2/28/15

Food for thought

Debt is an increase in current spending and decline in future spending unless the debt generates an income stream to repay principal and interest.

More debt that is either unproductive or counterproductive is the path towards instability, disinflation and poor economic growth, not better economic performance.

Dr. L. Hunt

2/27/15

An informative article on negative interest rates

I liked this article because it gives the real consequences of negative interest rates. These consequences are very important and may very well rattle the financial markets.

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10 Things to Know About Negative Bond Yields

Feb 27, 2015 5:00 AM EST

By Mohamed A. El-Erian

As yields on German bonds plunged further yesterday, with some maturities closing at record negative levels, the worldwide trend toward ultra-low interest rates remains largely intact. Yet the causes and implications of this movement are quite complex. Here are 10 things to know, from the well understood to the speculative.

1. Although German bond markets are leading this historical phenomenon -- more than 30 of the 54 securities in the Bloomberg Germany Sovereign Bond Index are at negative yields -- other European government markets also are increasingly seeing ultra-low yields dip into negative territory. JPMorgan has estimated that as much as 1.5 trillion euros ($1.7 trillion) of euro-zone debt trades with negative yields in a growing number of countries, including Austria, Denmark, Finland, Germany, the Netherlands and Switzerland. Moreover, this isn't limited to the secondary market; some countries have issued debt at negative yields.

2. “High quality” European fixed income markets aren't unique in experiencing an extraordinary period of ultra-low yields. Peripheral government bonds, such as those issued by Italy and Spain, have been trading at record low yields, as have corporate securities issued by companies such as Nestle and Shell.

3. The seemingly illogical willingness of investors to pay issuers to borrow their money is neither irrational nor driven by just noncommercial considerations (such as regulatory requirements or forced risk aversion). As the European Central Bank prepares to start its own large-scale purchasing program next week, some investors believe they could make capital gains on such negative yielding investments.

4. There are many immediate reasons to justify this investor optimism. The impact of the ECB’s quantitative easing program (whose scheduled purchase of government bonds is likely to run into a relative scarcity of supply) is amplified by still-sluggish growth, “low-flation” and the threat of deflation. Geopolitical developments also play a role, along with messy national and regional politics in Europe.

5. These immediate drivers benefit from a supportive secular and structural context that ranges from the dampening effects of demographics to the impact of technological innovations and growing inequality.

6. Although they may be a boon for many companies’ liability-management programs, these ultra-low interest rates are a challenge for banks and providers of long-term insurance products. This may have consequences for the services they are able to provide to their clients: For example, a growing number of European banks are now charging depositors for holding their funds.

7. This provides further evidence that what happens in government bond markets does not stay there. The spillover effects also include a weaker euro, compression of other bond spreads and a boost for equities. It also means flatter European yield curves as the cascade effect of negative yields gradually extends to longer maturities (Japan is an historical example of this).

8. Developments in European markets translate into a more intense tug of war for U.S. Treasury investors. On the one hand, lower European yields pull Treasury yields lower; on the other hand, better U.S. economic performance, together with the widening gap in monetary policy prospects between the Fed and the ECB, encourage divergence.

9. There are few analytical models, and even fewer historical examples, to help understand the broader economic, financial, political and social implications of all this -- particularly for a global financial system based on the assumption of positive nominal rates. We are truly in unchartered waters.

10. The ultra-low interest rate regime is likely to persist for now. In the medium-term, this historical and highly unusual phenomenon is likely to bring not just possible benefits for the European economy but also much higher risks of collateral damage and unintended consequences. Accentuated by the illusion of market liquidity, this is a world in which small adjustments in probabilities of future outcomes -- if and when they occur -- could result in sharp movements in asset prices.

Source: Bloomberg

MARKET TO RISE

Our latest data show financial risk has declined quite sharply (see chart - click on the chart to enlarge it).

This is a very important recent development because it suggests the likely direction of the market in March is up. The market will peak following a rise in the financial risk indicator.

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor
The Peter Dag portfolio
Since 1977

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.

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.

You will receive your user id to access 2 FREE issues – and all the previous ones - of The Peter Dag Portfolio. Email your request to info@peterdag.com. New subscribers, please.

FOLLOW ME ALSO ON TWITTER @GEORGEDAGNINO FOR MY LATEST VIEWS.

Let's create real wealth!

Many times I wrote about productivity growth and economic growth. Many times I said that with productivity growth of 0% y/y the economy cannot grow much more than 2%.

WASHINGTON, Feb 27 (Reuters) - U.S. economic growth braked more sharply than initially thought in the fourth quarter amid a moderate increase in business inventories and a wider trade deficit, but strong domestic demand brightened the outlook.
Gross domestic product expanded at a 2.2 percent annual pace, revised down from the 2.6 percent pace estimated last month, the Commerce Department said on Friday. The economy grew at a 5 percent rate in the third quarter.

We are not producing wealth. It is as simple as this.

If you produce one widget in one day and sell it for $50, you make $50 in that day. Now, if you improve your productivity by 100% and make 2 widgets in one day, your income grows to $100. You created wealth for yourself, wealth that can re-distributed.

This is a very simple example, but I am trying to show the importance of productivity growth in order to create wealth.

The way to become wealthy as a country is to increase the investments to improve productivity growth. Let's worry less about auditing the Fed and concentrate more on improving our productivity. Only then will we be able to say we are getting wealthy.

More details in The Peter Dag Portfolio on www.peterdag.com

2/24/15

An important article to understand currencies

I totally agree with this article. There is more to currencies than just interest rates differentials. They reflect productivity differentials, government regulations, concentration of power.

Currency areas hide many currencies. It is a fine point explained in great detail by the author. It is a difficult subject but you owe it to yourself to try to understand it. This is a great introduction.

Greece

is already paying the price for being inefficient. Its “currency” keeps devaluing reflecting the huge loss of purchasing power of the Greek people. That Greece is in the EU or not is a matter of semantics. They are paying the price right now for their disastrous way of running their economy. No doubt about it.

----------------------------------

Get Over It Pundits, Greece Is Not Leaving The Euro Even If It 'Leaves' The Euro by John Tamny

About Greece and the euro, a conservative U.S. magazine recently opined that “A common currency for the European Union was always a bad idea, because it required a common monetary policy for very different economies.” Books can and will be written on all that’s wrong with the previous statement.

If one were to take the passage seriously the only conclusion would be that just as a common currency is supposedly a bad idea for EU countries, so has a common dollar been a disaster for most of our 50 U.S. states, along with the various countries around the world that have essentially dollarized their economies. The economies of New York, California and Texas are nothing like those of West Virginia and Mississippi, not to mention that economic activity in Manhattan, Beverly Hills and Highland Park in no way resembles what’s taking place in Buffalo, San Bernardino and Denton, yet the dollar is the accepted medium of exchange without much in the way of protest in all the locales mentioned despite their “very different economies.” Implicit in the assertion about the alleged horrors of a common currency is that the relatively weak economies of Arthurdale (WV) and Oxford (MS) are held back by the dollar such that each state should issue a currency of its own. Hello WV Ringgit and MS Peso. About the economic productivity that would vanish under such a scenario, many books could be written.

In the magazine’s defense, what it presumes about money is not uncommon on both the left and right, and that’s the problem. While many on the right pay lip service to the tautology that there’s no free lunch, alongside their reliably emotional opponents on the left who act as though lunch can be free (government spending seemingly just happens, with no one fleeced to pay for it…), each subscribes to the falsehood that “money” is magical, and can be played around with by wise minds to achieve all manner of wondrous economic outcomes.

In truth, money is solely a measure. I have bread, I want your wine, but you don’t want my bread. Money makes a transaction possible between a baker and vintner with differing wants simply because it’s historically been viewed as a stable “ticket” that allows producers of actual wealth to measure what they produce on the way to trade. Money facilitates exchange, and that’s why a common dollar has long made so much sense. That’s why the euro still makes sense.

To simplify what is truly basic, but almost totally misunderstood by those deep in thought on the right and left, money is not wealth. Instead, money is how we exchange actual wealth. Money is also not investment. Repeat the latter over and over again. Instead, money is what we use to direct the economy’s actual resources to their highest use. Money facilitates investment. That’s why gold has historically been used as the definer of money. Known throughout history as the most constant commodity from a value standpoint in the marketplace, it was logically used to define money that achieves its greatest utility when it’s stable.

Economies grow thanks to investment, and when investors invest, they are buying future dollar, euro, yen (name your currency) income streams. So while money itself isn’t wealth, stable money makes the investment that leads to wealth creation far more constant, patient, intrepid, etc. England was a very poor country until it tied the pound to gold in the 18^th century (after which investment into the country soared), while the U.S. would most certainly not be the world’s richest country today if the dollar hadn’t been a stable measure of wealth for most of our existence.

That’s what was so puzzling about the conservative magazine’s added assertion to the one from above that the problem with the European Central Bank vis-à-vis Greece is that it’s conducting a monetary policy “appropriate for Germany,” but not one that makes sense for Greece and other EU laggards. This gets things 100% backwards. Explicit in such a viewpoint is that there are free lunches, that money can be used to distort actual reality. Too short? Devalue the foot. Too impatient to eat that Pop Tart that is taking 30 seconds to cook in the microwave? Strengthen the second. Unable to compete, devalue the currency.

Missed here is that at least 50 countries around the world have their currencies pegged to the euro, and many others have their currencies pegged to the dollar. Yet not all of them are imploding as Greece is. To blame the euro for

Greece

’s troubles is to miss the point, or at the very least miss the actual demerits of the euro since the early 2000s.

Furthermore, those still deluded by the notion that monetary policy for rich countries is not appropriate for poorer countries might ask themselves what things would look like for the euro itself had Greek monetary authorities not just designed it, but if Greece’s economic situation were the driving force behind the ECB’s conduct of monetary policy. If so, as in if Greece managed the euro, would those 50+ countries have their currencies pegged to it, let alone all the European countries that have adopted it? Obviously not. That a rich country like Germany runs the euro currency show is what makes the measure so attractive to begin with.

The belief underlying the idea that relative economic laggards need a “separate” monetary policy is the equivalent of Tennessee issuing a TN Lira because its economy doesn’t resemble New York’s. It presumes that Greece could be more flexible with the Drachma, that it could issue more debt to “stimulate” the economy, that it could devalue (more on that in a bit) the Drachma during periods of weakness….Again, books could be written about all that’s wrong with this monetary mysticism, and in my upcoming book Popular Economics, I devote many chapters to all the mythology surrounding money.

But for now, let it be said that even if the Drachma were to replace the euro, Greece’s government and Greek businesses would still be issuing debt in euros. If this is doubted, readers need only consider how often Argentina’s government leaders float debt in Argentine pesos. It’s been done, but it’s rare. Argentine government and business debt is most often issued in dollars simply because the interest rate on a currency that lacks credibility (the peso) would be nosebleed high. Does any serious person think the situation would be different for Greece’s finance ministry or its businesses assuming the country were to “leave” the euro? Not very likely. Of course, assuming a “Grexit” and the desire to issue debt in Drachma, this would only be possible insofar as the revived currency were pegged to the dollar, yen, and yes, you guessed it, the euro. There’s no escaping economic reality despite what politicians and pundits want you to believe.

It’s then argued that the acceptance of the euro as “money” is what got Greece into trouble in the first place. They say Greece was essentially borrowing with a German credit card. It’s a nice assumption, there’s a small amount of truth to it considering the credibility that German monetary views brought to the currency, but overall it’s nonsense. If true then it would also be true that Mississippi and Louisiana could run up debt in the way that California and Texas can. The problem is they can’t. Markets are wise, while currency pundits are generally confused.

What the above hides is that Greece’s problem was never debt, rather it was and is government barriers that strangled growth, along with an overly weak euro that deterred investment. Regarding the latter, most of the blame lies with the U.S. and its dollar policy. The reality is that the world remains on a dollar standard of sorts, so when we devalue in the U.S. it’s a global event. A weak dollar since 2001 fostered a run on paper currencies of all shapes and sizes on the way to slower global growth. The euro’s “strength” against the dollar in the 2000s masked the actual truth revealing a very weak euro made to look “strong” by a much weaker dollar. In that case it can’t be repeated enough that investment comes first, growth second. Investors are buying future dollars, euros and yen when they invest, but over the last fourteen years broad currency weakness made investment far more risky, and as such, less common. It’s very simple. Absent weak U.S. dollar policies in the 2000s that took down the euro too, Greece is not insolvent in the first place.

All of which leads to the most brain dead commentary of all about Greece, that its struggles stem from an inability to devalue its way out of its troubles. This bit of illogic excites liberals and conservatives alike, and speaks once again to a bipartisan belief that reality can be obscured by magic. Too corpulent? Strengthen the pound. Do you blanch at an hour on the treadmill each morning? It’s simple, devalue the minute. Don’t like your slow rate of growth? Issue a new currency meant to “trick” investors and the electorate into believing that economic activity is actually abundant.

Yet missed by the fabulists on the left and right is that there are second and third stage market responses to currency devaluation. To devalue the currency is to tautologically raise production and labor costs, all the while devaluing earnings that attract investors in the first place. That no country in the history of the world has ever devalued its way to prosperity doesn’t deter the mystics across the ideological spectrum who think diluting the proverbial ticket will alter reality. That devaluation would scare away the very investors essential to growth doesn’t seem to interest the astrologists either.

Fair enough, there’s no law against confusion, but with West Virginia and Mississippi constantly fighting it out for the distinction of being the poorest state in the U.S., does anyone want to guess how long it would take West Virginia to firmly wrest control of #50 if it were to exit the dollar in favor of the WV Ringgit? Just the same, does anyone want to contemplate the wealth result of Greece leaving a mostly credible currency for one that would quickly be a global joke?

Of course, that’s ultimately not the point. The reality, as I wrote back in 2011, is that no matter what Greece does, it will always be on the euro, or the dollar, the yen, or some other credible currency. This won’t change even if the country’s hopeless leaders follow the advice of an even more clueless commentariat such that Greece “leaves” the euro. It will do no such thing. Reality bites. Deal with it.

More details in The Peter Dag Portfolio on www.peterdag.com

Is a market top approaching?

This chart shows the yields on the 10-year Treasury bond (click on the chart to enlarge it). The interesting feature of these yields is that more often than not they peak ahead of a near-term market top.

The reason I am showing this chart today is that bond yields have been rolling over possibly in response to weak economic news. Another interpretation could be that investors are moving capital from risk assets (stocks) to safe assets (Treasury bonds).

Are yields saying the market is close to near-term overbought conditions? If you read my previous posts you will probably guess my answer.

Time will tell...no doubt about it.

More details in The Peter Dag Portfolio on www.peterdag.com

2/23/15

Good news - the market will keep rising

The above graph shows the trend of one of our proprietary financial risk indicators (click on the chart to enlarge it).

The indicator points to a stronger market in the near term.

Why?

The market peaks following a rise in the above financial risk indicator as it happened in November and January.

The market rallies, however, when our financial risk indicator declines as it has been happening since the end of January. Please visit also previous posts when we showed this amazing gauge.

The bottom line is that because of the decline of our financial risk indicator the market will rise. The market will stop rising following a bottom in this gauge.

More details in The Peter Dag Portfolio on www.peterdag.com

2/22/15

The secular trend of the stock market

The long-term trend of the S&P 500 is closely related to the growth of almost everything else such as GDP or personal income (click on the chart to enlarge it). Its long-term growth has been 6.4% since 1930.

The market cannot grow fester than the economy over the very long term. Stocks are just an expression of the economy, If they would grow faster then the economy they would become "the economy" - which is simply impossible!

The main issue from an investor viewpoint to be learned from the above chart is that there have been long periods of time when stocks showed no appreciation for many years such as in the 1930s, in the 1970s, and in 2000-2013.

More details in The Peter Dag Portfolio on www.peterdag.com

2/21/15

The market is likely to continue rising.

The time to start worrying about a near-term market bottom is after visible rise in our proprietary financial risk indicator (click on the chart to enlarge it).

More details in The Peter Dag Portfolio on www.peterdag.com

2/19/15

This is still a bull market

The latest data on productivity growth are dismal – no growth in the past 12 months. The subject is boring, I know. But too important to be ignored.

In a nutshell – we are employing a lot of people but these people are not creating the wealth the administration wants to distribute. No productivity growth means the economy cannot grow more than 1% possibly 1.5%.

It means slow growth in profitability. It means slow and frustrating equity appreciation. And yes, the market will continue grinding higher because our indicators are saying we are still in a major bull market.

Positive indicators:

Short-term interest rates
Yield curve
Credit availability
Unemployment claims
Profits

Bottom line. Our long-term outlook (next 12 months) remains bullish.

More details in The Peter Dag Portfolio on www.peterdag.com

2/18/15

Weak commodities and the road to deflation

All commodities are rebounding, but it looks like a dead cat bounce. From oil to lumber to copper to agriculturals, commodities are in a major downtrend.

The role of the central banks has been expanded so much to make government statistics almost meaningless. They have distorted the meaning of market pricing.

Commodities, however, represent one of the few markets still responding to market forces. The bottom line is that they are saying the economy is not as strong as the Fed wants us to believe.

The importance of commodities is that they tell you the future of inflation. Inflation keeps declining as we have been saying for a long time.

The latest data on the broad consumer expenditures price index reflect prices slowing down even further to 0.7%. Wages of all employees, meanwhile, rose only 0.53% y/y. Inflation is declining dangerously close to zero percent.

Investment implications.

The weak economy (see previous post) will cause commodities to remain weak. Weak commodities will cause inflation to decline further and become deflation.

Investment in commodity sensitive investments (such as XOM, MRO, CAT, GLD, ..) are unattractive. Yields - the price of long-term money - will trade in a range. Short-term interest rates will remain anchored to zero present.

More details in The Peter Dag Portfolio on www.peterdag.com

The economy is not as strong as the Fed would like us to believe.

We become wealthier if we produce more in the same amount of time. If we keep producing the same amount our wealth stagnates.

GDP is growing because we are employing more people. But these people are not producing additional wealth per person. In other words, we are doomed to grow close to population growth if productivity growth remains zero as per the latest data.

Auto sales were weak in December. Durable goods orders plunged and production will have to be cut because inventories are building up. Housing starts were strong, but are growing at a slower pace. Home prices as a result are slowing down.

The weakness in the price of lumber suggests the growth of this sector will remain sluggish as confirmed also by the muted behavior of the home builders index (HMI). The purchasing managers confirm business activity slowed in December.

Bottom line. The economy is not as strong as the Fed would like us to believe.

Investment implications. In this environment we are not making commodity-sensitive investments.

More details in The Peter Dag Portfolio on www.peterdag.com

2/17/15

An important long-term leading market indicator

The home builders sentiment index (HMI) stopped rising. This development should come as no surprise to our subscribers. We have been saying for a long time the housing sector was going to slow down.

Now the action of the HMI reflects the uncertainty about this crucial sector of the US economy. What is important, however, is that the HMI leads a major top in the market by about a year. Sometimes longer.

The fact that the HMI has been making little or no progress since 2013 is a sign of caution (click on the chart to enlarge it).

More details in The Peter Dag Portfolio on www.peterdag.com

The stock market - up, up, and away

The stocks market keeps moving in a well established upward channel (click on the chart to enlarge it).

The odds favor rising stocks as long as the S&P 500 remains within the bounds of this great rising channel and our financial risk indicators keep heading lower.

More details in The Peter Dag Portfolio on www.peterdag.com

2/16/15

Global trends

China’s imports plunged, a sign of a weak economy. Many times we wrote China cannot grow rapidly with a centralized government. This is exactly what is happening. China is growing slowly. The outcome is that its GDP per capita, close to $8,000 (less than Botswana’s GDP per capita) will continue to remain at the levels typical of an underdeveloped country.

Europe is in shambles and things will get worse. The solution is for each country to go back to its own currency and keep the Euro for trading among EU members.

The situation in China and in Europe and the obsession of the administration for redistribution rather than growth (as the Europeans) will continue to depress the global economy.

These forces will cause inflation to decline. Good news for bonds. Bad news for commodities. Good news for stocks.

More details in The Peter Dag Portfolio on www.peterdag.com

Did Greece con the EU?

This is an interesting perspective offered by ZeroHedge.

Surely many Greeks and other proud Europeans will recall that some 30 years ago, it was none other than Greece that called the shots, and had nearly unlimited leverage in Europe courtesy of its veto: a veto which back then nearly derailed the entry of Spain and Portugal into Europe's Common Market.

Ah, what joys to the impoverished people of Greece, when what is now the Eurozone's poorest country would singlehandedly determine the future of Europe. It is for their sake that we take this trip down memory lane, going all the way back to 1985 with the following article from the NYT, laying out a very different European world.

COMMON MARKET DISCUSSING GREEK VETO THREAT

BRUSSELS, Saturday, March 30— Western European leaders of the Common Market began crucial negotiations here Friday night with Prime Minister Andreas Papandreou of Greece, who has threatened to veto the entry of Spain and Portugal into the market next year.

After late-night talks with Mr. Papandreou, the leaders said early today that he stuck by his vow to block the two countries unless the other market members gave Greece nearly $2 billion in special agricultural aid.

Greece has said it needs the money to offset the effects on its economy of increased competition from Spanish and Portuguese products when those nations join the market, formally called the European Economic Community.

The European leaders gathered in Brussels on Friday afternoon, just hours after their foreign ministers worked out terms to make Spain and Portugal the 11th and 12th members of the trading group. It was thought that the ministers' accord had brought an end to several years of negotiations over the entry of the two nations. Chairman Expresses Disappointment

But today, the meeting's chairman, Prime Minister Bettino Craxi of Italy, told reporters he was ''disappointed'' by the lack of agreement so far in talks with Mr. Papandreou. Other high Italian officials said a settlement seemed unlikely at this two-day meeting.

A spokesman for Prime Minister Margaret Thatcher of Britain said of the negotiations Friday night, ''Frankly, we are not getting anywhere.'' The British spokesman said all the other Common Market governments were ''delighted with the enlargement agreement.''

Many of the leaders called the accord on the complex package of membership terms, which Greece had accepted, a historic step in Europe's quest for greater unity.

''The European Community is alive and in the final phase of its completion,'' Prime Minister Wilfried Martens of Belgium said Friday as the session opened.

Mr. Craxi said, ''Europe is now finally achieving its true shape.''

Admitting Spain and Portugal should also help the Common Market solve its longstanding fiscal problems and enable it to concentrate on strengthening free trade between the members and building up their industrial and technological base.

Some Action on Budget

Last year, the member nations agreed to reduce Britain's contribution to the organization because the British Government complained it was too large. The market also decided to increase the amount of tax revenues that member governments pay to the Common Market.

But West Germany linked its acceptance of that plan to a successful conclusion of the negotiations with Spain and Portugal, saying it would refuse to pay more unless the 10 members agreed to admit the two countries at the start of next year.

Many European officials also say they hoped the expansion will increase public support in Spain for staying in the North Atlantic Treaty Organization, to which all other Common Market members except Ireland belong. That support would help Prime Minister Felipe Gonzalez of Spain win a referendum scheduled on that issue next year.

Prime Minister Papandreou's threat centers on a plan for the other market countries to finance a new agricultural subsidy. His plan, known as Integrated Mediterranean Programs, would help Greek, Italian and French farmers adapt to the increased competition that their wine, fruit, olive oil and other products would face when Spain and Portugal join the market.

Threat Carries Weight

Mr. Papandreou can carry out his threat because the entry of the new member nations will go before the parliaments of all the Common Market members, as well as the parliaments of the two countries seeking membership. If approved, Spain and Portugal would become members on Jan. 1, 1986.

Other market members also take Mr. Papandreou's threat seriously because of his long record of provocative statements against other Western powers.

In particular, Mr. Papandreou has threatened to withdraw from both the Common Market and NATO and to close United States military bases in Greece.

At the last high-level meeting of Common Market nations in Dublin last December, Mr. Papandreou angered other leaders by demanding that the market pay the three present Mediterranean members $6 billion over five years in special agricultural aid, with about $2 billion going to Greece. Chancellor Helmut Kohl of West Germany and Prime Minister Thatcher of Britain immediately dismissed the sum as too large.

Since then, Jacques Delors, president of the Common Market's executive commission, has offered to give the farmers in Greece, France and Italy $1.4 billion in grants over the next five years and $1.7 billion in loans.

Compromise Seems Possible

Mr. Papandreou was reported by other delegations Friday to have said he was willing to negotiate on Mr. Delors's proposals, provided that Greece gets close to the $2 billion that it would have received under Mr. Papandreou's demand. But Chancellor Kohl's spokesman said the trade group's offer was still too large for Bonn to accept.

Officials from several market countries noted that Mr. Papandreou faced difficult domestic pressures that might make it hard for him to compromise.

They mentioned the national elections that are due in Greece by October, saying the Prime Minister had an obvious interest in being seen as fighting hard for the best possible deal in Brussels.

But Mr. Delors has said he will withdraw his compromise offer if Mr. Papandreou rejects it and that his next proposal will be less generous to Greece.

Back then, the Greek bluff succeeded:

European leaders resolved a bitter financial dispute with Greece today, paving the way for Spain and Portugal to join the Common Market at the start of next year.

Prime Minister Andreas Papandreou of Greece had threatened to veto an agreement reached this week on Iberian membership unless the other nine members gave Greek farmers $2 billion in special subsidies to help them compete with Spain and Portugal.

But after two days of negotiations at a European Economic Community meeting here, Greece was persuaded to accept about $1.4 billion in new agricultural aid in return for lifting its veto threat.

* * *

After two days of bargaining, the 10 Common Market Governments
agreed on a $4.4 billion package of new subsidies and loans for Greece,
France and Italy. Greece will get about $1.4 billion of this money over
seven years.

Announcing the agreement, Prime Minister Bettino Craxi of Italy, who was the chairman of the conference, said it marked a ''historic moment in Europe's development.''

Jacques Delors, the new president of the Common Market's executive commission, said, ''The family quarrel is over, the family will be enlarged, and we can all now think of the future.''

Oh how wrong he was... but the real question is: can the Greek bluff succeed again tomorrow?

************

What do I think?

All the Southern European countries simply cheated ("massaged" the countries' data) so they could get into the EU and borrow at the low Germany's rates of the moment to start programs that otherwise they could not afford. And now they are in trouble.

This is one of the main reasons Spain, Portugal, Greece, and Italy are in disarray.

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor
The Peter Dag portfolio
Since 1977

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.

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.

You will receive your user id to access 2 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.

2/14/15

The economy is slowing down in a big way

The inventory to sales ratio for business is rising rapidly. Translation: Inventories are rising much faster than sales.

What will business do? They will have to cut production to reduce the growth of inventories.

Bottom line: The sharp rise in the inventory/sales ratio is anticipating much slower growth in production and business activity.

Investment implications: bond yields will remain at around current levels. The Fed will not raise interest rates any time soon. Commodities, including oil, copper, lumber, and gold, will go nowhere. The stock market will rise in anticipation of more Fed easing.

Enjoy the party!

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor
The Peter Dag portfolio
Since 1977

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.

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.

You will receive your user id to access 2 FREE issues – and all the previous ones - of The Peter Dag Portfolio. Email your request to info@peterdag.com. New subscribers, please.
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