4/16/14

Observations

Richard was driving and talking to Jim. I was sitting in the back with all my reading material. Finally I had the time to catch up. Three articles caught my attention.

The first one was unfavorable to the ethanol craze going on right now in the US. This is an industry buoyed by 51 cents per gallon government subsidies to a few major companies such as ADM.

This market interference by the government is creating distortions as farmers and speculators take advantage of the bonanza. The ensuing misallocation of crops will increase the price of commodities not produced because of the emphasis on corn and soybeans. There will be a green effect because corn and soybean require large amounts of fertilizer, pesticides, and fuel.

The second article dealt with the new shape of the global balance of power. As other countries grow faster, their relative economic weight increases.

Asia (mainly China and India) is creating its own organizations and excluding the US. The US, on the other hand, is trying to bring all the countries in the existing global structure to keep control of what is happening. China, meanwhile, is opening aggressively to Africa. Russia is increasing its ties with China and Asia.

The power structure of the world is evolving and everybody is positioning to gain most control.

The third article dealt with the world demographics. People spend progressively more money until the age of 48, after which spending slowly decreases as they save more for retirement. You can tell what is happening to a country by looking at the number of new born 48 years ago!

The outcome is countries with the youngest population will grow faster such as India will assume power. Those with older population (Japan) will grow very slowly. Europe, Russia, and USA are “middle-age” countries and are entering the slower growth phase.

China, with its one child policy in 1979, had plunging births. It will grow rapidly until 2015. It looks like China will grow old before it grows rich!

(This Observations appeared in the 5-28-2007 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

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Observations

Lee Kuan Lew, minister mentor of Singapore, created a prosperous city nation. He is recognized as a major statesman. I read excerpts of a speech on Foreign Affairs and he made interesting points. Given his standing as a global statesman, I thought to share with you some of his ideas. Very different from what you read in today’s press.

He compares Iraq to Vietnam, but not in the usual way. He noted that conventional wisdom in the 1970s saw the war in Vietnam as an unmitigated disaster. But that has been proven wrong. These are his words.

“The war had collateral benefits, buying the time and creating the conditions that enabled noncommunist East Asia to follow Japan’s path and develop into the four dragons (Hong Kong, Singapore, South Korea, and Taiwan) and, later, the four tigers (Indonesia, Malaysia, the Philippines, and Thailand).” [Ed. note: by stopping the spreading of communism]. ,p>The conventional wisdom now is that the war in Iraq is also an unmitigated disaster. However, he suggests, a stabilized, less repressive Iraq can be a liberating influence in the Middle East.

He concludes that this overall new order can only be achieved by bringing all of Iraq’s neighbors into the process of achieving this objective. The latest diplomatic efforts of Dr. Rice seem to follow this direction.

I would like to add another dimension. The awakening of China is engaging the world politically, economically, and diplomatically. Its power around the world is astounding through its financial commitments, which include a plant in South Carolina and Oklahoma and a $500 million loan to Pakistan. India is feeling the pressure and is mimicking the successful Chinese model of enterprise zones.

China is moving west. The Middle East and Islam will find themselves sandwiched between a successful Europe and burgeoning Asia. History will probably say that the war in Iraq was an unmitigated disaster. But Mr. Lee Kuan Lew may be right. Time will tell.

(This Observations appeared in the 4-30-2007 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

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4/5/14

Observations

It was cold, but I decided to go to Annapolis to check if my boat was still floating. It was an excuse to leave my usual habitat and regain some perspective on how the world works. I brought along my laptop. It is my umbilical cord in case of an emergency -- my ultimate connection.

The marina has wireless internet and the temptation was too great. I needed to review what was happening. The connection worked and I was in business. Technology never fails to amaze me. It was exactly like in my office. But this time I was sitting at my nav table with the water sloshing against the hull. In my cocoon.

I called my uncle in New Zealand using Skype and I could see him because he used a web cam. And all this was free. Incredible. I also caught up with some of my reading. The first item was the low productivity of the European countries. I expected these issues to become a problem since the inception of the EU. See my previous observations.

Spain and Italy cannot compete with Germany. In a normal environment they would devalue their currency and/or lower interest rates. But this cannot be done in an economic area with one central bank and one currency.

The outcome is capital flowing from low productivity countries to higher productivity ones such as Germany. Life becomes very difficult for low productivity countries in large economic areas with one currency. Similar problems are being faced by Ohio, Michigan, and West Virginia here in the USA.

“China welcomes ideas on how to improve its economy” I read on the Xinhua web site. “The hard evidence is that China’s soft power policy is working”, a Financial Times columnist penned a few days ago.

It is interesting to compare the two approaches to diplomacy. We are the strong guys, bashing the world to understand that democracy is the way to go.

China’s leaders go around the world totally unnoticed. Africa, Asia, the Middle East, Russia, …. They are weaving a web of common business interests. Who is going to be right? Confucius or Calvin?

(This Observations appeared in the 3-12-2007 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

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Observations

It is 10:00 am on Sunday. They are already there, sitting around a table sipping their cup of coffee. Talking about the news of the past week. Dr. R always greets me by singing a few lines of an Italian song. Sometimes I join him. People look at us, smiling. Buy EWL, he told me, immediately writing the symbol on a napkin. It is a strong ETF and is going to remain strong. Great, I answered.

SNS was not there. Cruising to Hawai. He finished his big project of renovating a plaza and leasing all the stores. A great personal and financial success.

Dr. H did not come. Probably he had the remnants of the cold he gave me the previous Sunday when I shook his hand. Oh well, it was too late when he told me.

I like EFA, Dr. M told us with a solemn tone. You should also look into EWG, EWO and EWS. They are strong, I added. Hillary, we concluded, cannot be trusted. Besides, she is too much to the left. Oh, well, what about Obama then? Silence. He is even further to the left.

Just do it. A long-time ago Dr. R recognized a new advanced procedure in surgery. He went to England to learn it. His career grew rapidly after that. Just do it. Do not waste time was his message. He likes art. Often he flew to London to buy pieces he liked. He is now selling them at a nice profit. When you like something … buy it. A good investment idea.

The art market is soft, he added. I am not surprised, I suggested. All prices have the same cyclical turning points from housing to copper to art.

The 1700s were a major turning point for the west. The English empiricists (Locke, Hume, Berkeley) and the continental rationalists (Voltaire, Rousseau). And Adam Smith and Turgot. They anticipated the French revolution, romanticism, and communism. But how do you make big money? Not through diversification. You are doomed to perform like the averages. You need to take big bets on a few trends.

Sunday, the time to exchange ideas. I look forward to it.

(This Observations appeared in the 2-26-2007 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

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3/13/14

Observations

The industrial revolution in England took place between 1750 and 1850. I read the book Ed gave me, but I was puzzled. As I read it I was asking myself some questions. Why in England? Why in the 18th century? What triggered the “revolution”? Or was it an “evolution”?

Trying to put together the pieces of the puzzle was challenging. Writers (historians, economists, philosophers) look at the subject from their viewpoint.

Inventors were stimulated to make new inventions. Why? The law protected and rewarded inventors and inventions through a well managed property rights system. Education was superb in England and it allowed the spreading of knowledge. Commerce flourished. The English markets were homogeneous and compact. Railroads and canals were developed to ship minerals and goods. International trade was supported by an unchallenged navy and a large commercial fleet.

Max Weber insists that the protestant ethics was the major reason for the dedication to work and produce wealth. The comparative freedom of the people allowed vertical mobility. In France, for instance, the guilds (as in Italy now) were against the laissez faire attitude in vogue in England and conceptualized by Adam Smith.

The introduction of a Central Bank and the management of the national debt created efficiency in financial transactions unsurpassed in the medieval age.

England and the English speaking people dominated the world for more than 300 years because of:
a) property rights that were rewarding risk-taking;
b) a superb educational system which spread the new knowledge;
c) excellent transportation (navy, roads, and canals);
d) a financial system that allowed the efficient financing of business transactions. ,p>This is the legacy of the industrial revolution. Any deviation from this legacy will produce a country doomed to under perform its competition.

(This Observations appeared in the 2-12-2007 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

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3/8/14

This is not the way to run an economy

[Low interest rates] has been a key element in the equity bull market, allowing quality companies to borrow billions for next to nothing, which they can return to shareholders as dividends or share repurchases, or use to make mega-acquisitions. Think Verizon Communications' (ticker: VZ) recent purchase of Vodafone s' (VOD) stake in Verizon Wireless, which was funded in part by the biggest U.S. corporate bond offering ever last year, totaling some $49 billion.

To be sure, financial engineering abetted by the Fed's QE also has had real effects. Steven Ricchiuto, Mizuho Securities U.S. chief economist, notes that the central bank's actions allowed auto makers to resume offering cut-rate car loans, which has boosted auto demand to precrisis levels. Institutional investors' access to inexpensive debt helped them scoop up large numbers of single-family homes to rent out, while individuals with top credit scores could avail themselves of record-low mortgages rates, helping to clear the housing market. (Barron's)

My thoughts? It cannot end well. Too many distortions. The pricing mechanism has been distorted in a crazy way.

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

STRATEGIC INVESTING FOR UNCERTAIN TIMES.
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3/6/14

A very informative article about the housing industry and the unintended consequences of our housing policies. A must read.

According to the Census Bureau, 65.6% of households owned a home in 1980. More than three decades and trillions of dollars later, the needle hasn't budged—it's still about 65%. Subsidized mortgages did create three things, none of them good:

Read more by clicking here.

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

STRATEGIC INVESTING FOR UNCERTAIN TIMES.
Learn how to manage your portfolio risk and sleep comfortably. Improve the certainty of returns by taking advantage of business cycle trends. Learn to use simple hedging strategies to minimize the volatility of your portfolio and protect it from downside losses.
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3/5/14

Observations

I am having fun. I am very lucky. I love what I am doing. I like the challenge. I like the frustrations. Being wrong. Being right. The psychological effort to bounce out of bad moments gets the adrenaline flowing.

As when I was playing tennis. The opponent was getting ahead. What was I doing wrong? Should I change strategy. How? Slowly I was winning more points than losing them. Great! Keep doing the same thing.

I get the same feeling in my job. My brain has to keep working and be challenged. Lou has now started a blog for me and showed me how to keep it updated. It is really exciting. More on peterdag.blogspot.com.

As I go through my research and readings, it is not unusual I react to the news and to what analysts are saying. I always have the need to share with someone what I think. But I had to keep it for myself.

Now I have a venue. An outlet. My blog. This is where you can find my off-the-cuff reactions to what is happening. Or interesting news. Some examples.

• Are energy stocks close to a buy point? This is a reaction to watching some eye opening charts.
• Are commodity prices controlled by cartels? I did not agree with a Financial Times article.
• Is the market trying to prove all those bears wrong about the economy? The market is too strong to expect a recession.
• How is the housing market impacting the start of new businesses? A unique point of view.
• Do I like the Chinese stock market? Yes, of course. But there is something making me feel uncomfortable. What is the outlook for China?
• The UK central bank keeps tightening. It is a pattern quite common in the global space.
• The dollar is strong, as I predicted. What does it mean? What are the implications?

I hope you will find my comments on peterdag.blogspot.com helpful and interesting.

(This Observations appeared in the 1-22-2007 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

STRATEGIC INVESTING FOR UNCERTAIN TIMES.
Learn how to manage your portfolio risk and sleep comfortably. Improve the certainty of returns by taking advantage of business cycle trends. Learn to use simple hedging strategies to minimize the volatility of your portfolio and protect it from downside losses.
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Observations

I started my first issue of 2006 focusing on the relationship between short-term interest rates and stock prices. This has been my most reliable indicator.

History is quite clear on this: rising short-term interest rates have been followed by sharp market corrections. Latest example: short-term interest rates bottomed in 1999 and rose until 2001. The market peaked in 2000. You know what happened next. The same pattern repeated itself over and over again in the past.

2006 was definitely different. Short-term interest rates started rising in 2004 and by 2006 they reached 4%, up from 1%. The market ignored the tightening cycle and had only a short-lived correction in May-June. Quite frankly I was surprised – and I still am.

In the first half I was cautious about the market and I was correct in calling the bottom in June-July. I underestimated the strength of the economy in the first half of 2006. The outcome was that I was wrong on the bond market. I am still baffled why the economy was so strong. Some suggested the reason was the huge amount of money printed to repair the damage of the hurricanes. Possibly.

Since my objective is to minimize risk and volatility, the reduction in commodity sensitive stocks was correct as the economy started to slow down.

But the market was at a transition (and I still believe it is), and it was difficult to find sectors that dominated the market. In retrospect I should have reduced more aggressively the cash position when I called the bottom in June. The lack of a precise leadership made me more concerned about risk than opportunities. I was too cautious.

Because of this mindset I ignored emerging markets. Their lack of liquidity just scares me. See what happened to the market in Thailand – down 20% in one day because they announced restrictions on capital flows.

2007 is opening with my forecast of a top in short-term interest rates, commodities and stocks as the economy keeps slowing down. There is no question the market leadership is at a transition. Read on for details.

(This Observations appeared in the 1-07-2007 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

Disclaimer.The content on this site is provided as general information only and should not be taken as investment advice nor is it a recommendation to buy or sell any financial instrument. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

STRATEGIC INVESTING FOR UNCERTAIN TIMES.
Learn how to manage your portfolio risk and sleep comfortably. Improve the certainty of returns by taking advantage of business cycle trends. Learn to use simple hedging strategies to minimize the volatility of your portfolio and protect it from downside losses.
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