Peter Dag & Friends

1/6/09

A risky development

Dec. 31 (Bloomberg) -- Developing nations plan to sell the most dollar-denominated bonds since 2005, reversing a shift into local debt, as commodities prices fall, foreign reserves diminish and emerging-market currencies weaken.

Bottom line. It is very risky for emerging countries to go short the dollar and long their local currencies. Their currencies will tumble if their economies falter and they have to inflate them more than the industrialized world.

As in 1998, their economies will be put at risk. If their currencies weaken, where will they find the money to pay for maturing bonds issued in US dollars? Is this another bubble in the making?

To find out more about my in depth view of the markets and my strategy just visit my website https://www.peterdag.com/. You can review The Peter Dag Portfolio, free of charge of course. You can call me at 1-800-833-2782 to discuss your specific money management needs.

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

Should we buy junk bonds?

Jan. 6 (Bloomberg) -- Federal Reserve officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending.

The spread on investment-grade corporate bonds is 6.03 percentage points, down from a record 6.56 percentage points on Dec. 5, Merrill Lynch & Co. data show. That compares with an average of 1.23 percentage points in the previous decade.

Laurence Meyer, a former Fed governor and a founder of Macroeconomic Advisors, said purchases of longer-term Treasuries by the Fed would help keep yields down even as the Obama administration implements its planned fiscal stimulus

Bottom line. There is no doubt the economy cannot function with corporate bond yields at current levels. The Fed will have to do something about it. They will have to buy them aggressively as they did Treasuries.

Should we buy what the Fed is buying? Or is it too early to to buy high-yielding corporate bonds? What is a good risk management strategy?

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

1/5/09

An interesting proprietary indicator

In the past 3 years, this proprietary indicator signaled a market top when it dropped below 0.40 (click on graph to enlarge). This gauge declined decisively below 0.40 in the past few weeks. Is it sending a sign of caution?

Something to keep in mind. Market rallies lasting several weeks took place when this indicator was above the 0.90 level.

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

No new faces..same old people

WASHINGTON (Reuters) - President-elect Barack Obama has chosen former White House chief of staff Leon Panetta to lead the CIA.

Panetta has relatively little experience in national security matters, though he did participate in daily intelligence briefings with President Bill Clinton when he served as Clinton's chief of staff between 1994 and 1997.

Bottom line. Help. I do not seem to understand. We were promised change. The next administration is full of old timers (some are octogenarians), Washington insiders, and Clinton's favorites.

It reminds me of a saying that goes something like ...the more things change, the more they stay the same.

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

Is this "change"?

President-elect Barack Obama, seeking to drum up support from both political parties, plans to propose up to $310 billion in tax cuts for businesses and the middle class as part of his massive economic stimulus package, senior Democratic aides said on Sunday.

Bottom line.Politicians are driven by events. Bold statements before election day are just that....bold statements. Eventually events take over and politicians try to solve problems created by previous policies.

Like a big wave, political mood shifts to give the impression to the country that something is being done. But nothing is being done. Now the wave will create other issues, such as the massive role of the government in our life.

Socialism will make us numb, as in Europe. This is a state of general trance in the public. No one will care as the economy stagnates.

The big wave of public opinion will shift again, however, and a new leader will tout change trying to reduce the impact of socialism.

The problem is that once socialism is entrenched (as in most European countries), bureaucracy supported by interested power groups becomes so powerful that changes become impossible. The power groups benefiting form the bureaucracy will resist change because it implies a loss in power and wealth. So you will have two classes, as in medieval Spain -- the bureaucrats and everybody else.

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

1/4/09

The next shoe to drop?

Pacific Investment Management Co., which runs the world’s largest bond fund, said it is postponing two dividend payments to investors in a pair of closed-end municipal bond funds.

The Pimco Municipal Income Fund was to pay an 81 cent dividend, the company said. Its total return is down 42 percent year this year while its peers are off an average of 22.09 percent, according to Bloomberg data. The New York Municipal Income Fund II was to pay a 6 cent dividend. Its total return is down 45.92 percent this year, while the peer group has declined an average 22.05 percent, Bloomberg data shows.

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

1/3/09

...and now this is the time to relax and enjoy this marvellous music

Barber, a great American composer. Adagio for strings, op.11.

Enjoy, relax, forget about the markets and all the problems we face. Your brain needs to be charged to face the new challenges of next week.

Best.

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

Our Saturday meetings

I meet on Saturday morning, twice a month, with a group of friends and we talk about investing -- from the direction of the business cycle to choice of asset classes, stock sectors, and market timing. We are all committed to studying the challenges offered by the markets.

What did the group conclude today? The market will probably go up in the near term. This is good news for the traders. The most conservative of us suggested that it is better to wait for confirmation that momentum has turned up. The indicators we follow will give us the signal. Meanwhile high-yield bonds may provide some interesting returns.

We will find out next week. The most astute people suggested next weak will be crucial.

Stay tuned.

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

1/2/09

Technically speaking

Many analysts are getting excited because the Dow broke out of a range and closed above 9000.

The problem I have with all this enthusiasm is that the breakout took place with little, insignificant volume.

I realize the momentum is up, but a breakout is important if accompanied by strong volume. And volume has not been strong at all.

To find out about my in depth view of the markets and my strategy just visit my website https://www.peterdag.com/. You can review The Peter Dag Portfolio, free of charge of course. You can call me at 1-800-833-2782 to discuss your specific money management issues.

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

1/1/09

Thought of the day

I am reviewing charts, many of them. Different markets. I look at them and sit without thinking. I wait for a pattern to jump at me.

Well, this is what I am am thinking right now. Do not try to catch a falling knife. Avoid assets falling in price. No, it is not so obvious. I know several people buying stocks as they get decimated because they think they are cheap. And prices keep sinking. And investors keep losing substantial amounts of money.

Wait for the price to stop declining. Wait for the price to form a base. Wait for the price to move up. Consistently. Wait for the broad market to confirm the trend.

And above all, be patient.

To find out about my in depth view of the markets and my strategy just visit my website https://www.peterdag.com/. You can review The Peter Dag Portfolio, free of charge of course. You can call me at 1-800-833-2782 to discuss your specific money management issues.

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