BEN'S DOLLAR DECISION
The Well-Timed Strategy for Week Ending Nov. 2
by Peter Navarro, Ph.D.
October 28, 2007

Navarro's Big Economic Picture

All eyes turn now to the Federal Reserve as it decides whether or not to cut interest rates further on Wednesday. The Fed's decision will be very different from years past because of the new global environment that we live in. In the past, an interest rate cut was supposed to primarily stimulate domestic investment and thereby expand the economy. Now, when the Fed cuts interest rates, it is effectively further devaluing the dollar. This is very good for the export sector of the American economy, which is showing a strength not really seen in decades. However, the weaker dollar also increases inflationary pressures and that must give the Fed pause.

Just what will a Federal Reserve do? The currency markets appear to be betting on an interest rate cut as last week both the euro and the English pound rose against the dollar. However, if I were Ben Bernanke, I wouldn't cut rates this time. My concern is a collapsing dollar that really needs to be addressed both by more and more responsible fiscal and monetary policy. After all, the unemployment rate is still below 5%. Will we not tolerate any slack in the system in order to get the economy and the dollar back on solid footing?

This Week's Big Market Movers

There are some fairly significant reports this week, not the least of which is the jobs report on Friday. The Fed really hates it when they have to make a rate decision the Wednesday before Friday when the jobs report comes out. It's a real opportunity for them to look really bad. For example, if the Fed cuts rates on Wednesday and the job numbers come out robust on Friday, they will feel like they really blew it. Same thing if they don't cut rates and the job numbers are anemic. What is the Fed to do? With the jobs report not coming till Friday and the Fed not acting until Wednesday, look for the beginning of the week to be rather mild and quiet.

The International Scene - Technical Take

For the third week in a row, the Globe is flashing a big bull's-eye. Every single ETF that I track is a buy from a technical perspective. That's just amazing. Do with it what you will.

Country or Region	ETF
U.S.	SPY	Long
Europe	EZU	Long
Europe S&P Eur 350	IEV	Long
- Germany	EWG	Long
Emerging Markets*	EEM	Long
Asia 50 ADR	ADRA	Long
- China 25	FXI	Lon
- 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