Investors have consistently ignored a great asset class. Especially now. It is a fact, however, that well managed high-yield mutual funds are outperforming the market by a wide margin. Some of them achieve this feat also in bull markets.
The one I like had a YTD performance of -11.5% against a -19.9% return of the S&P 500.
More, much more when you subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
In our last issue of The Peter Dag Portfolio released to our readers on 10/10/08, I said there was -- finally -- some light at the end of the tunnel.
Today the market jumped more than 900 points (11%) in response to the massive injection of liquidity planned by the global central banks. This is how the markets responded.
--- Global stock markets soared.
--- US stock market soared.
--- The dollar was weak.
--- Commodities were strong.
--- Gold and crude oil rose.
--- Bond yields rose and bonds tanked.
Do you see the pattern? Compare it to what happened in previous rallies (see below). Enjoy!
More, much more when you subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
How does this bear market compare with the previous ones having at least the same duration? Fig. 18 provides the answer (click graph to enlarge). The current bear market is 13 months long.
The longest bear market was the one of 2000-2002, which lasted a grueling 26 months. The 1972-1974 bear market was the second longest bear market (22 months).
The other three long bear markets were those of 1980-82 (21 months), 1968-70 (19 months), and 1959-60 (16 months).
The bottom line is that this bear market may last between 3 and 13 more months. I think this is an interesting statistical curiosity -- no more, no less.
More, much more when you subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
The response of the markets tell you the impact of the dramatic easing action of the global central banks. As the market gets ready to open in Europe and the US, this is the initial response.
-- Stocks are soaring in Asia.
-- US stock futures are very strong.
-- The dollar is weak.
-- Commodities are strong.
-- Crude oil and gold are strong.
-- European bonds are tanking. (The US fixed income markets are closed.)
The message is loud and clear. This pattern is consistent with previous responses.
More, much more when you subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Stock futures rose on Sunday evening as central bankers and government leaders took steps to solve the financial crisis that has been crippling global markets.
S&P 500 futures rose 29.8 points. Dow Jones industrial average futures rose 252 points, and Nasdaq 100 futures climbed 31.25 points. In other words, futures are up close to 3% in Asia.
More, much more when you subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
This article was published in the Financial Times. The message? Buy stocks aggressively!
View of the Day: Sweden offers solace
By Tim Bond
Published: October 9 2008 15:26 | Last updated: October 9 2008 15:26
Sweden’s experience during its early 1990s banking crisis has many parallels with current events and offers a “surprisingly upbeat” message for equity markets, says Tim Bond, head of global asset allocation at Barclays Capital.
Sweden was forced to rescue its banks in 1992 after a credit and real estate bubble in the late 1980s. The main intervention came in September 1992 when the government implemented a blanket guarantee for all bank liabilities (excluding shares) and promised capital injections for troubled banks. Mr Bond notes that at that point, Swedish GDP had been falling in year-on-year terms for seven quarters, and the contraction continued for a further three quarters.
Meanwhile, the Swedish stock market fell 45 per cent between July 1990 and October 1992, but hit a low just one month after the government’s intervention. Over the next 12 months, it rallied 43 per cent and then rose a further 20 per cent the year after that. Bank stocks fell 23 per cent in the month after the intervention, but then hit a low before rallying strongly.
Mr Bond says: “The financial system moves well ahead of the real economy. If the past is any guide, the next two or three quarters should see severe declines in GDP in many economies, followed by another three or four quarters of sub-par growth. However, the low for equity markets – if Sweden is any guide – should be within the next three to four weeks.”
- European leaders pledge to pump public money into banks
hit by the worst financial crisis since the 1930s. According to
draft statement, they seek to help or subscribe to debt-raising
by banks for up to five years to complement European Central
Bank efforts to unfreeze inter-bank lending.
- Portugal to offer banks 20 billion euros of financing.
Spain would inject capital into banks if needed.
- IMF backs G7 stabilisation plan, saying debt-ridden banks
were pushing global financial system to brink of meltdown.
- Britain's four largest retail banks -- HBOS, Royal Bank
of Scotland, Lloyds TSB and Barclays -- are likely to announce
plans to recapitalise early on Monday, a source says. A
newspaper says they will ask for a combined 35 billion pound
($60.5 billion) lifeline.
- The United States needs a new economic stimulus plan that
pumps money into infrastructure projects and budget relief for
state and local governments, Democratic lawmakers say.
- Australia, New Zealand to guarantee bank deposits
QUOTES
"If market confidence is not restored this weekend, it's
game over." - Marco Annunziata, chief economist at Italy's
Unicredit bank.
"This needs concrete measures and unity -- that's what we
have today." - French President Nicolas Sarkozy, who hosted an
emergency meeting of leaders from the 15 euro zone countries
plus Britain.
"The measures I have announced today are part of also
international measures designed to unclog the arteries of the
global financial system." - Australian Prime Minister Kevin
Rudd on the decision to guarantee all bank deposits for three
years.
"Ideally, the G20 would have a situation room, such as you
have when you are in a war. Indeed, this crisis is like a war."
- Brazil's Guido Mantega.
"Saying that they'll take all steps necessary leaves
hanging the question of whether they know what is best and
necessary. It was a signature moment for the G7. I think
markets are going to be very disappointed." - Kenneth Rogoff,
former IMF chief economist
"Globalization, America as the center of the globalized
financial markets, was sucking up the savings of the world.
This is now over. The game is out. It does mean a very serious
adjustment for America." - Billionaire investor George Soros
More, much more when you subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Federal regulators have ordered Fannie Mae and Freddie Mac to start buying $40 billion of troubled mortgage bonds each month as the U.S. government tries to revive the economy, according to a published report.
Fannie and Freddie were taken over by the U.S. government in early September, in the first of several bailouts the government has launched recently to try to halt the spread of the mortgage-fueled credit crisis.
Regulators initially restricted Fannie and Freddie's growth when they seized control. To "promote stability" and lower mortgage costs to borrowers, Treasury Secretary Henry Paulson said the two companies would be allowed to "modestly increase'' their mortgage portfolios to as much as $1.7 trillion through the end of next year and said they would no longer be run "to maximize shareholder returns."
Less than two weeks later, Fannie and Freddie were told to ramp up their mortgage bond purchases as the financial crisis deepened and credit activity came to near standstill, Bloomberg said.
Bottom line. These are the companies are the heart of the current problems. Now they are in charge of solving the same problems they created. Wow! And now profit is no objective. I sincerely hope they know what they are doing in Washington. This is the reason investors have a run on the equity markets.
More, much more when you subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
Pressure mounted at the weekend on the world's leading economies to spell out the specific "urgent and exceptional" steps they have promised to take to stabilise financial markets before they open on Monday.
Should we expect a solution from the same people who caused the problem?
More, much more when you subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
This is a "must read" article by Robert. V. Green on the historical reasons that eventually caused the current financial crisis. Clearly written. I am trying to get permission from Mr. Green to post the whole article here. Meanwhile, you can go to this address.
http://www.briefing.com/GeneralContent/Investor/Active/ArticlePopup/ArticlePopup.aspx?SiteName=Investor&ArticleId=NS20080930133404AheadOfTheCurve
Bottom line. Social engineering does not work. The USSR proved it quite clearly. This is not a crisis of capitalism. This is a crisis caused by probably well-meant socialist ideas concocted decades ago.
Now, the same people who caused the crisis, are applying the same or worst ideas to resolve it.
Karl Marx was wrong in predicting the demise of capitalism. History shows that misguided social engineering is the historical failure. Unfortunately the average person believes the glamorised headlines and elects people peddling populist ideas.
And we are witnessing the results of this type thinking.
More, much more when you subscribe to The Peter Dag Portfolio on https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
