Peter Dag & Friends: February 2012

2/29/12

Productivity is an important concept. Unfortunately people yawn when one starts talking about productivity and therefore little is being said about it. But it is a concept which has a major impact on the dollar, profits, and the stock market.

Productivity measures the efficiency of the country. Its growth tells us if we are getting wealthier or not. Let me explain.

In my talks I give the example of a shoemaker. If he makes one pair of shoes in one day and sells them for $50, he makes $50 in one day. If, however, he finds machines that improve his work and he can now make two pairs of shoes, he can make $100 in one day. The shoemaker doubled his income by doubling his productivity measured in output per man hour.

If the shoemaker becomes lazy, however, and makes one pair of shoes in two days, his income per day is cut in half. Outcome: lower productivity results in lower income.

The point is that our income and overall wealth improve as we improve our productivity. If our productivity slows down, however, our wealth declines. This is the first major implication.

Personal wealth increases with our personal productivity - by getting educated, working hard, investing, and managing wisely personal finances. The low productivity people, unfortunately, become the disadvantaged among us.

The reason the productivity of the US is slowing to a crawl is due to the overwhelming number of low productivity people and industries in our country. Food stamps and other safety net programs help them survive. Not to become more productive. Only massive educational programs can help improve the status of the disadvantaged.

The problem with low productivity growth is that business cannot absorb costs. Labor costs per unit of output increase as productivity slows down. The reason Italy, Greece, Spain, Portugal are in deep financial trouble is because their productivity growth is dismal and therefore they have the highest labor costs in Europe, thus offering little or no profit opportunities to entrepreneurs.

Low productivity growth is typically associated with high trade deficits. People tend to buy products that offer value – low price and high quality – relative to the products made in the home country. It is no coincidence that our trade deficit is enormous. Why? There are few industries making products needed by the global markets. We want to buy “their” products, but they do not care about what “we” produce.

One major impact of low productivity. The country with low productivity has to sell its currency to buy the currency of the country producing the products we want. The outcome is a decline in the currency of the low productivity country and an appreciation of the currency of the higher productivity country.

Finally, low productivity forces the country to borrow to finance not only bloated governments and financial systems, but also the purchase of goods and services from other countries thus increasing its overall deficit.

Some observers say that the printing press of the Fed is causing the dollar to weaken. This is absolute nonsense. The reason they are printing money is because the Fed is trying to keep the economy going by compensating with money our lack of productivity. If our productivity growth were 3% - instead of zero percent – the economy would grow at a healthy 5%-6% pace and the Fed would not have to save us with a deluge of money.

The bottom line is that slow growth in productivity is a reliable harbinger of slow economic growth, reduces our wealth, raises labor costs, dampens profitability, weakens the dollar, increases our trade and overall deficits, and discourages foreign entrepreneurs to invest in our country.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/28/12

Observations

The Empire strikes back. I heard on C-SPAN the interview with N. Ferguson, author of Empire, at the Council on Foreign Relations. The book deals with the history of the British Empire and what lessons can be learned from its growth and demise.

Most of the interview focused on his thesis that the USA is an empire -- a good empire -- trying to create a democratic world. According to a former Director of Central Intelligence there are now 120 democratic countries out of 192 thanks to our leadership.

However, the author suggested, we have to learn what it takes to be a successful empire. We have military bases scattered around the world. We have the most sophisticated and powerful war machine that ever existed.
Our proconsuls - to use a Roman Empire terminology – and their war machine are dispatched with amazing speed around the world to change regimes, to fight criminals and terrorists, and to impose a new order.

The problem we have, Mr. Ferguson suggested, is that we fail to acknowledge we are an empire and that we make logistic mistakes. For instance, we lack the administrative and bureaucratic organization to effectively manage the transition to the new regime following the well-discounted war victory.

We are now deep in foreign lands. We are now the rulers of the Middle East. Bin Laden was an enemy located far away from us. Now he is at close range, living within the territories we have conquered. I am sure he must have been surprised by our agility and determination.

He did not like it that we had bases in Saudi Arabia. Well, now we are in Iraq, Kuwait and Afghanistan. Turkey and Syria are following our “suggestions”. Jordan and Egypt are friendly countries. Saudi Arabia and Morocco are being forced to do something against terrorists following the recent attacks.

The outcome is that the Palestinians are being isolated. Did our proconsuls create a fertile territory for a lasting peace in the Middle East? Let’s hope so.

(This Observations appeared in the 5/26/03 issue of The Peter Dag Portfolio).

2/27/12

I said it before

Bloomberg- The richest 70 members of China’s legislature added more to their wealth last year than the combined net worth of all 535 members of the U.S. Congress, the president and his Cabinet, and the nine Supreme Court justices.

In any economic system the objective of the game is achiving power and wealth. Nothing else matters. That we like it or not.

Keep track of this date

March 20 is the day when Greece debt is rolled over and restructured.

Will the owners of the debt actually do it?

Is the today's market malaise just the beginning of what is going to happen?

We urge you to check out our indicators.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

A great animated chart by the NYT on the growth of the government safety net.

Click here to review the chart.

Government benefits across the US have nearly tripled from a modest 7.8% of all personal income in 1969 to 17.6% in 2009.

2/24/12

Food for thought

Der Spiegel - After violating European Union deficit rules in recent years, Germany's budget shortfall in 2011 plunged to just 1 percent of gross domestic product, well below the 3 percent limit. The economic outlook for 2012 may be improving as well.

The current estimate by the CBO is about 10% of GDP for the US in 2011.

The strength of the German economy can be found in high productivity, low labor costs when adjusted for productivity. This translates in low deficit, a solid economy, and the real reason behind the "surprising" strength of the Euro.

Too many bears?

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/23/12

Thought of the day

Find an investment theme you agree with. Find a trend. Invest accordingly.

If the trend moves against you, modify the investment theme. And find a new trend.

I know, it sounds obvious. How many times we stay with an investment theme even if we lose money.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/22/12

The European crisis and investing

Observations

I am writing these thoughts as we are taking off from St. Martin heading for Miami. The color of the water below is just spectacular. We recognize all the little coves. We sailed in this area 3 times.

This year we decided to go to Guadeloupe for our yearly sailing cruise. It is a much different cruising ground from the BVIs or St. Martin.

After the debriefing, I asked Pierre, the Belgian born owner of the charter company, about life in Guadeloupe. He complained that business was slow and Americans, once 50% of his business, decided to abandon the beautiful tropical island.

Pierre complained about major and widespread strikes. Gas stations were closed for several days. Finally, the authorities intervened opening a few of them. Queues and uneasiness were staggering.

Hotel personnel were also on strike without sparing five star hotels. Garbage was thrown on the entrance and engine oil was poured in the swimming pools.

The fuel dock we went to for re-fueling was closed. The person in charge was out for his two-hour lunch. No one was there to help us dock, in spite of substantial unemployment. The unions are very protective of those who work and do not allow temporary workers.

Besides, employment regulations are so complex that business is reluctant to add permanent employees.

Lastly, Pierre is going out of business because of higher taxes legislated in France (Guadeloupe is a French overseas department).

The European concept of work ethics was transplanted here in this tropical paradise in all its nuances.

There is no doubt in my mind that what makes the English speaking people the dominant geopolitical force is their exquisite work ethic, their sense of fair play, and the wonderful habit of smiling even when they do not feel like it. It becomes obvious when you travel overseas.

(This Observations appeared in the 5/12/2003 issue of The Peter Dag Portfolio).

2/21/12

The business cycle is alive and well.

This short-review of the business cycle could be very important to investors....especially now.

2/20/12

Germany will pay dearly

Forcing austerity on the Mediterranean countries is causing recessions and possibly depressions.

Germany is not isolated from these huge problems. They trade quite extensively with the rest of Europe.

Germany will be dragged down and sink. European output is already sinking.

Why, I ask? Why all these craziness when it is a well-known fact that the markets always win!

About tax receipts

This chart shows two lines. One line is the growth in real GDP (red line). The second line is the growth in tax receipts (blue line). Click on the chart to enlarge it.

Tax receipts are slowing down in a worrisome way. They are slowing down reflecting slow growth in GDP.

Can tax receipts growth faster if the economy remains sluggish? These graphs suggest that it is highly unlikely.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/19/12

There is a lesson

The Telegraph - Italian tax agents donned skis, gloves and goggles to launch an unusual blitz in the chic ski resort of Courmayeur, two months after a similar raid on another playground of the rich, Cortina d'Ampezzo.

1. Taxes increase to pay for ludicrous government spending....
2. People and businesses evade taxes...
3. The economy goes underground...
4. The bureaucracy increases to maintain control of what is going on...
5. Go to 1.

2/18/12

About fanaticism

The Guardian concludes a recent article ..... Europe does not seem pleasant, prosperous or peaceful today. When historians write about the end of its postmodern utopia, they will note that it was not destroyed by invading armies anxious to plunder Europe's wealth or totalitarian ideologues determined to install a dictatorship, but by politicians and bureaucrats, who appeared to be pillars of respectability, but turned out to be fanatics after all.

When will the world wake up and recognize what is being done to the European people?

2/17/12

Listen very carefully -- in Europe they are killing democracy. They do not see it. The people are not recognizing what is really happening. Europe is collapsing because is controlled by technocrats. Concentration of power leads to economic disaster!

Thought of the day

CNN Money - Investors on edge awaiting Greek bailout.

Buy the rumor. Sell the news.

The markets always win. A bad idea is always a bad idea. They are trying to convince investors the Euro is a viable concept.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

What bothers me.

What is bothering me is that too many "experts" are expecting a market pause around 1350 - including myself. Some I respect, like Zulauf, are even predicting a decline of 20%. Others even deeper losses.

The only way for the market to fool everybody is to keep going up. Break through 1350 with rising yields and strong commodities. Gold could possibly participate.

Get everybody excited and then convince investors to vote for the incumbent president.

Not coincidentally the money supply M2 is soaring.

Time will tell, of course.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/16/12

Technical patterns

The market is having problems moving above 1350. It will have to regroup.

Declining yields, rising volatility (VIX), and weak commodities seem to confirm investor's concerns.

Sell in February and go away? Time will tell.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

The real problem

(Bloomberg) - Pick a rogue, any rogue: Villains pervade the story of the worst financial train wreck since 1929.

Yet economist William A. Barnett resists the urge to wag a scolding finger at greedy bankers, feckless homebuyers or even Alan Greenspan, whom he calls a salesman, not a monetary maestro.

“While there is plenty of blame to spread around, something deeper has happened and needs to be understood to recognize the real source” of the crisis, says Barnett, a former Federal Reserve Board staffer.

That “something” was shoddy monetary data and how they fooled some of the smartest people on Wall Street, he argues in “Getting It Wrong,” an important contribution to our understanding of the $2 trillion meltdown.

The real problem is that the government, any government, should be out of the housing business and let the banking system work as it should.

Eventually markets have a knack to catch up with bad idea. And this one, like the Euro, have proven to be bad and catastrophic ideas for many people.

2/15/12

I love this guy!

2/14/12

Technical patterns

Late night.

Stock futures are strong. Commodities firm.

The S&P 500 above 1350. It looks like is going to break up. Let's hope so.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/13/12

Technical patterns

1359 is a formidable resistance level for the S&P 500. History shows that it will probably take some time to go through it. If it does, given that many risk gauges have turned favorabky, it may turn out to be a big move,

Time will tell.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/11/12

Is this the big European dream?

As someone who lived in Europe for a long time, I feel distressed looking at these pictures. The European torment. Why? Why all this is happening?

Was this the promise? Is it worth having the Euro when millions of people are driven in total misery?

When will Europe turn the clock back and become again the old, friendly Europe where the myriads of different cultures are allowed to flourish again and not crushed and humiliated.

I keep asking myself...why?....why?....why?

The wrong issue, Mr. Monti

(Reuters) - Italian Prime Minister Mario Monti said Rome will not need bailout funds to overcome its debt crisis, but he reiterated that Europe should build large financial firewalls to "impress the market and take the perception of risk away."

Europe does not need firewalls. Governments have to learn to be more open and responsible to their citizens and not guide them to financial collapse.

2/10/12

Where are we going?

So it is with great concern and sadness that I see a creeping Peronism happening in the U.S. economy under President Obama. Consider this latest headline: "Obama to Announce Contraception Rule ‘Accommodation’ for Religious Organizations." What business does our president have telling organizations and insurance companies how they should run their business, what kinds of healthcare policies they can offer, and whether or not they can charge for contraceptive services? This goes way beyond right-to-life issues, religious freedom, and the ObamaCare mandate, as John Cochrane so nicely explained in his WSJ article yesterday. It's all about whether we are going to have our economy and our personal decisions micro-managed in Washington. (Source: http://scottgrannis.blogspot.com)

Thought of the day

With all the problems facing the US and Europe, should a president of the United States have anything else to do than give directives to the nation on television about contraceptives?

What am I missing?

George

Europeans ... wake up!!!

From Bloomberg: "Greek police used tear gas against masked protesters in central Athens after they attacked police and stores at the end of a march against austerity measures. Greek unions held their second strike in a week against the proposed measures as Finance Minister Evangelos Venizelos pressed lawmakers to yield to conditions for a bailout, saying a refusal would open the way for the country’s exit from the euro. Nicole Itano reports on Bloomberg Television's "InsideTrack."

Europeans, you have been cheated. They (the European founders) promised progress and well being for the continent. The Euro was supposed to be the solution of all your problems.

Europeans, look at yourself in the mirror. You are being humiliated, crashed, in total disgrace.

The concept is totally unworkable, as I have been saying at least since 2003. Wake up. Fire all politicians. re-gain your dignity!

You cannot be in an economic union with Germany. Their industrial power is crashing you because you cannot devalue your currency to remain competitive and delude yourself you are doing OK. Even if you are not.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/9/12

Thought of the day

I was having breakfast and watching the business channels. Every expert was cautious about the market. It went too far. It needs rest. 1350 is an important resistance level. Etc. Etc....

Everybody seemed afraid of the market.

It made me think. What would be the contrary view? Will the market surprise everybody on the upside? Going through 1350...up, up, and away?

Have a good and profitable day!

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/8/12

Observations

It is easy for investors to know what to buy and when to do it. Optimism, more often than not, obscures the decision process, making it easier. What is more difficult is selling your positions. Why should you sell? When? How much?

In my talks I delve on the need for an investment process. Buying and selling decisions should relate not only to the specific stock, but also to the overall investment strategy and profile of the investor.

My personal investment strategy is based on my beliefs, which originate from years of research, and on my personality. My paramount objective is to minimize risk. This forces my investment posture to be flexible, and to reflect and adapt to the changing economic and financial environment.

The time to sell is when you realize you have made a mistake and the action of the stock does not fit your strategy and hinders the performance of your portfolio. My selling criteria may be different from yours, because my investment style is different from yours. I follow these criteria. Start selling when ….

1. … the stock becomes more volatile than the market, thus adding risk;
2. … the stock begins to under perform the market or other stocks in the portfolio;
3. … the stock declines close to 10% on light volume.

I made two major bad choices for my clients in the recent past: MO and BBT. My action for my clients has been to gradually sell and transfer capital to better performing stocks.

Which brings me to another important consideration. Small decisions are psychologically easier to accept. If you are not happy with the performance of one of your positions, reduce in small steps your holding. Increase the amount of better performing positions. But do not exceed 3-5% of the total portfolio.

Finally, do not sit on your hands. A Zen saying goes like this: When in doubt, ACT!

(This Observations appeared in the issue of 4/21/2003 of The Peter Dag Portfolio).

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/7/12

What caught my attention

Something very peculiar is happening. It may have profound importance. German bond yields have been rising. Why? Have global bond yields bottomed?

Bond yields have a way of sending important messages. Time will tell.

On a different subject. Today waa full moon. And the market moved higher. Really crazy.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/6/12

Thought of the day

Our low productivity growth (see next issue of The Peter Dag Portfolio for in depth discussion) is the main cause of:

>>>> Dismal economic growth.
>>>> Slow income growth, especially in the uneducated class.
>>>> Increase in production costs, thus depressing profits.
>>>> Poor stock market performance.
>>>> Large trade deficit.
>>>> Large government deficit.
>>>> Weak dollar.
>>>> Large sums of money printed by the Fed to compensate for our lack of growth.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/5/12

Thought of the day

Every day I read the major European magazines on the Internet. I try to capture the mood of the events. I know Europe all too well.

I lived there. I have a feeling for the continent. I know the culture. When I was young the Europeans liked each other. Every country had something to offer that was pleasant. Different personalities.

Now, when I read the press I am beginning to sense hate. Hate for Germany. The magazines start insulting and make fun of the various cultures and way of living.

I do not know who is right or who is wrong. But I know one thing, one important thing. Everything changed with the advent of the Euro. And all this is not what it was supposed to happen.

Europe should go back to the old days when the Germans were Germans, the Greeks were Greeks, the Italians were Italians.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/4/12

Observations

The ECB, UK , and Swiss central banks cut interest rates. Why? The global economies, as predicted in this advisory, are in trouble.
The markets are forcing the hand of policy makers. As usual, they are pushing the policy makers to act. The markets, not surprisingly, always win. Why? Because the business cycle keeps moving inexorably through its phases, as day follows night.

Phase 1. Following 12-24 months of business growth, inflation, commodities, and bond yields move higher. Because of rising costs, business becomes more cautious. The money supply slows down as business borrows less. Liquidity shrinks. The stock market declines. The dollar peaks.

Phase 2. After 12-24 months of slower growth in liquidity, business activity weakens as inventories keep accumulating. Commodities, inflation and bond yields continue to rise. Stocks and the dollar remain weak.

Phase 3. Following 6-12 months of slower growth in the economy, commodities, inflation and bond yields decline. Stocks and the dollar are not declining as rapidly as in Phase 1 and Phase 2.

Phase 4. Business begins to borrow following 3-6 months of lower interest rates, commodities, and inflation. Reason: margins improve as costs decline. Liquidity in the system improves. The stock market and the dollar bottom.

Phase 5. After 12-24 months of growing liquidity, business activity begins to improve. Commodities, inflation, and bond yields continue to decline and eventually stabilize. The stock market and the dollar continue to rise. Go to Phase 1.

Which is the current phase of the business cycle? Phase 1 began in early 2002. At the present time we are going toward the end of Phase 2. The economy has been slowing down, as we expected last year. The next important turning points will be the top in commodities and inflation.

(This Observations appeared in the 3/24/03 issue of The Peter Dag Portfolio)

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/3/12

Watch commodities

Commodities double bottomed in October and December. We noted this pattern in a previous post.

Why is it important? Commodities are very sensitive to economic conditions. Their strength reflected and anticipated the good economic news we are experiencing.

Because the correlation I discussed in my reports, higher commodities confirm the strength of the equity markets and the trend of bond yields.

They also reflect the positive readings of the ISM indexes.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

2/2/12

Technical patterns

The S&P 500 is in the 1275-1350 important resistance range.

Will it break through the 1350 level? History suggests that it will have to test and re-test 1350 several times.

Another important condition is that volume will have to pick up considerably to push the market higher.

In other words history suggests that this is a good time to wait and see what happens. Let the other players play the game. It is always useful to look at your portfolio and recognize what has been working and what has failed.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.

Interesting correlation

Bloomberg has shown an interesting correlation. The probability of Obama being re-elected moved in lockstep with the trend of the stock market in the past 12 months.

More details in my The Peter Dag Portfolio , in Dag's Exclusive Market Alert, and my free educational videos on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
2009 Market Timer of the Year 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.