THIS WEEK: DON'T FIGHT THE TAPE
The Well-Timed Strategy for Week Ending April 11, 2008
by Peter Navarro, Ph.D.
April 7, 2008

The tape is telling us that the major U.S. market indices are now in a clear technical rally. It is not exactly clear as to why this is happening, but both the DOW and QQQQ are technical-indicator longs while SPY is moving close to the long side. (A technical bounce for the dollar is perhaps helping.)

This is the kind of technical rally you should feel free to trade IF your horizon is relatively short. However, the emerging fundamental situation seems just too bearish for there to be a sustained upward trend. Consider that:

1. The U.S. economy continues to slow and the situation of consumers continues to deteriorate
2. The Japanese economy has begun yet another retreat
3. Inflation is a significant problem in the eurozone that is constraining the ECB from cutting interest rates as economic woes mount.
4. Global cost-push inflation in the form of fuel and food price shocks continue to take their toll both economically and in terms of increased political instability.
5. Everywhere I go, Main Street cabbies, restauranteurs, merchants, et.al. are all telling me about how slow things are. Doesn�t matter whether I�m in Newark or Halifax or Chicago or Vancouver or the OC.

On top of this, the presidential race is motivating politicians to embark on large scale bailouts that are going to create a fiscal drag on the U.S. economy, likely for years to come.

QUICK TAKES

1. My ruminations on Clinton-Obama have dramatically increased my hate mail. To further fan the flames, check out my oped scheduled to run at www.provojo.com on Tuesday, April 8.
2. Please send me your ideas on how to play the higher food prices in the market. Any good restaurant stocks ripe for a short?
3. The latest Congressional bill for a real estate bailout includes billions for the developers in tax breaks for losses taken. This is the height of both stupidity and corruption in Congress. No wonder we can�t balance a budget.

© 2008 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