4/17/15

One more time: Is the market too high?

 
 
The market collapsed today with the Dow down 1.65% (blue line). Similar declines were experienced by the S&P 500 and the Nasdaq. Why?
 
Many observers follow party line when interviewed on TV or radio: the US economy is doing fine. The reason for the market volatility must be Europe, China, or, even worse, the strong Dollar. In other words, they do not have a clue about what is happening to the US economy.
 
In all my posts I show the facts and the facts suggest that what is happening to the markets is obviously caused by the US business cycle exacerbated by the silly policies of the Fed.
 
But no one talks about it. People believe the official forecasts, which have a history of being revised downward as reality catches up with them.
 
Go through the previous posts. Their main purpose is to show the forces of the US business cycle eventually win. In the past several months the economy has slowed down significantly.
 
Repeatedly I have pointed out that this slowdown is what is causing the decline in all commodities. With no exception. The weak economy is forcing all prices to decline.
 
This is a major headwind for profits. Everything that is happening is tied together by the relentless forces of the business cycle.
 
The Fed is creating distortions, but the business cycle is alive and well.
 
The economy weakens,
Prices decline,
Commodities decline,
The price of money declines,
Inflation declines,
Sales slow down,
Inventories rise too rapidly,
Business needs to cut them,
Business cuts production,
Profits weaken.
 
These are some of the main forces of the business cycle. This is what really matters. Not China or Europe or the Dollar. And the markets are reacting to these events.
 
The purpose of these short notes is to document what is happening. I am trying to show you what matters. The main trends. Of course I hope you will find my ideas interesting for you to subscribe to my service - The Peter Dag Portfolio.
 
More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.

4/16/15

Housing - a major headwind for the economy

 
 
Housing starts are going nowhere, as I expected. Housing starts are exactly at the same levels as in October 2012. See above chart. Click on the chart to enlarge it.
 
I have been writing here and in my The Peter Dag Portfolio for a long time, predicting a weak housing sector because of the extreme and prolonged weakness of lumber prices.
 
You can rest assured home prices will also grow much more slowly in the not so distant future.
 
Housing is a major sector of the US economy (together with autos). Their weakness  will be two major headwinds for the economy.
 
Of course, time will tell.

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.

 
 

4/15/15

A model portfolio to manage risk

 
 
 
The main objective of portfolio management is managing risk.
 
The above chart shows what I mean. The green line represents a model portfolio I backtested from 2003. The blue line is the actual SPY - the S&P 500 ETF.
 
The difference between the two performance lines is self explanatory. It explains the advantages of managing risk in comparison to a buy-and-hold strategy.
 
The performance of the model portfolio shown above is discussed in each issue of The Peter Dag Portfolio. Of course, it is important to remember that past performance does not guarantee future results.

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.

Are we already in a recession?

 
 

 
I am baffled. I really do not understand what the analysts are thinking. I just do not see any strength in the economy. See for instance the above chart (click on the chart to enlarge it).
 
It shows the growth of industrial production over the previous twelve months. It is sinking, plunging, tumbling.
 
Just review all my previous posts. I showed you the important indicators released by various government agencies and business associations.
 
They are all unanimous. The economy is going through a massive deceleration. Yet, all the smart people interviewed on TV and the radio keep reminding us the economy is growing and the Fed needs to tighten.
 
I look at the facts, the hard data, and I see a lot of bad news. I let you decide.
 
I am probably wrong. As always, time will tell.
 
More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.
 


4/14/15

Is a recession around the corner?

 
 
Retail sales rose 0.9% but the growth rate is plunging! (See chart. Click on the chart to enlarge it).
 
Retail sales rose only 1.3% y/y. There is no question about it. The US economy is decelerating in a worrisome way according to the latest data.
 
The Fed is in a corner. Forcing rates to rise would create serious damage to whatever sign of life there is in the business cycle.
 
This trend, and the others discussed in previous posts, does not bode well for corporate profitability.
 
Of course, time will tell.

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.
 

Is the economy in deep trouble?

 
 
There is a big problem out there. You hear about Europe improving. The US economy strengthening again. But wait a minute. Do not jump to conclusions so fast.
 
Why is lumber tumbling (click on the chart to enlarge it)? If the economy was so strong, how come lumber - a great leading indicator of the economy and the housing sector - is sinking?
 
I do not think it is the weather. It must be something else. It could very well be tightening credit (see previous posts).
 
Time will tell, of course. And thank you for visiting my blog.
 
More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.
 
 
 

Business to cut production. Bad news for commodities. Good news for bonds.

 
 

The inventory to sales ratio for wholesalers is too high. The last time the I/S ratio was at these levels the economy was facing a major recession. (See above chart, click on the chart to enlarge it).

Sales are rising too rapidly and inventories are building up. Business needs to bring down the I/S ratio to around 1.15.-1.20. The economy will grow slowly as they try to achieve this feat. 

The slower economy  will keep commodities from rising and inflation may even morph into deflation. Bond yields would decline under this scenario.

Time will tell, of course. And thank you for vising my blog.

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.

4/13/15

Global trends

 
 

Global bond yields continue to sink in a worrisome way. I have never seen such relentless declines in interest rates (German bunds yielding 0.10%). They reflect global contraction.
If the global economy was expanding they would stabilize around current levels. Interest rates would rise if the global economy was strengthening as heralded.
This is what history teaches, without any exceptions. My point is the decline in global bond yields reflects very disappointing global business conditions.  
Europe meanwhile remains in shambles. The embarrassing decline of the Euro tells the whole story (see above chart).
Countries rushed to join the EU so they could borrow at the low German rates. They splurged in borrowing to satisfy greedy governments. Now they have to pay the piper.
Like Greece and Italy they have to open the door to foreign investors who will slowly buy protected industries.
Foreign investment will force discipline. This is the process forcing Europe to change. It is happening exactly as if each country had its own currency losing rapidly its value due to lack of fiscal discipline.
Markets are very efficient. Large currency areas do not protect inept governments.  

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.
 
 
 

A recession seems highly possible.


 
The following are some comments from the monthly report of the National Association of Credit Managers. They suggest there are some serious problems in the business sector. The levels of these problems is worrisome according to the NACM. The above graph shows the Credit Managers Index. A reading below 50 in the CMI indicates recession. (Click on the chart to enlarge it).

 "These readings are as low as they have been since the recession started [in 2008]. The data from the CMI is not the only place where this distress is showing up.

The combined score is getting dangerously closer to the contraction zone and has not been this weak in many years (going back to 2010). It is sitting at 51.2 and that is down from the 53.2 noted last month.

For most of the last two years, these readings have been in the mid-50s and above—comfortable territory and generally trending up from one month to the next and now there is a very disturbing trend downward.

The most drastic fall took place with the unfavorable factors that indicate the real distress in the credit market. It has tumbled from 50.5 to 48.5 and that is firmly in the contraction zone—a place this index has not been since the days right after the recession formally ended.

The signal this sends is that many companies are not nearly as healthy as it has been assumed and that there is considerably less resilience in the business sector than assumed.

The real damage is showing up in the unfavorable categories. By far the most disturbing is the rejection of credit applications as this has fallen from an already weak 48.1 to 42.9. This is credit crunch territory—unseen since the very start of the recession. Suddenly companies are having a very hard time getting credit.

The accounts placed for collection reading slipped below 50 with a fall from 50.8 to 49.8 and that suggests that many companies are beyond slow pay and are faltering badly.

The disputes category improved very slightly from 48.8 to 49, but is still below 50. This indicates that more companies are in such distress they are not bothering to dispute; they are just trying to survive.

The dollar amount beyond terms slipped even deeper into contraction with a reading of 45.5 after a previous reading of 48.4.

The dollar amount of customer deductions slipped out of the 50s as it went from 51.8 to 48.7.

The only semi-bright spot was that filings for bankruptcies stayed almost the same—going from 55.0 to 55.1. This is the one and only category in the unfavorable list that did not fall into contraction territory and that suggests that there are big, big problems as far as the financial security of these companies are concerned."

Should we be concerned? Is a recession likely? What will happen to profits? And the stock market?

Stay tuned and thank you for visiting our blog.
 
More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.

Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com.

4/11/15

Is a bear market around the corner?

 
 
The above chart shows the change in profits (red line) over twelve months and the index of the Wilshire 5000. (Click on the chart to enlarge it).
 
The change in profits declined below zero percent in Q4 2014. Should we panic?
 
The last time it happened it was in Q1 of 2007. A major bear market followed.
 
Of course one gauge is not reliable. Besides, the government could make major revisions to it. However, it is important to notice that profits, the lifeblood of equities, are not as ebullient as we would like them to be.

More details in The Peter Dag Portfolio on www.peterdag.com

George Dagnino, PhD
Editor,
The Peter Dag Portfolio
Since 1977
Author, Profiting in Bull and Bear Markets
No. 1 bond timer in the past 12 months. 

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.


Keep updated on crucial economic and financial trends including exclusive model portfolios by subscribing to The Peter Dag Portfolio. Just visit www.peterdag.com