A DEAN KOONTZ MARKET
The Well-Timed Strategy for Week Ending August 29th
by Peter Navarro, Ph.D.
August 25, 2008

Market Pulse

It's very difficult for me to grow bullish on either the US stock market world financial markets when seemingly every day the Financial Times reads more like a horror show than anything churned out by the likes of Stephen King or Dean Koontz. Consider, for example, last Friday's edition of the FT. We had stories about the following: a near collapse of Russia's financial markets as investors have fled in the wake of the Georgian invasion, a summer swoon in the economies of the euro zone, the startling rise of Al Qaeda in Algeria (an important oil and natural gas producer or), yet another story about the ever tightening Taliban noose in Afghanistan, and a 16 year inflation peaked in India. And remember, this is only one day's stories.

Of course the other big news last week was a very sharp spike in the Producer Price Index (PPI). And don't forget be possible impending shareholder wipeout at Fannie Mae and Freddie Mac. While you may not weep for their shareholders, it is important to remember that a lot of credit institutions and banks hold shares in Fannie Mae and Freddie Mac. One legitimate concern is that the gutting of these institutions will add fuel to the credit crisis fire as downstream balance sheets are affected.

My bottom line: cash remains King for the prudent investor. And periodically, I find it useful to issue this reminder. I used to play quite a bit on the short side. My sense now, however, is that shortselling is too vulnerable to headline risk. Too many central bankers around the world are too trigger-happy. So I wait for the trends to declare themselves and trade accordingly.

Presidential Politics: If Joe Biden is the Answer, What’s the Question?

I continue to get a very eerie sense of déjà vu as I watch Barack Obama slide further and further in the polls. As some of you may know, I ran for Mayor in San Diego back in 1992 and won the primary election in much the same way that Barack Obama has -- with a freshness and newness and a call for change and perhaps a dash of charisma. Of course, once the negative attacks started during the general election, I was pretty much doomed. Just as the people of America don't know Barack Obama very well, the voters of San Diego didn't really know me at that point. It wasn't very long before my very high positive ratings in the polls turned into negatives. Barack Obama faces the same problem, and he is handling the problem about as well as I did -- which is to say not as well as he should or could.

Let us be perfectly clear here -- it borders on the ridiculous for the Democratic nominee to be in a dead heat with the candidate from a party that is in total disrepute across America. Joe Biden Barack Obama's running mate is unlikely to solve his problem. While Biden is very likable and knowledgeable, he is even more volatile. This, then, bears saying for the last time. It is both a major miscalculation and a sign of Barack Obama's hubris that he failed to pick Hillary Clinton. A big chunk of Hillary's votes are gone and they are not coming back.

As for McCain, it is often the little things that create big problems. Not knowing the price of a carton of milk -- or, in McCain's case, not knowing how many homes he owns. Of course, the people most happy about that gaffe are the political consultants who will be making the attack ads ridiculing McCain. Those commercials will likely be funnier than Two and a Half Men.

Quick Takes

1. I’ve enjoyed watching the Olympics, but they are not really taking place in the real China. These games are taking place in a bubble of high tech concrete. The face of the real China is that of the woman the Chinese government just put into a reeducation camp. Her crime? Applying for a permit to protest in one of the three officially recognized protest zones at the Olympics – which were never opened to anybody.
2. The California budget crisis continues to stretch into the dog days of summer. California is spending almost 20% more than it is taking in in tax revenues. This is a humongous budget gap in both absolute terms and relative to budget gaps in other states. The biggest obstacles to a budget compromise are the Republicans in the legislature. Normally, I have a lot of sympathy for legislators who refuse to raise taxes. However, these Republicans are living in fantasy land if they think the current crisis can be solved simply by cutting expenditures. I'll go even further, it's just freaking stupid.

THE CHINA EFFECT

Please see my latest You Tube report.

© 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