5/28/15

Is the market too high?


We follow several proprietary financial risk indicators like the one shown in the above graph.

Their message is quite simple and yet powerful.

We can expect a rising stock market when our financial risk indicators decline, as they did - mostly - in 2015.

However, stocks are likely to decline when our financial risk indicators start rising.

We update their trend in each issue of The Peter Dag Portfolio - when they are sending a clear message.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets

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.


Subscribe now and learn "EASY WAYS TO BEAT THE MARKET WITH ETFs". Several portfolios back-tested from 2000 are shown and discussed in each issue. Total returns, annualized returns, maximum losses during the period, and number of transactions are shown for each portfolio. The rules are easy to follow and you will find them in the appendix of each issue of The Peter Dag Portfolio. These portfolios are provided as a service to our subscribers.

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.

5/24/15

Is the market overvalued?

 

Is the US market overvalued? I let you decide. Just look at the above chart.

We should keep in mind, however, the graph does not say whether we should buy or sell.

It gives a sense of risk and of what kind of gains we should expect from the US equity market in the next few years.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets

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.


Subscribe now and learn "EASY WAYS TO BEAT THE MARKET WITH ETFs". Several portfolios back-tested from 2000 are shown and discussed in each issue. Total returns, annualized returns, maximum losses during the period, and number of transactions are shown for each portfolio. The rules are easy to follow and you will find them in the appendix of each issue of The Peter Dag Portfolio. These portfolios are provided as a service to our subscribers.
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.

5/22/15

The most expensive global equity markets

 


The ratio of total market cap to GDP is one of the important measures of market valuation.

A ratio above 100 suggests the local market is overvalued. The above chart (courtesy of gurusfocus.com) lists all the major global equity markets.

This important chart suggests which market may look attractive right now.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets

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.
Subscribe now and learn "EASY WAYS TO BEAT THE MARKET WITH ETFs". Several portfolios back-tested from 2000 are shown and discussed in each issue. Total returns, annualized returns, maximum losses during the period, and number of transactions are shown for each portfolio. The rules are easy to follow and you will find them in the appendix of each issue of The Peter Dag Portfolio. These portfolios are provided as a service to our subscribers.
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.




5/21/15

The trend of the market is up until....


The chart shows the S&P 500 rising within a well-defined channel. The trend is up as long as the average is within the two lines identifying the channel.

The trend will change when the S&P 500 breaks below the channel. Until that time...enjoy!

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.

Subscribe now and learn "EASY WAYS TO BEAT THE MARKET WITH ETFs". Several portfolios back-tested from 2000 are shown and discussed in each issue. Total returns, annualized returns, maximum losses during the period, and number of transactions are shown for each portfolio. The rules are easy to follow and you will find them in the appendix of each issue of The Peter Dag Portfolio. These portfolios are provided as a service to our subscribers.

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.


A slow growing economy points to weak commodities


The GDPNow forecast for real GDP growth in the second quarter of 2015 was 0.7 % on May 19, unchanged from May 13. 

A slow growing economy points to subdued growth in profits, weak commodities and stable bond yields.

Low inflation is likely to remain in place under these conditions, making income producing investments particularly attractive.

The investment strategy we follow depends on this forecast. If the outlook changes, we will change our strategy.

Time will tell, of course.

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.
Subscribe now and learn "EASY WAYS TO BEAT THE MARKET WITH ETFs". Several portfolios back-tested from 2000 are shown and discussed in each issue. Total returns, annualized returns, maximum losses during the period, and number of transactions are shown for each portfolio. The rules are easy to follow and you will find them in the appendix of each issue of The Peter Dag Portfolio. These portfolios are provided as a service to our subscribers.

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.


 

5/18/15

Bad news - business is not investing

 

Order for capital investment declined -3.2% y/y.
 
Business is not expanding or improving capacity. This means
business activity is perceived to be unfavorable to
expansion.
 
These data support our view the economy is weak at best,
already in a recession at worst.

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.

Subscribe now and learn "EASY WAYS TO BEAT THE MARKET WITH ETFs".
Several portfolios back-tested from 2000 are shown and discussed in each issue. Total
returns, annualized returns, maximum losses during the period, and number of
transactions are shown for each portfolio. The rules are easy to follow and you will find
them in the appendix of each issue of The Peter Dag Portfolio. These portfolios are
provided as a service to our subscribers.

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.
 

5/17/15

Is the market ready to soar?

 

The American Association of Individual Investors shows bullish sentiment dropped to 26.7%, its lowest level in more than two years.

This level is associated with attractive rallies. (See chart. Click to enlarge).

Too many bears. This is not what happens at market tops. Time will tell, of course.

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.

Subscribe now and learn "EASY WAYS TO BEAT THE MARKET WITH ETFs". Several portfolios back-tested from 2000 are shown and discussed in each issue. Total returns, annualized returns, maximum losses during the period, and number of transactions are shown for each portfolio. The rules are easy to follow and you will find them in the appendix of each issue of The Peter Dag Portfolio. These portfolios are provided as a service to our subscribers.

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.

The economy is skirting a recession

 

The blue line shows the employment-population ratio (left scale), representing the civilian employment as percentage of the total population. The percent is a low 59.3%.This is a big problem, of course. The ratio has declined steadily since 2009. (Click on the chart to enlarge it).

Why? The answer may be given by the red line showing a o.6% y/y growth in working age population aged 14-54 (right scale).

The growth in this group of workers has slowed down steadily and is the outcome of changing demographics. In other words we are getting older.

The important implication is that the slow growth in this segment of the most productive group of workers has an impact on productivity, which is growing at a very slow 0.6% y/y.

The bottom line is the economy cannot grow more than population growth (0.6%) plus productivity growth (0.6%). In other words our economy cannot grow much more than 1.2% at best.

I have been saying this for a long time and it looks like the recent performance of the economy may agree with my assessment.

There is nothing we can do about the demographics. The only way to grow faster is to improve our productivity. Concerns about regulating several aspects of our life are hindering any change in productivity growth.

If a am right, this scenario will have a huge impact on profit growth and equity markets. Commodities and bond yields will not be immune from it.

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.

Subscribe now and learn "EASY WAYS TO BEAT THE MARKET WITH ETFs". Several portfolios back-tested from 2000 are shown and discussed. Total returns, annualized returns, maximum losses during the period, and number of transactions are shown for each portfolio. The rules are easy to follow and you will find them in the appendix of each issue of The Peter Dag Portfolio. These portfolios are provided as a service to our subscribers.

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.
 
 

 


5/14/15

Rising volatility is a problem for stocks

 

Volatility (red line) is very low - too low - some analysts say. The market seems to be too complacent. The market, however, likes low volatility.

The market usually performs well when volatility is below 20. But stocks may be in trouble, as in 2007, when volatility rises above 20.

You will find more details on how these ideas apply to portfolio management 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.

Prices keep tumbling

 

Analysts keep reminding us everything is ok, the economy will be strong in the second half, the labor market is sound, and the Fed will start raising rates in September.

Now let's look at the above chart. The red line shows the growth of producer prices for commodities and the blue line shows producer prices for finished goods. The first one tumbled -8.5% y/y and the second one sank -4.2% y/y.

This kind of worrisome declines happen for only one reason - the economy is very weak. In a strong economy prices rise. In a weak economy prices decline. No question about it.

These trends have important investment implications for commodity-sensitive asset classes and interest rate-sensitive investments.

You will find more details on how these ideas apply to portfolio management 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.

5/13/15

The economy has entered a critical period

U.S. retail sales were unchanged in April as households cut back on purchases of automobiles and other big-ticket items, suggesting the economy was struggling to make a strong rebound after barely growing in the first quarter.

Auto sales were weak. For some time in The Peter Dag Portfolio I have been writing auto sales have reached a saturation point and with weaker housing sector will be a major headwind for the economy.

This month data suggest this is exactly what is happening (See above chart. Click on the chart to enlarge it). Sales classified as "motor sales and parts dealers" declined -0.4%.

I keep expecting weak auto sales and housing starts. These are two major job producing economic sectors of the economy.

The question I have is where will the growth of the economy be coming from?

You will find more details on how these ideas apply to portfolio management 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.
 

 


5/10/15

The economy is in trouble

 
I have a problem understanding the data. Something is deeply wrong. How can employment data be so favorable with manufacturing stumbling and spending slowing down in a worrisome way.

When I am confused I look at the price of lumber. Markets tell the truth. Lumber is sinking. Its weakness is confirming business activity is in bad shape. It is saying the housing sector is in  bad shape.


The forecast of the Atlanta Fed made with their model GDPNow confirms the trend of lumber prices. (see above chart).

As of early May the economy, as measured by the GDP, is expanding at a rate lower than 1% according to GDPNow. In other words, the economy is not rebounding as expected by the Blue Chip economists (see above chart).

What are the implications? If you followed my views on how the business cycle works, slow growth will have a momentous impact on commodities, inflations, bond yields, and profits.

Time will tell if this is going to happen, of course.

You will find more details on how these ideas apply to portfolio management 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.

5/7/15

The business cycle, stock prices, and bond yields

In the good old days, when the markets did what they were supposed to do, without macro distortions, this is what it used to happen.

Why am I saying this? Because my instinct is telling me the markets are beginning to reassert themselves and the old relations between market data are going to appear again.

Some definitions first.

The stock market is a leading indicator of the business cycle. Translation: every recession has been anticipated by a peak in stock prices.

Bond yields are a lagging indicator because they bottom after the trough of the business cycle.

OK, why should I care? Because the relations between a leading and lagging indicators may come back and be a useful investment tool, as it has always been in the past.

This is the relationship between a leading and lagging indicator.
  1. A bottom in the leading indicator is followed by a bottom in the lagging indicator.
  2. A bottom in the lagging indicator is followed by a peak in the leading indicator.
  3. A peak in the leading indicator is followed by a peak in the lagging indicator.
  4. A peak in the lagging indicator is followed by a bottom in the leading indicators.
Let's translate the above to today's action.
  • Yields have soared
  • They will be followed by a peak in the stock market
  • A peak in the stock market will be followed by lower yields.
One more concept. The sharper the rise of the lagging indicator the more pronounced is the decline of the leading indicator. This is a historical truism. 

According to the above theory the recent sharp rise in yields will be followed by a sharp decline in stocks. Eventually the decline in stocks will be followed by a decline in yields. And the cycle continues.

It remains to be seen if this relationship is going to be valid in the following months. As I said, it is just a theory and time will tell if things will happen as they happened in the past.

Stay tuned.

You will find more details on how these ideas apply to portfolio management 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.

5/5/15

Economic confidence index down sharply

 

From Gallup.

"WASHINGTON, D.C. -- Gallup's U.S. Economic Confidence Index was -9 for the week ending May 3 -- its lowest weekly score since December. This reflects a six-point decline from the previous week, and is the largest week-to-week drop since last July.

After falling from the high points in January and February this year, the index had barely moved in the previous six weeks. It had wavered between -3 and -4 since late March, before dropping last week. This included an average of -3 for all of April. And nearly all weekly readings in 2015 prior to now had been close to zero, with little week-to-week change."

Bottom line. This is another data point - a very important one - suggesting the economy is not rebounding, as suggested by most economists. If this is actually the case, how can profits rise strongly enough to justify a strong stock market?

You will find more details on how these ideas apply to portfolio management 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.




Two major headwinds for the economy

 
 

The economy will grow slowly. Why? Because two major sectors of the economy have reached a cyclical top.

The above charts shows two graphs: housing starts (red line, right scale) and auto sales (blue line, left scale).

The two lines show both markets have reached a saturation point, as I discussed in detail in The Peter Dag Portfolio. These two sectors will grow very slowly.

Their slow growth will be two major headwinds for the economy.

You will find more details on how these ideas apply to portfolio management 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.

A signal of higher inflation?

 

The above chart shown the BLS Employment Cost Index, which includes wages and benefits. The ECI is up 2.7% y/y.

Is inflation finally in the cards? The problem is higher costs imply lower profits for business. The obvious response to lower profits is to cut costs. And this is eventually bad news for the economy and the markets.

The point is higher inflation is not good news because it causes profits to decline and the stock market strives on higher profits.

You will find more details on how these ideas apply to portfolio management are found 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.

5/4/15

Employment not growing in manufacturing

 

The latest data from the purchasing managers (ISM) shows the employment index declining - again.

The index fell to 48.3. This level suggests employment in manufacturing is declining. Employment rises when the index is above 50.

Does it matter? It matters because it suggests the important manufacturing sector is not strong or strengthening. It is actually weakening.

This trend may have an important impact on commodities, earnings, and interest rates.

Stay tuned.

More details on how these ideas apply to portfolio management are found 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.