4/30/15

Will consumers cause the next recession?

 

The latest data are showing consumers are not willing to buy.

The above graph shows the growth in consumer goods. They have declined -9.21% y/y. This is the largest contraction in orders for consumer goods in the last 20 years!

The implications are obvious. These data suggest the economy is weak. It implies commodities (gold, oil, copper, agriculturals, lumber) are not likely to rise much.

What about profits? They are coming in weak. The business cycle is alive and well. Commodity and commodity-sensitive asset classes are not likely to perform well.

More details in The Peter Dag Portfolio on www.peterdag.com
 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 

Is a recession around the corner?

 

Is a recession in the cards? I have shown you in the previous posts the economy was weak and weakening. Things have not changed much.

The above chart shows the growth of capital good excluding aircrafts (blue line) and the change in backlogs (red line) - the lifeblood of any company.

Orders are slowing down quite sharply and have actually declined -4.0% y/y.

The point is the economy is weak and slowing down sharply. If these trends continue business will be in trouble.

This is bad news for profits, which have been declining. I discussed this possibility in previous posts.

The business cycle is alive an well in spite of the efforts to abolish it made by our leaders.

More details in The Peter Dag Portfolio on www.peterdag.com
 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 

4/27/15

China's economy is in trouble

 
China manufacturing index declined from 49.6 in March to 49.2.

This levels suggests manufacturing activity is contracting in China. China is in big trouble.

Like all autocratic countries their economy will remain weak and artificially boosted by various ineffective (fiscal and monetary) stimuli.

China, like Europe, remains a major headwind for the global economy.

Can the US economy grow at a healthy pace when close to 50% of the global economy is stagnant or in recession?

Maybe this is the real reason for lower oil prices, weak commodities and lower global yields.

 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 

Europe is struggling

 

The latest purchasing managers survey for Europe is showing the manufacturing index at 51.9 down from 52.2 in April. See above chart.

The message is loud and clear. Europe is stagnating. One can analyze and study and research the data ad nauseam but the message remains the same. Europe is a major headwind for the global economy.

This is the main reason their bond yields are sinking and most of them are negative.

 
 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.




4/26/15

The seasonality of the utility sector could be profitable



This chart shows the seasonality pattern of the utility sector. (click on the chart to enlarge it).

The chart shows utilities do not lose value during the summer months from a seasonal pattern viewpoint. This is an interesting pattern given the seasonality of the overall stock market. Why?

Because  the stocks market does not perform well during the summer months (if the historical pattern persists). The utility sector on the other hand provides a way to hedge the weakness of the overall market.

Of course, this is true if the historical patterns take place also this year. Following indicators to guide you in the allocation of your capital becomes an essential tool to complement seasonality strategies.


George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 

Bond market seasonlity is turning positive

 

First of all I have to say investors buy bonds for capital gains not for income. How? I have a video on www.peterdag.com and posted also on this blog showing why this point is important.

The above chart shows the seasonality of bonds. The relevant trend is bonds are strong (they appreciate in price) from May to the end of the year.

I also recognized this pattern when I was managing $3 billions of interest rates derivatives for a large corporation.

This pattern is important. Why? Because stocks do not perform well during the summer months (see previous post).

This seasonality feature is very useful in developing an investment strategy from May to October.

 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 

Caution - market seasonality is turning negative


 
Market seasonality is becoming negative. (Click on the chart to enlarge it).

The above chart shows the stock market has the tendency of rising from the end of October to the end of May. This is when the last seasonality gasp occurs.

Then the market peaks in May and performs poorly from the end of May to the end of October. Stocks do not have to crash during the summer months. They just provide low returns.

It might be useful to try to think about different investment strategies for the summer months. After all, "Sell in May and go away" might turn out to be right this year.

Following reliable indicators might be one way to recognize if the trend of the market is changing.
 
 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 

4/23/15

Are the markets manipulated?

 

Economists keep telling us the economy is going to grow at a 3% pace. This is too much optimism given our low level of productivity and the weakness of the incoming data (please see previous posts).

Their optimism is biasing investors in making the wrong business and investment decisions. Growth is not going to be strong given the domestic and international headwinds.

The growth rate of real GDP is a key indicator of economic activity, but the official estimate is released with a delay. The Atlanta Fed GDPNow forecasting model provides the official estimate prior to its release. 

The latest GDPNow model forecast for real GDP growth in Q1 2015 was 0.1 percent on April 16, down from 0.2 percent on April 14. The decline came after Wednesday morning's industrial production release from the Federal Reserve Board.

The above chart shows the Atlanta Fed forecast and those of the major economists. The difference is huge.

Which one should we believe to shape our investment strategy? What is the outlook for profits if the Atlanta Fed is correct? And its impact on the equity markets?


 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 


4/22/15

The hosuing sector is slowing down

 

New home sales slowed down from a cyclical peak of 27.1% to the recent 12.9%.

The continued weakness in lumber prices suggests the housing sector will continue to fail.

More details in The Peter Dag Portfolio on www.peterdag.com
 
George Dagnino, PhD
Editor,
The Peter Dag PortfolioSince 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 


4/21/15

The economy, profits, and stock prices - an important relationship

 

The above chart shows the graphs of the change of profits (blue line) and the change of the Wilshire 5000 (red line). (Click on the chart to enlarge it.)
The importance of knowing what is going to happen to the economy is crucial to shape investors' strategy.
If one believes the economy is going to grow strongly from the current slow pace, then the stock market is likely to remain strong.
If, on the other hand, the economy grows at a slow pace, then investors should consider carefully the message of the above chart.
The growth in equities will likely match the growth of profits (up 2.9% y/y in Q4) as it happened in 1998, 2000, 2008, and 2012.
 
 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 
 

4/20/15

The Chicago Fed: economy is growing slowly




The CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved down to –0.42 in March from –0.18 in February.

Two of the four broad categories of indicators that make up the index decreased from February, and three of the four categories made negative contributions to the index in March.

We have been documenting for some time the economy was slowing down and growing slowly.

Now the Chicago Fed confirms our assessment. This is the main reason commodities and oil are weak and yields are not rising.

This environment is not conducive to strong profit growth - and profits are the lifeblood of equities.
 
 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 



4/19/15

What is this proprietary indicators saying about the outlook of the stock market?

 
 
I follow many indicators. For the near term outlook I use mostly 'technical" indicators which are based on market patterns and momentum.
 
For the longer-term horizon I use information derived from the business cycle such as  commodity trends, growth of the economy, outlook for profits and direction of bond yields and inflation. The previous posts should give you a sense of the depth and breadth of my work.
 
In the current issue of Market Update I discuss in detail all these issue and I focus on the message of the above indicator. Why not join the list of my readers?
 
 
George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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. 

Watch carefully the forces of the business cycle

 
 
The business cycle is alive and well. What is happening is the response of the markets to the ill-advised policies of the Fed.
 
Slower economic growth, caused by the excessive debt encouraged by Washington's policies, is causing prices of commodities and money to decline.
 
It should come as no surprise therefore to see producer prices (blue line on the above chart) and consumer prices (red line) sinking close to deflationary territory.
 
This sluggishness in growth and prices will have a negative impact on profits.

George Dagnino, PhD
Editor,
The Peter Dag Portfolio

Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.

4/17/15

One more time: Is the market too high?

 
 
The market collapsed today with the Dow down 1.65% (blue line). Similar declines were experienced by the S&P 500 and the Nasdaq. Why?
 
Many observers follow party line when interviewed on TV or radio: the US economy is doing fine. The reason for the market volatility must be Europe, China, or, even worse, the strong Dollar. In other words, they do not have a clue about what is happening to the US economy.
 
In all my posts I show the facts and the facts suggest that what is happening to the markets is obviously caused by the US business cycle exacerbated by the silly policies of the Fed.
 
But no one talks about it. People believe the official forecasts, which have a history of being revised downward as reality catches up with them.
 
Go through the previous posts. Their main purpose is to show the forces of the US business cycle eventually win. In the past several months the economy has slowed down significantly.
 
Repeatedly I have pointed out that this slowdown is what is causing the decline in all commodities. With no exception. The weak economy is forcing all prices to decline.
 
This is a major headwind for profits. Everything that is happening is tied together by the relentless forces of the business cycle.
 
The Fed is creating distortions, but the business cycle is alive and well.
 
The economy weakens,
Prices decline,
Commodities decline,
The price of money declines,
Inflation declines,
Sales slow down,
Inventories rise too rapidly,
Business needs to cut them,
Business cuts production,
Profits weaken.
 
These are some of the main forces of the business cycle. This is what really matters. Not China or Europe or the Dollar. And the markets are reacting to these events.
 
The purpose of these short notes is to document what is happening. I am trying to show you what matters. The main trends. Of course I hope you will find my ideas interesting for you to subscribe to my service - The Peter Dag Portfolio.
 
More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.

4/16/15

Housing - a major headwind for the economy

 
 
Housing starts are going nowhere, as I expected. Housing starts are exactly at the same levels as in October 2012. See above chart. Click on the chart to enlarge it.
 
I have been writing here and in my The Peter Dag Portfolio for a long time, predicting a weak housing sector because of the extreme and prolonged weakness of lumber prices.
 
You can rest assured home prices will also grow much more slowly in the not so distant future.
 
Housing is a major sector of the US economy (together with autos). Their weakness  will be two major headwinds for the economy.
 
Of course, time will tell.

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

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.

 
 

4/15/15

A model portfolio to manage risk

 
 
 
The main objective of portfolio management is managing risk.
 
The above chart shows what I mean. The green line represents a model portfolio I backtested from 2003. The blue line is the actual SPY - the S&P 500 ETF.
 
The difference between the two performance lines is self explanatory. It explains the advantages of managing risk in comparison to a buy-and-hold strategy.
 
The performance of the model portfolio shown above is discussed in each issue of The Peter Dag Portfolio. Of course, it is important to remember that past performance does not guarantee future results.

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

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.

Are we already in a recession?

 
 

 
I am baffled. I really do not understand what the analysts are thinking. I just do not see any strength in the economy. See for instance the above chart (click on the chart to enlarge it).
 
It shows the growth of industrial production over the previous twelve months. It is sinking, plunging, tumbling.
 
Just review all my previous posts. I showed you the important indicators released by various government agencies and business associations.
 
They are all unanimous. The economy is going through a massive deceleration. Yet, all the smart people interviewed on TV and the radio keep reminding us the economy is growing and the Fed needs to tighten.
 
I look at the facts, the hard data, and I see a lot of bad news. I let you decide.
 
I am probably wrong. As always, time will tell.
 
More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.