What happened to Federer happens to all great nations

When you become rich, powerful, and famous you lose the will the fight. You become content.

Until the next hungry competitor shows up and teaches you what is the will to fight ... and win.

George Dagnino

There is something I do not understand

Who is the candidate for the presidency -- Bill or Hillary Clinton?

Or both?

George Dagnino

Update on financial risk

Our measure of financial risk is still heading higher in spite of the 75 bp decline in the fed funds rate.

The message is that we are not yet out of the woods. The unwinding of bad credit is still in full swing. And this is bad news for the financial markets.

More on https://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977

Too late

As I mentioned several times, the Fed demonstrated to be tentative and too late. The credit problems (derivatives, debt of various types) have been accumulating and now (finally) captured the attention of the Fed.

The Fed is playing catch up. This is what the markets are sensing, and they do not like it. What the Fed lacked in timing -- policy makers were seriously behind the curve -- it tried to make up for in size.

Credit risk is still rising, and this is the bad news overhanging the financial markets. Other indicators we follow are still not giving the green light.

The Fed will have to keep easing until credit risk starts declining. Only then will the markets respond positively.

More on https://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977

What is going on?

What is going on is not about a recession in the US.

What is going in the markets is about credit risk. No doubt about it.

The Peter Dag Portfolio developed an indicator measuring credit risk with a solid batting average. The credit crisis is far from over.

More on https://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977

The markets always win

The Fed should not lower interest rates, but they will (see blog below).

I always maintained that markets move together, and they are -- from China to Sydney, to Paris, to New York. When you buy foreign markets you buy volatility. I have been saying this over and over again in my talks.

Commodities move together. The commodity complex is going down from copper, to zinc, to gold, to wheat. It is ridiculous to think that interest rates decline and commodities will not. I show the evidence in my talks and in The Peter Dag Portfolio. See also my presentations posted on the home page at https://www.peterdag.com/.

The American business slowdown will be accompanied by a global slowdown as documented in The Peter Dag Portfolio. The global business cycle is and will continue to be perfectly synchronized.

The central banks are irrelevant. The markets are forcing their hands in a major way.

The conventional wisdom is being proven dead wrong.

The business cycle is alive and well. The markets are behaving exactly as they should.

More on https://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977

Should the Fed ease?

The answer is yes, of course. A weak economy needs lower interest rates to keep it going. There are some risks, however. This is the other side of the argument.

Meltzer, who is finishing the second volume of his history of the Federal Reserve, warns that Bernanke is risking a disastrous replay of the 1970s, when high oil prices fueled double-digit inflation.

Every time the Fed started to tighten and unemployment jumped, chairmen G. William Miller and Arthur Burns lost their nerve. They lowered rates to boost job growth, and inflation inevitably revived, causing a vicious price spiral.

The Fed let the disease rage for so long (in the 1970s) that it took draconian action by chairman Paul Volcker in the early 1980s to finally defeat inflation. The price was a deep recession, with unemployment hitting 11% in 1982.

"The mentality is the same as in the 1970s," says Meltzer. "'As soon as we get rid of the risk of recession, we'll do something about inflation.' But that comes too late."

The point is that if the Fed eases too aggressively inflation will rise out of control and cause the economy to become more unstable with even more frequent recessions and bear markets as from 1968 to 1982 when the stock market failed to appreciate for about 15 years.

What to do? It is crucial to maintain a flexible investment strategy. Buy and hold is likely to produce below average results.

More on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977

Credit crisis is spreading

Borrowing by euro zone businesses and consumers is being hit severely as the global economic outlook darkens, according to a European Central Bank survey released on Friday that could act as an additional deterrent to further rises in official interest rates.

The sharp tightening in the credit standards applied by banks and a decline in demand for loans, especially by large businesses and house buyers, suggest that the global financial turmoil and fallout from the US slowdown are having a significant impact on the 15-country euro zone.

The ECB and the Fed will be forced to inject much more liquidity in the financial system. The global economy, meanwhile, will keep slowing down. Interest rates will continue declining. Commodities will follow the trend of interest rates, as they always do,

More on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977

Watch high-yield bonds

High-yield bond prices are plunging. The financial crisis is not over.

This is bad news for the financial markets. These bonds have to stabilize for the global equity markets to stop sinking. We are not there yet.

More on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977

Financial risk update

Bad news. Our measure of financial risk is rising. As shown in The Peter Dag Portfolio, rising risk is bad news for financial assets.

More on http://www.peterdag.com/.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977