Deflation?

The latest consumer prices declined 1.9% last month, up 1.1% y/y and down 10.2% in the last 3 months at annual rate.

Producer prices declined 2.2% last month, up a mere 0.4% y/y.

Bottom line. Prices will continue to decline as long as the economy is weak. See, for instance, the previous 2000-2002 episode. There is no question we are in a period of deflation (click on chart to enlarge), and in a period of deflation only one asset class is king -- cash.

More, much more when you read older posts and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

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

Good news and bad news

The business cycle keeps working perfectly, as it should. You just need to know what to look for.

Slower economic growth causes commodities to decline. Lower commodities are the main reason for inflation to decline (see graph below; click on graph to enlarge).

This is good news because lower inflation increases our purchasing power.

The problem is that we are becoming less efficient. Productivity growth is declining. Why to we care? Because when productivity growth declines, unit labor costs start rising faster.

Why do we care? Because when unit labor costs start rising faster, profits decline.

Why do we care? Because when profits decline, business cuts costs by borrowing less, making fewer investments, and hiring fewer people.

Bottom line. We need to make investments that increase our productivity. We can have as many stimulus plans as we wish, but if they do not increase our productivity it is like throwing money down the drain!

More, much more when you read older posts and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

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

Recession monitor

Employment is sinking (click on graph to enlarge). The negative news on employment will have a negative impact on consumer confidence and consumer spending.

The economy will remain weak and will continue to have a depressing effect on interest rates, commodities, and inflation.

More, much more when you read older posts and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

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

Recession monitor

The manufacturing sector is in a free fall, like the rest of the economy (click on graph to enlarge).

My suggestion? Do not try to catch a falling knife.

More, much more when you read older posts and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

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

Average people trying to solve problems they cannot comprehend

These are the thoughts crossing my mind as I watch the politicians assaulted by the press asking questions about the car industry and what is going on.

Average people, trying to solve the problems they created, problems beyond their comprehension. They look lost and confused. Sweating. How can we even dream they have the mental power to come up with the solution?

The only planning guide you should use is....The markets always win. Do not put your head in the sand. Listen to the markets. Follow what they are telling you.

More, much more when you read older posts and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

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

A painful sight

I am watching the 3 CEOs of the car companies asking for money from Congress. They are sitting like three schoolchildren. Clearly embarrassed, being reprimanded by the politicians and the public.

Very sad. What happened to capitalism? What a sad and painful sight. We have changed as a country, we have changed. Are we seeing ourselves? Are we recognizing the enormity of what is happening?

It will take a few years before the rough waters settle down. At that time we will be a different country. Possibly more humble and more realistic about our strengths.

More, much more when you read older posts and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

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

Watch the trendline

A rise of the S&P 500 above the trendline in the above graph (click on chart to enlarge) is going to be a significant message the momentum of the market is gradually changing on the upside. Stay tuned.

More, much more when you read older posts and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

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

Question

Is federalism dead?

The states of New Jersey and California are asking for help from the government. Michigan is doing the same to keep the car industry afloat.

The states are asking the government to help them because they followed the idea that governments have to give to the citizens what they ask. Even if they cannot afford it.

The USSR followed the same approach. Eventually revolution (such as in Hungary and Poland) destroyed the system.

I do not want to sound paranoid. History is full of disastrous examples of governments becoming too big. The implosion of big governments is an historic reality. As in the case of any bubble: the credit bubble of the 1930s, the inflationary Great Society/Vietnam war bubble of the 1970s, the Asian bubble of 1998, the tech bubble of 2000, and the real estate/credit bubble of 2008.

There have been other major structural bubbles such as the Roman Empire, the English Empire, the Church in the middle ages, the monarchy of France causing the French revolution, the Italian Renaissance, and the communist Russia after Karl Marx. These are the most dangerous bubbles caused by excessive concentration of power. Are we moving in that direction?

More, much more when you read older posts and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

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

A terrible day

Today the market sagged almost 9%. I follow closely the trend line shown on the chart (click on chart to enlarge). A violation of the market on the upside will provide an important signal suggesting the market is close to a bottom.

More, much more when you read older posts and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.

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

A simple proposal to Mr. Obama

Dear Mr. Obama,

The economy is in a mess. Consumers are in deep trouble. Asset prices are collapsing. Jobs are disappearing at a fast pace.

I have simple idea.

Instead of all the myriads of stimulus plans, why not cutting tax rates by 50% across the board. The budget is in a mess anyway. Cutting taxes will stimulate investing and spending immediately.

Sincerely,

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