Peter Dag & Friends: March 2014

3/24/14

Great article by a smart observer

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3/13/14

Observations

The industrial revolution in England took place between 1750 and 1850. I read the book Ed gave me, but I was puzzled. As I read it I was asking myself some questions. Why in England? Why in the 18th century? What triggered the “revolution”? Or was it an “evolution”?

Trying to put together the pieces of the puzzle was challenging. Writers (historians, economists, philosophers) look at the subject from their viewpoint.

Inventors were stimulated to make new inventions. Why? The law protected and rewarded inventors and inventions through a well managed property rights system. Education was superb in England and it allowed the spreading of knowledge. Commerce flourished. The English markets were homogeneous and compact. Railroads and canals were developed to ship minerals and goods. International trade was supported by an unchallenged navy and a large commercial fleet.

Max Weber insists that the protestant ethics was the major reason for the dedication to work and produce wealth. The comparative freedom of the people allowed vertical mobility. In France, for instance, the guilds (as in Italy now) were against the laissez faire attitude in vogue in England and conceptualized by Adam Smith.

The introduction of a Central Bank and the management of the national debt created efficiency in financial transactions unsurpassed in the medieval age.

England and the English speaking people dominated the world for more than 300 years because of:
a) property rights that were rewarding risk-taking;
b) a superb educational system which spread the new knowledge;
c) excellent transportation (navy, roads, and canals);
d) a financial system that allowed the efficient financing of business transactions. ,p>This is the legacy of the industrial revolution. Any deviation from this legacy will produce a country doomed to under perform its competition.

(This Observations appeared in the 2-12-2007 issue of The Peter Dag Portfolio ).

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

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.

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3/8/14

This is not the way to run an economy

[Low interest rates] has been a key element in the equity bull market, allowing quality companies to borrow billions for next to nothing, which they can return to shareholders as dividends or share repurchases, or use to make mega-acquisitions. Think Verizon Communications' (ticker: VZ) recent purchase of Vodafone s' (VOD) stake in Verizon Wireless, which was funded in part by the biggest U.S. corporate bond offering ever last year, totaling some $49 billion.

To be sure, financial engineering abetted by the Fed's QE also has had real effects. Steven Ricchiuto, Mizuho Securities U.S. chief economist, notes that the central bank's actions allowed auto makers to resume offering cut-rate car loans, which has boosted auto demand to precrisis levels. Institutional investors' access to inexpensive debt helped them scoop up large numbers of single-family homes to rent out, while individuals with top credit scores could avail themselves of record-low mortgages rates, helping to clear the housing market. (Barron's)

My thoughts? It cannot end well. Too many distortions. The pricing mechanism has been distorted in a crazy way.

STRATEGIC INVESTING FOR UNCERTAIN TIMES.
Learn how to manage your portfolio risk and sleep comfortably. Improve the certainty of returns by taking advantage of business cycle trends. Learn to use simple hedging strategies to minimize the volatility of your portfolio and protect it from downside losses.
Receive your user id to access 4 FREE issues – and all the previous ones - of The Peter Dag Portfolio. Email your request to info@peterdag.com. New subscribers, please.

FOLLOW ME ON TWITTER @GEORGEDAGNINO FOR MY LATEST VIEWS.

3/6/14

A very informative article about the housing industry and the unintended consequences of our housing policies. A must read.

According to the Census Bureau, 65.6% of households owned a home in 1980. More than three decades and trillions of dollars later, the needle hasn't budged—it's still about 65%. Subsidized mortgages did create three things, none of them good:

3/5/14

Observations

I am having fun. I am very lucky. I love what I am doing. I like the challenge. I like the frustrations. Being wrong. Being right. The psychological effort to bounce out of bad moments gets the adrenaline flowing.

As when I was playing tennis. The opponent was getting ahead. What was I doing wrong? Should I change strategy. How? Slowly I was winning more points than losing them. Great! Keep doing the same thing.

I get the same feeling in my job. My brain has to keep working and be challenged. Lou has now started a blog for me and showed me how to keep it updated. It is really exciting. More on peterdag.blogspot.com.

As I go through my research and readings, it is not unusual I react to the news and to what analysts are saying. I always have the need to share with someone what I think. But I had to keep it for myself.

Now I have a venue. An outlet. My blog. This is where you can find my off-the-cuff reactions to what is happening. Or interesting news. Some examples.

• Are energy stocks close to a buy point? This is a reaction to watching some eye opening charts.
• Are commodity prices controlled by cartels? I did not agree with a Financial Times article.
• Is the market trying to prove all those bears wrong about the economy? The market is too strong to expect a recession.
• How is the housing market impacting the start of new businesses? A unique point of view.
• Do I like the Chinese stock market? Yes, of course. But there is something making me feel uncomfortable. What is the outlook for China?
• The UK central bank keeps tightening. It is a pattern quite common in the global space.
• The dollar is strong, as I predicted. What does it mean? What are the implications?

I hope you will find my comments on peterdag.blogspot.com helpful and interesting.

(This Observations appeared in the 1-22-2007 issue of The Peter Dag Portfolio ).

FOLLOW ME ON TWITTER @GEORGEDAGNINO FOR MY LATEST VIEWS.

Observations

I started my first issue of 2006 focusing on the relationship between short-term interest rates and stock prices. This has been my most reliable indicator.

History is quite clear on this: rising short-term interest rates have been followed by sharp market corrections. Latest example: short-term interest rates bottomed in 1999 and rose until 2001. The market peaked in 2000. You know what happened next. The same pattern repeated itself over and over again in the past.

2006 was definitely different. Short-term interest rates started rising in 2004 and by 2006 they reached 4%, up from 1%. The market ignored the tightening cycle and had only a short-lived correction in May-June. Quite frankly I was surprised – and I still am.

In the first half I was cautious about the market and I was correct in calling the bottom in June-July. I underestimated the strength of the economy in the first half of 2006. The outcome was that I was wrong on the bond market. I am still baffled why the economy was so strong. Some suggested the reason was the huge amount of money printed to repair the damage of the hurricanes. Possibly.

Since my objective is to minimize risk and volatility, the reduction in commodity sensitive stocks was correct as the economy started to slow down.

But the market was at a transition (and I still believe it is), and it was difficult to find sectors that dominated the market. In retrospect I should have reduced more aggressively the cash position when I called the bottom in June. The lack of a precise leadership made me more concerned about risk than opportunities. I was too cautious.

Because of this mindset I ignored emerging markets. Their lack of liquidity just scares me. See what happened to the market in Thailand – down 20% in one day because they announced restrictions on capital flows.

2007 is opening with my forecast of a top in short-term interest rates, commodities and stocks as the economy keeps slowing down. There is no question the market leadership is at a transition. Read on for details.

(This Observations appeared in the 1-07-2007 issue of The Peter Dag Portfolio ).

FOLLOW ME ON TWITTER @GEORGEDAGNINO FOR MY LATEST VIEWS.