, inflation, productivity, and government policies between two countries.

China's economy is going to be one of the weakest in the world in the next foreseeable future. It is reasonable to think that the renminbi would devalue rather that appreciate.

China needs a weak currency to stimulate a sagging economy. What if I am right?

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

Oops!

China announced to let the renminbi float...and the dollar strengthens and gold declines.

Is the China announcement a non-event?

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

Fascinating

News. (Reuters) - China's yuan hit a five-year peak on Monday after Beijing suddenly relaxed controls ahead of this weekend's G20 summit, sparking stock gains around the world and questions about just how far China's new currency flexibility would go.

My point. What I find fascinating about the story of the renminbi revaluation is that the dollar strengthened at 2:43pm est and GLD sharply lower.

It would interesting to see the yuan devaluing because China is in the midst of an economic slowdown with the housing sector particularly weak.

The populist press believes just about anything.

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

6/20/10

It's a big party

News. June 21 (Bloomberg) -- Asia shares, U.S. stock index futures and commodities surged after China signaled it will unshackle the yuan’s fixed rate to the dollar, boosting investor confidence. Yuan forwards strengthened to a seven-week high.

My view. It is a big party. A financial orgy driven by governments scrambling to correct previous mistakes. Strictly for their own interest.

No one really knows what is going on. Is it good? Is it bad? Just printing a lot of money. Try to catch some.

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

In case you forgot. This is what happens when governments want to help us.

From the New York Times. Fannie and Freddie increased American home ownership over the last half-century by persuading investors to provide money for mortgage loans. The sales pitch amounted to a money-back guarantee: If borrowers defaulted, the companies promised to repay the investors.

Rather than actually making loans, the two companies — Fannie older and larger, Freddie created to provide competition — bought loans from banks and other originators, providing money for more lending and helping to hold down interest rates.

“Our business is the American dream of home ownership,” Fannie Mae declared in its mission statement, and in 2001 the company set a target of helping to create six million new homeowners by 2014. Here in Arizona, during a housing boom fueled by cheap land, cheap money and population growth, Fannie Mae executives trumpeted that the company would invest $15 billion to help families buy homes.

As it turns out, Fannie and Freddie increasingly were channeling money into loans that borrowers could not afford. As defaults mounted, the companies quickly ran low on money to honor their guarantees. The federal government, fearing that investors would stop providing money for new loans, placed the companies in conservatorship and took a 79.9 percent ownership stake, adding its own guarantee that investors would be repaid.

My point. This is an important lesson we should not forget.

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

Imperfect indicator...

Barron's publishes this indicator every week (click on the chart to enlarge it).

It is not perfect. It correctly signaled the correction which began in January and April when it reached 40. It incorrectly predicted a correction in July of last year.

Right now this gauge is in the process of becoming bearish. It remains to be seen if it rises to 40.

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

Smile...

...and have a nice week-end.

George

6/19/10

Good news?

This chart shows a well known pattern (click on the chart to enlarge it).

Rising volatility is associated with fear, usually bad news coming from Europe or from actions of some governments around the world. The bottom line is that rising volatility is associated with declining stocks.

Declining volatility reflects confidence and a sense that world affairs are under control.

The good news is that volatility has been declining and the market has been heading higher. Let's hope these trends continue so that we can make some money.

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

An interesting pattern

I showed this chart before (click on the chart to enlarge it). It shows the S&P 500 and its moving average.

The index remains below its moving average and reflects an above average loss of momentum. The graphs speak for themselves.

If I had a choice I would like to see the S&P 500 above the moving average, not below.

Hopefully the market will bounce back above the red line.

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

6/18/10

Reality of America’s fiscal mess starting to bite

This is the beginning of an interesting article on the FT. Published: June 17 2010 16:15

If you pop into a toilet on the Seattle waterfront this summer, you might see over-flowing bins. The reason? A polite notice explains that “because of 2010 budget reductions”, the Seattle government can no longer afford to “service this comfort station” each day. Hence the dirt.

My point. Large deficits force us to reduce important services in spite of a bloating bureaucracy. Quality of life decreases as we are forced to face reality.

We cannot afford many things we took for granted. Although the headline on FT is exaggerated, it makes the point and warns us of things to come.

The tightening of fiscal policy really means that the government is taking back the many services we enjoyed but we could not afford because we did not generate the wealth to pay for them.

These events are beyond the political "color". It is just an expression of the social pendulum swinging the other way as politicians keep busy solving yesterday's problems.

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

6/17/10

Interesting patterns

Gold (GLD ETF for gold) has an interesting pattern (click on the chart to enlarge it).

Patterns. The trend line is clearly up. The other pattern is the attempt of GLD to move above the resistance level of $122.

If GLD does go above the resistance level it may signal the resumption of GLD bull
move.

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

I told you so

News. The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.2 percent in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 2.0 percent before seasonal adjustment.

My point. The gurus were predicting soaring inflation and sharply higher bond yields because of government deficits.

I have always maintained that large government deficits reduce our purchasing power because we have to pay the interest to the bond holders who are financing the deficit.

There is a huge transfer of wealth from us to them. We just cannot afford buying what we used to. Prices have to come down.

Deflation is the issue. Not inflation.

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

Bad news for housing?

The price of lumber is sinking (click on the chart to enlarge it).

Is the market telling us the housing boomlet is over? If so, what are the implications for employment and the overall economy?

Good news for bonds (because of the weak economy)? For equities (because it forces the Fed to keep printing money)?

Interesting questions. Do you have an answer?

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

6/16/10

To my subscribers

It looks like I have been right.

So far, so good.

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

Pendulum

What to do about world problems?

1. Central banks must keep printing money to keep equities rising and save pension funds.

2. Keynes told governments to spend to come out of recessions. Now the markets are telling governments to sell the assets Keynes told them to buy.

Yes, the universal constant is change. Make sure you invest in the direction of the move of the pendulum.

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

Thank you Timer Digest

I was ranked:

...No. 1 timer over the past 3 months,
...No. 3 timer over the past 6 months,
...No. 3 timer over the past 12 months.

(Source: Timer Digest)

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

6/12/10

Chart patterns

If stocks are a leading indicator, China may be going nowhere. But the technical features of the chart are more interesting (click on the chart to enlarge it).

1. Note how FXI is close to a resistance level (close to $38).

2. Trading volume is above average after a meaningful correction. It shows before a rally.

3. FXI is moving higher.

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

Thought of the day

News. A $1 trillion aid package from the European Union and International Monetary Fund may delay a Greek default and give Spain, Italy and possibly Portugal time to get their finances in shape, averting a wider contagion, analysts said. Greece’s debt burden is likely to prove unsustainable, said Thomas Mayer, Deutsche Bank AG’s London-based chief economist.

My point. Is the world going to be "owned" by international financial institutions?

A large percentage of the population is "owned" by banks. People work hard so that they can meet their interest payments.

Some corporations work with the only purpose to meet their interest payments.

Are nations ending up in the same position? Are governments and billion of people going to work with the only purpose to meet their tax payments so that the government can pay the interest to the bond holders?

This is really a scary Armageddon scenario. But the trend seems to be in that direction.

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

No recession in the next 5 months

This interesting chart (click on the chart to enlarge it) show the probability of a recession.

It is calculated using the shape of the yield curve. The current probability is close to zero.Note that this curve leads the beginning of a recession by 5-18 months.

In other words, the Fed is too easy for the economy to go into a new recession in the next 5 months.

What we might experience is a slowdown.

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

6/11/10

Double dip?

A graph is worth a thousand words.

This chart shows a peak in the growth of the global economy (click on the chart to enlarge it).

It is too early to say if the trend will continue. But the pattern is very interesting. It may explain why commodities and yields are heading down.

Stay tuned.

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

Interesting patterns

I like to look for patterns (click on the chart to enlarge i).

Above average volume is an important gauge. It usually appears at bottoms. It signals capitulation, which is bullish.

Strong volume, however, can happen during a strong rally. It shows there are too many buyers, and they cannot be all right. This is clearly a sign of distribution, which is bearish.

This last pattern is particularly telling if it takes place near a resistance levels.

An important rally is under way if the resistance level is broken on the upside with above average volume.

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

6/10/10

I could not stop thinking.....

I like to watch CNBC's Fast Money at 5:00 pm.

I look for a statement, an unusual or meanningful idea. Just one. Sometime it happens.

Last night I kept thinking over and over again how bearish everybody was. Including Gartman. "The trading day opens strong and then the market closes down. This is what is happening and this is what you see in a bear market."

I kept thinking that maybe this is the time the market will prove wrong all these smart people. In other words, all this bearishness could very well be the signal that the correction is over.

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

6/9/10

It is the fault of the markets. Of course!

News. June 9 (Bloomberg) -- France and Germany called on the European Union to speed up curbs on financial speculation, saying some bets against stocks and government bonds should be banned as markets suffer a resurgence of “strong volatility.”

My point. Incredible. First they make a mess of the European economy by printing money and making social engineering their top priority.

Finally, when the problems emerge because they borrowed too much money to pursue their socialist dreams, they say it is the markets and the speculators which are at fault. How can they expect us to believe this nonsense?

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

These are the forecasts of the Fed when the economy was on the edge of the recent economic collapse

"Economic Projections for 2007 and 2008

In conjunction with the FOMC meeting in January, the members of the Board of Governors and the Federal Reserve Bank presidents, all of whom participate in the deliberations of the FOMC, provided economic projections for 2007 and 2008. The projections indicate that the participants expect sustainable expansion of real economic activity during the next two years, assuming an appropriate course for monetary policy.

The central tendency of the FOMC participants' forecasts for the increase in real GDP is 2-1/2 percent to 3 percent over the four quarters of 2007 and 2-3/4 percent to 3 percent over the four quarters of 2008.

The central tendency of their forecasts for the civilian unemployment rate is 4-1/2 percent to 4-3/4 percent in the fourth quarter both of this year and of 2008. For inflation, the central tendency of the forecasts anticipates an increase in the price index for personal consumption expenditures excluding food and energy--the so-called core PCE price index--of 2 percent to 2-1/4 percent over the four quarters of 2007 and 1-3/4 percent to 2 percent over the four quarters of 2008."

My point. The world stops when the chairman of the Fed speaks. The above forecasts show how naive we are in thinking they have insights that can keep us out of trouble.

Bernanke is giving his testimony to Congress this morning. How relevant is it in light of the above record?

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

6/8/10

An optimist view from a wise investor

News. June 7 (Bloomberg) -- Confidence in stocks is sinking to record lows in the options market even with the U.S. economy poised for its fastest growth in six years, a sign to Blackstone Group LP’s Byron Wien that it’s time to buy.

“People are trying to protect themselves and they are willing to overpay for it,” said Wien, 77, the Blackstone adviser who foresaw last year’s gains in stocks and oil and predicts the S&P 500 will rally to 1,300 before ending 2010 little changed. “Bearishness is high. The best time to buy stocks is when the level of bearishness is at a peak.”

My view. He is a smart and astute strategist.

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

Are we living in depressing economic times?

News. William C. Dunkelberg, NFIB’s chief economist says the economy remains very weak:

“The performance of the economy is mediocre at best. Given the extent of the decline over the past two years, pent up demand should be immense, but it is not triggering a rapid pickup in economic activity. “Compared to past recoveries, it is clear that the current economic recovery has not impacted the expectations of small business owners. They do not trust the economic policies in place or proposed and are distressed by global and national developments that make the future more uncertain.”

My point. It is difficult to be optimist. Bad news follows worst news. And our leaders do not seem to be concerned. They are telling us everything is great.

Do the markets agree? If the economy is so great why are commodities plunging and stocks sinking?

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