BLACK HOLE
The Well-Timed Strategy for Week Ending October 3rd
by Peter Navarro, Ph.D.
September 29, 2008
Market Pulse
While a Chinese astronaut walked in space, American politicians hammered out a compromise to bail Wall Street out of the black hole formerly known as our banking system -- some high and low irony there.
The bailout will not (fully) work. Basically, all the bailout is going to do is unfreeze our credit markets -- while no doubt enriching some savvy speculators. However, the bailout does not address the tremendous shock the consumption side of our economy has just suffered. The vaporization of much of the total market capitalization of players like Fannie Mae and Freddie Mac (and a complete vaporization of Washington Mutual) will, in turn, lead to significantly lower retail spending. In effect, what we have just endured is a negative "wealth effect" that will be every bit as contractionary as any tax.
It is hard to imagine anything other than this: The economies of the US and Europe succumb to recession. This will in turn slow down the economies of Brazil, China, and India. (Note that Russia shot itself in the economic head with its invasion of Georgia.)
Let us see how this all plays out. We are likely to get a bit of a bullish bump early next week in the wake of the bailout announcement. However, in no way should this bailout put in place a new bull market. Cash remains king.
Presidential Politics: A Bad Week for McCain
I cannot figure out whether John McCain is brilliant or just erratic. His gambit to cancel the first presidential debate seemed silly on its face, but it might have had the effect of unsettling Barack Obama. No knockout blows were delivered -- even though Obama should beat McCain like a drum in these forums.
I for one will be watching very closely the vice presidential debate on October 2. It should be a doozy.
Quick Takes
- It would appear that the American media has a one track mind. In the midst of the bailout debate, it is as if the world has stopped. That's a big reason why like to read the Financial Times. It helps me get out of the parochial bubble our country seems permanently encased in.
- JP Morgan sure got a good deal. The rich get richer while we can't pay our mortgage.
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
