The trendline on the graph (click on graph to enlarge) will give the signal when the market turns up. The Dow will have to break on the upside the trendline. It will be the signal the market is likely to head higher in the medium-term.
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
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This momentum indicator (click on chart to enlarge) may be saying the market is entering a period of consolidation. Its trend must be confirmed by other important events.
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
The Group of 20 yesterday urged a ``broader policy response,'' citing the potential for additional interest-rate cuts and fiscal stimulus, in a statement after meeting in Washington. The group set a March deadline for recommendations on strengthening accounting standards, derivatives markets and oversight of hedge funds and debt-rating companies.
The call for an overhaul of the world financial industry indicates leaders want future expansions to be smoother than the boom and bust of this decade. A lack of any specific pledges to stimulate growth may disappoint some investors, analysts said.
Bottom line. More regulations. More words. No action. What can you expect from the people who were players in causing the problems we are enduring? What can you expect from the people who knew about the problems two years ago and ignored them?
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
The prospect of accelerating declines in production at individual oilfields is adding to uncertainties. The findings of an unprecedented field-by-field analysis of the historical production trends of 800 oilfields indicate that decline rates are likely to rise significantly in the long term, from an average of 6.7% today to 8.6% in 2030.
Despite all the attention that is given to demand growth, decline rates are actually a far more important determinant of investment needs. Even if oil demand was to remain flat to 2030, 45 mb/d of gross capacity – roughly four times the current capacity of Saudi Arabia – would need to be built by 2030 just to offset the effect of oilfield decline.
Bottom line. We would need to find an additional 60 million barrels per day of new oil supply in 20 years to meet global demand. It is highly unlikely that we will be able to find new supply of 60 million barrels per day in 20 years time. In light of these data the 60% decline in crude oil since June seems to offer attractive investment opportunities in selected stocks.
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
The evidence suggests that we are going through this incredible crisis because of two main reasons: social engineering and Fed tightening. Yes, since 2004 the Fed has tightened aggressively to bring down inflation and harness the housing bubble. They made a huge tactical mistake and we are paying for it.
Greenspan encouraged the housing bubble by bringing interest rates down to 1% and discouraging Congress to regulate derivative products. The Fed then increased interest rates to levels high enough to cause a recession and precipitate a credit crisis.
Beginning in 2004 the Fed started tightening (click on graph to enlarge). Two things happened: interest rates went up from 1% to about 5% and the monetary base (the money banks can lend) started slowing down. Let me focus on the monetary base.
The long-term growth of the monetary base is close to 6%. This is the growth rate of stocks, GDP, profits, income, and all the major economic variables. By forcing the growth of the monetary base well below 6% from 2004 to 2007, the Fed purposely starved the economy (click on graph to enlarge). They tightened because of the fear of inflation. They forgot about a derivative bubble exacerbated by rising housing prices due to the social engineering policy of Congress. In other words, they tightened too much and for too long and at the wrong time. As they did in 1929!
So, what are they doing now? They are panicking! They are flooding the banking system with money, with the monetary base soaring at the incredible pace of close to 40%! Again, you should remember that the monetary base has grown at an average pace of about 6%. Now they are making it grow at a 40% pace, covering up a gross miscalculation. They should have stopped raising interest rates when they were 3%.
In other words, they acted as true bureaucrats. In spite of their PhDs, Nobel prizes, and academic achievements, they are reacting to the problems they created rather than attempting to anticipate them. This is the predicament of the bureaucrat. Why stick the neck out and be bold?
It is the curse of a country allowing bureaucracy to grow. The issue is not what should the ideal political system and political belief be. The issue for any country is the size and power of the bureaucrats on the payroll of the government.
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
Europe's economy fell into its first recession in 15 years in the third quarter, paving the way for deeper cuts to interest rates and taxes amid the worst financial crisis since the Great Depression.
Gross domestic product in the 15 euro nations shrank 0.2 percent from the previous three months, when it also contracted 0.2 percent, the European Union's Luxembourg-based statistics office said today. The two quarters of contraction -- the result of this year's surges in the cost of credit, the euro and oil prices -- mark the first recession since the single currency was introduced almost a decade ago.
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
This is a summary of an excellent article by R.V. Green on how social engineering created the credit crisis. The complete article can be found on briefing.com.
1. The government created the current credit problem when it wanted to ensure every American could buy a home.
2. The Glass-Steagall Act required that commercial banks hold these mortgages until maturity or the debt was repaid. The down payment was 20%.
3. Since banks were required to hold a mortgage for the duration, they were very selective. Outcome: cry for government policies to increase home ownership was a strong and powerful voice.
4. In 1938, a government agency called the Federal National Mortgage Association was created to guarantee mortgage loans by banks, so that ordinary Americans would be able to obtain home mortgages.
5. In 1968, the Federal National Mortgage Association was split into two entities. Ginnie Mae retained the role of guaranteeing mortgages issued for "special assistance programs."
6. The second was Fannie Mae, whose role was to create new mortgage capital. Fannie Mae was also "privatized" at that time. In 1981, in order to expand the capital markets for mortgages, Fannie Mae began selling mortgage backed securities, or MBS. A mortgage backed security is a pool of mortgages with roughly similar characteristics (term, interest rates, credit quality of borrowers) that is sold as a single entity.
7. To make MBS securities attractive, Fannie Mae guaranteed payment of the interest rate coupons on MBSs. This guarantee would also later become the downfall of Fannie Mae.
8. Home ownership increased from 55% of U.S. homes in 1950 to 63% in 1965 to 69% in 2006.
So what did go wrong?
• Standards for mortgage issuance declined
• MBS securities were restructured into new securities, to accommodate the riskier loans
• A sharp rise in interest rates, reversing a 20-year trend of decline
• Overbuilding of new houses, leading to pricing pressures.
More, much more of my analysis and recommendations when you read older posts in the blog archive and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
In the 1980-1982 recession oil declined about 70% (click on chart to enlarge). This recession is probably going to be deeper. Oil could decline more than 70% from its peak, down to at least $45. This type of decline could offer interesting investment strategies and opportunities.
More, much more of my analysis and recommendations when you read older posts in the blog archive and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.
Bottom line. They have the control of the purse. We do not have any say about it. Why, did you think we did?
More, much more of my analysis and recommendations when you read older posts in the blog archive and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
China and the rest of the world announce more stimulus plans.
The markets soar, commodities (including oil) jump, yields of long Treasury bonds rise, and the dollar sinks.
Do you see a pattern?
More, much more of my analysis and recommendations when you read older posts in the blog archive and subscribe to The Peter Dag Portfolio by going to https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
