XMAS AGONISTES?
The Well-Timed Strategy for Week Ending December 5th
by Peter Navarro, Ph.D.
December 1, 2008

Market Pulse

I do not know if a market bottom has been put in yet. I believe that there is, however, a pretty good level of support that has been established now for the Dow at 8000. The question now is whether we are going to have a Christmas rally or simply meander around current levels right through the first of the year.

For the bear case, I think there is going to be a lot of selling before December 31 for tax purposes. This is likely to weigh down the market. I also think that a lot of traders who made money on this latest short-term rally are going to take their profits and close the books on the year.

As for why the market rally, technicians might say that the market was oversold. I think the biggest effect has to do with the famous FDR saying "there is nothing to fear but fear itself." On this note, the market is above all else a confidence game. I think Pres.-elect Barack Obama injected quite a bit of confidence in the market with his appointment of a seemingly well-qualified economics team and, more importantly, his promise of the mother of all fiscal stimuli for the new year.

Beyond American shores, international markets are also responding favorably to the actions of central banks around the world. China has followed its announcement of a major fiscal stimulus up with a fairly significant cut in its interest rates. At some point soon (probably this week), the ECB is going to get more fully on the interest rate cut bandwagon – although an inflation-conscious Germany has pretty much kept Europe's central bank behind the curve.

Some of you may be tempted to start building positions in this market. I think the time to do that was last week. This next week it may be better to continue to watch and wait. On this note, the news continues to be grim. Europe is settling into the deep and ugly recession -- with the unemployment rate in Spain over 12%.. Japan has returned to its basket case status. Brazil is having all sorts of credit problems. Housing prices continue to drop precipitously -- which suggests more problems in the credit markets from deleveraging. I still await the storms are likely to calm from state governments like that a California facing significant budget squeezes from credit constraints. And so the story goes. Let’s see how bad retail sales are in the US.

Last take: I noted with some amusement that in a survey of mutual funds, every single one of the more than 11,000 funds analyzed are in the red for the year. How about them apples.

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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