GLOBAL DOWNSHIFT
The Well-Timed Strategy for Week Ending September 12th
by Peter Navarro, Ph.D.
September 8, 2008
Market Pulse
Stock prices represent an expectation of a future stream of profits. The latest macro data indicates the economy is in worse shape than previously thought. Ergo, the market must go down – which is what it did in spades last week.
This week, the U.S. market remains in a technical downtrend, with economic fundamentals pointing in the same direction. Ergo, cash as a general principle should be a very big chunk of your portfolio. As for my biotech strategy, the sector itself is weakening so this is not a good time to open new positions in their area.
On the global front, I watch obscure things like Australia cutting its interest rates for the first time in seven years. This is another nail in the “decoupling coffin” and another tea leaf indicating that Asia will soon follow the U.S. and Europe down the recessionary road.
Wall Street Survivor
Note that I am participating in a trade event for Wall Street Survivor. My goal is to teach beginning and intermediate traders how to trade from a macro perspective. Under the rules of Wall Street Survivor, I must make at least one trade a week. This is fine for a teaching exercise like I’m doing. However, in times like this, I would be more inclined to remain on the sidelines with real money.
That said, my buy this week is the ETF for the regional banks – RKH. I open a $2,500 position in this ETF. Technical analysis indicates that this is a “Strong Buy”. Fundamentally, this is an interest rate play. With the global economy and U.S. economy softening, interest rates are more likely to be cut than raised. This helps regional banks, which survive on the spread.
Presidential Politics: Dead Heat
With both conventions now over, the polling shows its come out a draw. The Dems were far more entertaining. Obama beat McCain on the stump but Palin seemed to be the more likeable of the VP candidates. Having run a political race against a woman myself at one point, I know how hard it is going to be for Biden to take any even fair shots at Palin – while he will be a sitting duck for her smile.
Miles to go before we vote, but privately, I think the Dems are sweating now about being outmaneuvered by McCain on the gender card. Absent some major gaffe by one of the four candidates, this one looks like it will go down to the wire.
Quick Takes
- Okay, the Dodgers got me back with their win streak.
- California still hasn’t solved its budget crisis – and this WILL have macro implications for the country.
- Look for the U.S. to file a complaint before the WTO against China on export restrictions. This is a HUGE deal. China is restricting the export of key raw materials used in industries like the steel industry. It’s a protectionist affront to free trade because it raises the price of these raw materials in world markets while restricting their supply outside of China.
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.
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