HARSH
TRUTHS, HIGH HOPES
The Well-Timed Strategy for Week Ending Oct. 26th
by Peter Navarro, Ph.D.
October 21, 2007
Navarro's Big Economic Picture
This last week�s market mini-meltdown once again highlights the crosscurrents facing U.S. stock market exchanges. The housing sector is in a depression, financials are in a recession, earnings are underperforming this season, and the U.S. economy is clearly slowing down. On the other hand, the global economy continues to crank as China feeds on a combination of export-led growth and internal booming construction while pulling along other countries that have become an essential part of its supply chain. This includes for energy and raw materials Australia, Brazil, African countries like Nigeria and the Sudan. It also includes for capital equipment and technology countries like Germany, Japan, Taiwan and South Korea. How 2007 ends is anybody�s guess but a risk-reward calculus likely now favors the short side of the US market.
Now, I want to alert you to two fine pieces from Barron�s that are well worth a look. The first is an op-ed by William Wood who quite eloquently nails a theme I have developed for more than a year now in this newsletter � the importance of discounting the Wall Street highs by the weak dollar effect. Wood does me one better, however, by also discounting by the rate of inflation. �Using this approach, the DJIA lost an average of 3.9% a year, declining a total of 23.3%; the S&P 500 dropped 5.8% annually, for a loss of 32.9% in all; and the Nasdaq forfeited 7.7% a year, or 41.5% in total.�
The second Barron�s coup is an interview with Jim Paulsen this week. It's the definitive take on how a weak dollar scenario may wind up saving America. Paulsen's basic argument is this:
- The weak dollar will resuscitate the American manufacturing sector.
- As currencies strengthen in Asia -- as they inevitably must because of the huge trade imbalances with the US -- Asian consumers will pick up where American consumers left off and help build healthy domestic economies.
- America's current economic woes are quote a mile wide and an inch deep" -- restricted to the housing and financial sectors. Things aren't anywhere near as bad as most people think.
While I don't subscribe to Paulsen's perspective, it certainly is worth keeping in mind is one possible alternative future. It would be very bullish future so it cannot be dismissed by traders.
This Week's Big Market Movers
The report calendar is very light this week, with only housing coming in with a couple of reports. Look for the earnings season to provide the most fuel for volatility this week.
The International Scene - Technical Take
You will not see the stars aligned this long very often. Green lights are flashing across the globe. However, there is some evidence of some technical deterioration so be careful here.
|
Country or Region |
ETF |
|
|
U.S. |
SPY |
Long |
|
Europe |
EZU |
Long |
|
Europe S&P Eur 350 |
IEV |
Lon |
|
- Germany |
EWG |
Long |
|
Emerging Markets* |
EEM |
Long |
|
Asia 50 ADR |
ADRA |
Long |
|
- China 25 |
FXI |
Long |
|
- Japan |
EWJ |
Long |
|
- Australia |
EWA |
Long |
|
- Korea |
EWY |
Long |
|
- India |
IFN |
Long |
|
Latin America |
ILF |
Long |
|
- Brazil |
EWZ |
Long |
|
- Mexico |
EWW |
Long |
|
Gold |
GLD |
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
“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.
Contact Information
Peter Navarro Irvine, California USA | Email | Website | Editorial Archive
