BEN BUSH BAILOUT
The Well-Timed Strategy for Week Ending September 6, 2007
by Peter Navarro, Ph.D.
September 4, 2007

Navarro's Big Economic Picture

The Big Ben Bush Bailout

It’s abundantly clear now that Fed Chairman Bernanke will expand the role of the Federal Reserve far beyond its charter to the become the lender of last resort to all of those poor saps and greedy speculators who loaded up on cheap adjustable mortgage rates to buy houses they either couldn’t really afford or which they wanted to flip for a fast buck. It’s equally clear that President Bush will be doing everything he can to support the Bernanke move so as not to exit his presidency with a housing sector in collapse and an approval rating with a minus sign.

In the short run, the markets will eat this up. Longer term, the US just seems to be digging a bigger hole for itself. Cutting interest rates and increasing credit availability is just one more way of saying let the printing presses role and one big heavy foot on a dollar already suffering from chronic weakness. At some point US centric investors are going to wake up and figure out that their dollar-denominated portfolios which seem to be going up really aren’t after currency effects are taken into account. Of course the larger problem with the Ben Bush Bailout is inflation.

I’ve written extensively in this space as to why in today’s global economy, BOTH food and energy need to be factored into to the inflation equation and not simply treated as “not in the core.” Energy prices are not in permanent price shock mode and based on the price of wheat these days and rising food demand in places like India and China, food may suffer the same fate.

My bottom line is the Ben Bush Bailout is not a move worthy of a country which claims to be based on free market capitalism. It is a move which simply digs the US deeper into its hole of a declining economy and world power.

This Week's Market Movers

With a shortened week, look for the markets to be in hold mode until Friday when the jobs report flies. It’s important now because any sign of labor market tightness or wage pressures will raise questions as to whether the Fed will cut rates this month now apparently a near certainty.

Trade of the Week - The Barron's 400

No trade to recommend this week but I do recommend reading the article in Barron’s on the establishment of its Barron’s 400 index. It’s in interesting clinic on fundamental (versus technical) stock picking methods. Too bad they don’t have an ETF yet to trade it.

The China Effect

The China Effect is a video presentation that provides analyses of the major news events coming out of China as they affect world markets. This week’s installment discusses piracy in the auto industry. GO TO YOUTUBE.

The International Scene - Technical Take

While most of the international ETFs are still in the short category, virtually all of the shorts are near their sell stops technically and looking to reverse. This on the basis of last week’s bullish moves globally on the Ben Bush Bailout news. Stay tuned!

Country or Region	ETF
U.S.	SPY	Short
Europe	EZU	Short
Europe S&P Eur 350	IEV	Short
- Germany	EWG	Short
Emerging Markets*	EEM	Short
Asia 50 ADR	ADRA	Short
- China 25	FXI	Long (deteriorating)
- Japan	EWJ	Short
- Australia	EWA	Short
- Korea	EWY	Neutral to Short
- India	IFN	Long
Latin America	ILF	Short
- Brazil	EWZ	Short
- Mexico	EWW	Short
Gold	GLD	Neutral from Long

*Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

The Market Edge Market Summary from www.marketedge.com

© 2007 Peter Navarro & Andrew Vaino

Andrew Vaino is a Ph.D. chemist who spent two years at The Scripps Research Institute in La Jolla, CA, working in the laboratories of Nobel-Laureate Barry Sharpless and Kim Janda. He currently teaches at The University of Maine, where his research group is focused on exploring the interface between enzymology, organic chemistry, and nanotechnology.

“Any trader or investor who ignores the power of macroeconomics over the world’s financial markets will, sooner or later, lose more than they should and if they are trading on margin, perhaps more than they have.”-- If It’s Raining in Brazil, Buy Starbucks

Peter Navarro is a business professor at the University of California and the author of the best-selling investment book If It's Raining in Brazil, Buy Starbucks and The Well-Timed Strategy. His latest book is The Coming China Wars: Where They Will Be Fought, How They Can Be Won.

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