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Saturday, August 30, 2008

Weekly Newsletter Week Ending Sept 6, 2008

The Well-Timed Strategy


Economic & Stock Market Analysis for the Discerning Investor & Executive



Read it and Reap!


Week Ending  Sept 6, 2008                              Volume12,  Number1       

This Week: Macro Whipsaw & Sarah Connor Palin


Market Pulse


The U.S. stock market continues to be whipsawed by alternating bullish and bearish forces – with the bears (mostly) prevailing.  Last week’s action underscored the importance of taking a macro view of the markets. 


The Thursday GDP report caught virtually everyone by surprise with its sharp upward revision of 2nd quarter growth and sent the markets surging. The next day, however, bad news on the consumer front – the biggest drop in personal income in three years and weak spending.


The GDP report was remarkable in that fully 3% of the 3.3% increase in the real GDP was attributable to  a spike in exports and a corresponding fall in imports.  However, with the dollar now in an uptrend and one of America’s key export markets heading South (Europe), this is not a sustainable stimulus.


Bottom trader’s line: U.S. market trend continues down.  Cash plus biotechs is king.


Wall Street Survivor


I initiate a new feature this week called Wall Street Survivor.  I’ll be trading a mock portfolio on this site for the foreseeable future.  See http://wallstreetsurvivor.com/ for results AND trade your own portfolio.


The purpose of this exercise is to offer guidance to beginning and intermediate traders who want to trade from a macroeconomic perspective.  The goal is to learn about sector rotation, global diversification of the portfolio, and trading with the market trend.  We will also focus on proper timing of entries and exits using technical analysis as well as sound money management techniques.  (Note that this will be a conservative portfolio – we are not swinging for the fences.)


My first two buys for the portfolio are sector rotation plays.  As the business cycle moves through recessions and expansions, different sectors outperform over the cycle.  Moving in and out of sectors to leverage this can be a good way to both stay abreast of the market and earn some profits.  (For a full description of sector rotation, see my book If It’s Raining in Brazil, Buy Starbucks.)

1. Buy XHB at market.   130 shares

This is a sector rotation play.   Housing typically leads the economy out of a slowdown or recession.  Fundamentals that support this play include a favorable climate for Fed rate stability or cuts and a housing market that may be near a bottom.  This exchange-traded fund for the homebuilders is a strong technical buy.     It includes homebuilders plus furniture and carpet sellers and other companies that rely on homebuilder market.

Portfolio Share: 2.5%


2. Buy IYF at market   34 shares

This is a sector rotation play.  Financials, like housing, typically lead the economy out of a recession while this sector is very beaten down.  This exchange-traded fund for the financial sector features stocks such as Citi, Bank of America, and JP Morgan.

Portfolio Share: 2.5%


Presidential Politics – McCain’s John McEnroe Candidate


You may recall that in an earlier column, I discussed at length the magazine story about McCain the crap shooting gambler and Obama the speculating poker player.   As traders, we want to be intelligent speculators, not gamblers, always playing with the odds on our side.


John McCain has demonstrated once again that he is a huge gambler with his crap shoot choice of Alaska governor Sarah Connor – oops, I mean Sarah Palin.  If I had to bet on the election right now, I’d have to move my chips off the McCain square where I’ve had them over to Obama. 


This truly seems to be a John “You can’t be serious” McEnroe moment.  The America gut is going to rumble over a 72-year man with a history of cancer putting a political novice one heartbeat away from the Oval Office.



Quick Takes


1.  In an eight game losing streak, the L.A. Dodgers have managed to turn me away from the game I’ve loved for years.  Losing a trifecta to the Washington Nats is the last straw.   Manny should never have cut his hair.



Please see my latest You Tube report. 


Readers Write


I love getting stuff like this:


Hello Dr. Navarro,


I think I have totally blown away many of my colleagues with this new found "wealth" of knowledge of the Chinese economy from your book and the Modern Scholar series and of economics I have gotten from your online courses and the Modern Scholar series.  I actually recommended your stuff to our superintendent. 


I am teaching civics and economics but have now began incorporating much of your lectures and have emphasized efficiency in almost everything I taught.  I even contacted the PE teachers and explained to the them economic efficiency of teaching good health practices. 


Do you you have any more stuff coming out on audio.  I have the Big Picture course, but was looking for other areas.  I am a better audio learner and have found its convenience more adaptable to my life.  Of course,  I keep on thinking if I learn more and more of this, I can get out of teaching and into something that pays real $.


Thanks again,



Murray H.

6:26 pm edt 

Saturday, August 23, 2008

Weekly Newsletter -- Week Ending August 29, 2008

The Well-Timed Strategy


Economic & Stock Market Analysis for the Discerning Investor & Executive



Read it and Reap!


Week Ending  August 29, 2008                       Volume11, Number 4       

This Week: A Dean Koontz Market


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.



Please see my latest You Tube report. 


Readers Write

I appreciate what Jack writes below, but urging me to run for office is like offering a beer to an alcoholic.  Just unwittingly cruel.



I just finished reading your book, "The Coming China Wars", in two days -


You factually answered all of my 'China fears', questions and then some. I fear for my grandchildren's future. As you already know - Like the rise and fall of the Roman Empire, It's not a question if it happens but when it will happen. Either by them taking us over financially or militarily - it will happen!


They are a very patient culture and your book should be required reading for ALL U.S. elected, government officials.


Why don't you run for a political office? You have my vote!


Thanks for the insight and keep the issues in the forefront.




Jack H.




Dr. Navarro:


I just wanted to say "Thank You" for turning me on to The Economist several years ago.  I read if faithfully every week.  They now have an audio version of the entire magazine which can be uploaded to an MP or iPod and taken anywhere.  I think this is great.


Thank you,


Rick M.

Please forward this newsletter to a friend!

4:50 pm edt 

Monday, August 18, 2008

California nightmare for the global economy?

Will the California budget crisis tip the United States into recession? The California economy is certainly large enough to inflict such damage. It's the seventh-largest economy in the world and home to close to 38 million Americans.

California's budget deficit is by any reasonable measure enormous. This budget deficit is estimated at $17.2 billion and represents more than 17 percent of the state's general fund expenditures (about $101 billion). In contrast, New York, which faces the second-worst budget gap in the nation for fiscal year 2009, has a gap of about $5 billion, which represents less than 10 percent of its budget.

In closing its past budgetary gaps, California has acted more like the federal government rather than merely one of 50 states. Indeed, unlike the federal government (or sovereign nations), each state is required to balance its budget each year; and no state, at least in principle, has the authority to engage in the kind of discretionary deficit spending both the federal government and nations around the world routinely use to stimulate their economies.

In the past, a profligate California has gotten around this balanced-budget requirement by using a technique that effectively allows the Golden State to administer its own fiscal stimulus. In particular, California - under both Democratic and Republican governors - has simply issued new bonds every time that it has spent far beyond its means.

California's problem this time, however, is that its deficit is so big, its balance sheet is so bad, and world credit markets are so tight that issuing new bonds alone is no longer a viable option. Instead, California's politicians are inexorably being forced toward a solution that will prominently feature both a large tax increase and significant spending cuts.

For full story please follow the link below:


This article appeared on page B - 11 of the San Francisco Chronicle

Peter Navarro is a professor at the Merage School of Business, UC Irvine, and author of "Coming China Wars." www.PeterNavarro.com.

12:32 pm edt 

Saturday, August 16, 2008

Weekly Newsletter -- Week Ending Aug. 22, 2008

The Well-Timed Strategy


Economic & Stock Market Analysis for the Discerning Investor & Executive



Read it and Reap!


Week Ending  August 22, 2008                       Volume11, Number 3       

This Week: Have We Reached a Bottom?


The Markets


So the NASDAQ is on a five week roll – but everything else seems to be going to hell in a hand basket.


The U.S. got a big inflation number – fastest growth in 17 years!   In a shocker, Japan looks like it’s going into a recession – joining the Eurozone – while the U.K. is a basket case.  Meanwhile, in the developing world inflation is a prairie fire driving central banks to raise interest rates – from Brazil and Mexico to Romania and Vietnam.


The only good news has been a fall in both oil and commodity prices – with the fall driven both by a slowing demand in a slowing global economy and a stronger dollar rising as interest rates threaten to fall in the Eurozone.


It’s hard to tell a bullish market story reading these tea leaves.  In the best case scenario, the now almost certain global recession will wring inflation out of the economy fabric and we will avert stagflation.  In the worst case, we wind up with stagflation as resource constraints and/or geopolitics cause oil to rebound.


My bottom line: I continue my cash call for a large share of the portfolio. I do aAllocate some of the portfolio to non-cyclical biotechs.  My biotechs in the green  are HALO, SNTA, MODG.  I’m in the red on NGSX but it may have a good entry point now.   I also added Micromet (MITI) on some news and analysis from Roth Capital.


I still like my Washington Mutual trade (WM).  Recall that I got in around $4 and treat it like an option because downside risk is small.


And don’t freakout: I actually started building a position in Beazer Homes (BZH).  Homebuilding is showing signs of a bottom and I’m going to ease in here.  If it’s a false bottom, I’ll cut my losses quickly.  (By the way, another housing pick might be Centex (CTX).


Presidential Politics – Georgia on My Mind


Well, our choice on foreign policy seems to be a bantam rooster and a loquacious chicken.  The Georgia-Russia dustup reminds us how important the Oval Office is in times of crisis and once again just how bad Bushman handles global affairs.


To be clear, Georgia’s President got lured into a trap by the Russians and overplayed his hand by moving in force into South Ossetia – one of the biggest miscalculations of this century.  Don’t play checkers in a chess world, particularly with chess master Russia.


If McCain had been in the White House, he might have overplayed his hand too – and provoked a really nasty conflict with Russia.  Obama would have just looked weak in a situation impossible to win.


The bigger strategic issue here for us traders is whether Russia is going to gain a chokehold over all oil and gas flow from Central Asia into Europe.  The world is screwed if Russia does.

As for trading this issue, I might start by looking again at some defense stocks.



Quick Takes


  1. I got a lot of mail on my John Edwards take, all of it negative.   Hey, I liked the guy and what he tried to stand for.  It really is amazing how so many of us in the male gender do so much of our thinking below the waist.   
  2. The Financial Times finally ended its long running kowtow to China with an editorial that features this disgustingly accurate portrayal:  “…the breathtaking cynicism of the Chinese authorities in declaring zones in three parks open for public protests and then persecuting, detaining or expelling from Beijing those who applied for permission to use them is a clear breach of promise made by China to help win the bid to host these [2008] Olympics back in 2001.”
  3. I have previously opined on the lack of macroeconomic expertise in the Obama campaign but tipped my hat to his microeconomic advisors.  For evidence of this, spend some time comparing Obama’s cap and trade policy to McCain’s.  It’s Ph.D. stuff compared to Kindergarten.



Please see my latest You Tube report. 


Readers Write

1. Nancy correctly took me to task on my editorial screw-ups. She writes:

With all due respect, you need a new proofreader.  In your article under:

The Markets

paragraph 1, 2nd sentence "... whether this bottom while be..."  (should be will)

paragraph 4, 2nd sentence "...If you go long now the US indices..."  should be on)

Quick Takes 1.

1st sentence "...but found it perplexing than in 2008..." (should be when)

3rd sentence "that said, I could care less than he had an affair..." (should be that)

4th sentence "When he did wrong was lie..." (should be What)

2. I got a lot a hate mail on my Lieberman comment that pegged Joe as a “Zionist.” 

3. And here’s a taste of some of the Edwards stuff:

Michael P. writes “If in your opinion personal character and integrity plays such a small part when choosing a candidate, then I implore you to move to France. A very shallow statement by most any standard.”


Bob S. writes: Peter,

I have to take issue with you regarding your quick take on John Edwards.  Edwards "mistake" with the affair goes much deeper:

   1) He used his family throughout his 2000 and subsequent campaigns

- the loss of his son and certainly his wife and her cancer.  He positioned himself as the loving husband as his wife campaigned 

alongside him.   This is a question of character and integrity!

   2) He openly gathered contributions and support of volunteers in his campaign knowing full well that this issue would most certainly come out at some point and torpedo his campaign.  This is not being honest with those who contribute.

   3) Finally, can this man make good decisions?  What kind of candidate opens up his career to doom with decisions of this type!


Beyond  that you only have to read the details of some of the malpractice cases Edwards took to the juries!  Some of these were clearly congenital problems that he convinced juries that they were the fault of doctors and hospitals and when you look at  the wreckage he left behind of ruined careers and battered institutions you see the man's true character.  Do the background on this man.


This is not a partisan attack based on party or philosophy but on character! I believe character and honesty still stand for something.


Thanks for listening,


M.F. writes: “I don’t know if I would go on record too many times as a “big fan” of John Edwards. Markets are a lot harder to figure out than that slick Willie, self absorbed, ambulance chaser. Being fooled by him is something I would keep to myself.”

Please forward this newsletter to a friend!

6:48 pm edt 

Saturday, August 9, 2008

Weekly Newsletter -- Week Ending August 15, 2008

The Well-Timed Strategy


Economic & Stock Market Analysis for the Discerning Investor & Executive



Read it and Reap!


Week Ending  August 15, 2008                       Volume11, Number 2       

This Week: Have We Reached a Bottom?


The Markets


A very nice week for the bulls as all three major indices experienced a nice technical reversal.  The question, of course, is whether this particular bottom while be the market bottom from which we rally.


The biggest news for me was not, however, the rally per se.  Rather, it was the strong jump up of the dollar against the euro.  This kind of move suggests more of a zero sum global economic game in which U.S. markets are going up not because of any optimism about a recovering economy but rather a shorter term play in a strengthening dollar.


As to why the dollar is rising, it’s got a lot more to do with the European central bank than any improvements in the U.S.   With both France and Germany now stalling badly, the European Central Bank is more likely to cut interest rates than raise them.  That pushes capital out of Europe and at least some of that finds its way to the U.S.


My bottom line: This is not a good time to be short.  If you go long now the U.S. indices, have no illusions about what’s driving the market.  And by the way, if you want to hedge, you can go long SPY and short EWG (the German ETF).


Presidential Politics


Joe Lieberman as McCain’s VP?  Now that would be Obama’s worst nightmare.   Lieberman would take a big chunk out of  the Jewish and independent vote, help McCain take Florida, and likely also help draw the disillusioned Hillaryites.


By way of history, then-Democrat Lieberman ran as Gore’s VP in 2000 and acquitted himself well.  His support for the Iraqi cost him his Democratic party credentials.  He lost the Democratic primary and had to run and win back his Senate seat as an independent.  Note to the Dem’s activist corps: You are so stupid to insist on purity across all issues.  


Now McCain is talking up Lieberman, Lieberman is denying he’d accept – but only softly.  What might motivate Lieberman to jump ship is the specter of losing his committee chairmanship in Congress when (not if) the Dems picked up a bunch more seats in the Senate.


The only thing that’s going to save Obama is the Dream Ticket, but he’s too arrogant to acknowledge that.


Quick Takes


  1. I was a big John Edwards fan during the 2000 presidential race, but found it perplexing than in 2008, he insisted on running on a losing “cure poverty” platform.  When he got his $500 hair cut, that should have been a warning sign he went over to the dark side.  That said, I could care less than he had an affair – in France, his vote total would have gone up.  When he did wrong was lie through his teeth about it.  Too bad.  We’ve lost a good one.
  2. Paris Hilton has the best ad of the presidential campaign so far.  On style AND substance.     
  3. In the ultimate Big Brother move, China announced it would allow demonstrators if they just asked for a permit 5 days before and gave up all of their info.  Talk about the ultimate sting.  Now China is not allowing the protests – but they’ve got all that info on the would-be protestors.  Those people are screwed.



Please see my latest You Tube report. 


Readers Write

This letter below from “Buzz” is a perfect example of how newbie traders wind up paying “tuition” to the market from inexperience.  As it turns out, YGE is now recovering technically, and Market Edge rates it a hold for now.  But to avoid these kinds of situations, subscribe to Market Edge and start your trading with simulated trading on www.stockTrak.com .  Newbies, you may also want to get a copy of my book “When the Market Moves, Will You be Ready.”


Dear Peter

I know that you are a professional busy person a this email will probably sound a bit strange to you and difficult to explain in word but it s coming from a human who need a little help (a once life time help).

I started to trade last September with $35k cash balance. All my knowledge came from reading books about technical analysis , economy and by reading a lot of news, newsletter from financial sense (where I found out your news letter).  I found your letters very interesting. If I would have followed your advise in the post "sell on may and go away i would have made a gain, instead my novice greediness full me and now i am down. I was even going to take some position in bio tech and financial but i couldn t.

Since January 2008 I am stacked with a solar company (symbol YGE) holding 1193 share at $21.86. I am down around 12k and I decided to hold them by around last two weeks of August.

With my inexperience (which is improving a lot) I stayed to long in the market and I Know that this is not the right time to be long or investing in those type of equity that s why I decide to sell them and adjust my portfolios or I will stay in cash for a while.

 My kindly question is if you can briefly,  analyze YGE. I know few indicator are for a briefly up move, but a briefly analysis from you would give a better picture for my self. I hope it could go all the way to 20 to sell them. Your analysis will only be used to evaluate and not as an advise to what to do.



Please forward this newsletter to a friend!

4:50 pm edt 

Monday, August 4, 2008

China’s Olympic Challenge - Pomp and Propaganda

Sunday, August 3, 2008

Regrettably, the Beijing Olympic Games will provide strong validation to China's own particularly virulent brand of Maoist totalitarianism. It was not supposed to be this way.

The International Olympic Committee awarded the 1988 games to South Korea, which promised to clean up its totalitarian act. South Korea's brutal authoritarian regime did indeed call for direct elections. The result has been a textbook democratic transformation.

Naively thinking it could make democratic lightening strike twice, the IOC awarded China the 2008 Games after China promised a more open system. Regrettably, all we have seen is an even more ruthless repression.

Tibet is just the tip of the Chinese jackboot. Muslims in the western Xinjiang Autonomous Region are routinely brutalized, as are practitioners of Falun Gong. And millions of people at the bottom of the social scale have been roughly evicted from Beijing to make way for the Games.

Beyond its borders, China also regularly uses its U.N. veto power to support everything from genocide in Darfur and Burma and nuclear proliferation in Iran to the looting of Zimbabwe by its ruling elites - all for China's access to oil and natural resources.

As the Games begin amidst a tsunami of pomp and propaganda, it is essential to remember the broader political context under which they will be conducted.

Peter Navarro is a business professor at the UC Irvine and author of "The Coming China Wars."

This article appeared on page G - 5 of the San Francisco Chronicle


1:31 pm edt 

Sunday, August 3, 2008

Weekly Newsletter -- Week Ending August 8, 2008

The Well-Timed Strategy


Economic & Stock Market Analysis for the Discerning Investor & Executive



Read it and Reap!


Week Ending  August 8, 2008                         Volume11, Number 1       

This Week: WAMU GOLD


The Markets


Déjà vu all over again.  What I said last week remains in place: All three major U.S. indices remain in a technical sell position.  The fundamentals dictating this include an inflation constraint on the Fed, slow growth (if not a technical recession), and a deteriorating global economy – both in Europe and Asia. 


Don’t get suckered in by a big up day like we had last Monday.  Be patient and keep your powder dry.


And by the way, let me know if any of you out there have tried my Hat Trick strategy in the financial sector – buying WM effectively as an option and building positions in FITB and WB.  This seems to be working really well, and let the record show that it was this column that flagged this strategy long before the financial media picked up on it.


I also reiterate my own support for several biotechs, particularly HALO, which is now a Strong Buy according to Market Edge.


Presidential Politics


The media picked up big time on two of the major themes of this column.  The first is that Obama is vulnerable on his inexperience and because of latent racism that is unlikely to ever show up in the polls.  The second is that Hillary remains the only Democrat bandied about so far that adds to the ticket. 


To Obama’s credit this week, he made the rounds talking with a number of economic players, including both Bernanke and Paulson.   It was the first time a presidential nominee ever met with a sitting Fed chair.  Also in the Obama mix were Clinton’s treasury secretary Robert Rubin and the best Fed Chairman of the last century Paul Volcker.  Let’s see if any of this bears policy fruit in the coming weeks ahead.



Quick Takes


  1. I got an email from my University of California bosses that my next check might take me back down to minimum wage thanks to the Terminator.  The Governator is locked in a game of chicken with the state legislature over passage of a budget and I, along with 200,000 other  state employees are now pawns in Arnie’s stupid game.  Note to Arnie: You’ve had years to get California’s budget in order and all you have ever done is just pass new bond issues to facilitate the state’s profligate ways.  If you were in Texas, you’d be “all hat and no cattle.”   A disgrace.
  2. So now China has locked up some poor sap who published some photos of the earthquake on the Internet.  Repression knows no boundaries.
  3. I’m trying to figure out how to go long the Dodgers after they picked up Manny Ramirez.  As a baseball junkie, I’m on Cloud Nine.
  4. Guess how much its costs to take a yacht to Catalina and back from Long Beach and work in a little fishing.    A tennis buddy with a big boat claims it’s over a grand.  His 40 + footer gets ½ mile per gallon.  That’s right, ½ mile per gallon.  When the energy crisis starts hitting the upper crust, you know we are making some progress…



Please see my latest You Tube report. 


Readers Write

I think we [the West] are in serious trouble and it rests with us!!  Without oversimplifying, the American industrial leadership chose to relocate manufacturing into China.  Methinks a powerful, emergent Chinese state cannot be a good global citizen because you cannot teach ethics to grownups.  Chinese themselves know the dangers of trusting other Chinese - a chronically suspicious and insecure society.  There must be worse to come for us. . .

Regards ... Les L
Melbourne, Australia


Hello Peter Navarro,


Your friend in Beijing is correct about the "three cannots". [related to accessing my web site in Beijing]  But by using an alternative device, your site is accessible.


I ordered your book from the states, but it was rejected by the post office inspectors. I'm therefore asking a friend, who is returning to Beijing next month, to bring me a paperback version.


My best and keep up your excellent writing and insights.




David F

11 years in Beijing


I've made a fortune working in China over the past 20 years. I'm a white guy born & educated (northern CA) but I speak Chinese & think Chinese. I've read your analysis on Financial Sense and seen some of your youtube videos. You have an amazing clear perspective for a "westerner".  I have not read your book, but I have a couple of points I'd like to share with you based on my 20 hard won years manufacturing in China.

THE FIRST is about quality. China can hit quality specification 100% of the time. I have never had product shipped out of spec. Hundreds and hundreds of containers/year. However, this come at a couple of costs a) you have to pay them more. There was an article yesterday about Stieff German stuff animals. Stieff complained Chinese employee turn over was so high the staff could not be trained to make the animals properly. I assure you this was because some idiot German co-pack manger would not pay the factory enough to retain their staff. This leads me on to point b) You can not waltz into China (as fortune 500s do) and assume your UCLA MBA managers have a clue about how to properly manage in China. When the projects go awry, they blame the Chinese, not poor managers.

I built over a dozen Chinese factories for fortune 500's and they run at 100% specification as long as I'm in the loop as soon as some co-pack manager for Dial or Roche takes over, quality falls off within a year......because they are not trained in Chinese management techniques.

I have a friend who is a finance VP for Mattel. I read her the riot act about their incredible lack of QC, only to save a few cent a unit. Unbelievable.

THE SECOND thing people do not understand about China is the scale of the looting. Several years ago a report from the Chinese foreign ministry said 400 bureaucrats had left china after stealing over 50 billion USD in a few years. Now, that was the stated figure, I assure you, the actual amount was much larger. The government in China is opaque. The guys at the top are looting as fast as they can. At the same time, they have to keep everything stable, for as long as they can, so they can loot as long as they can. This basic policy supersedes all others. For example, China is sitting on about one trillion dollars of bad domestic bank loans (Price Waterhouse) A catastrophe for an economy as small as China's. What policy governs when these loans finally come to light? The fact the the guys looting at the top need to keep things smooth for as long as possible. This dynamic is  fundamental to all policy considerations in China.

Carl M

1:59 pm edt 

Friday, August 1, 2008

Chargers join China's deadly imitations

By Peter Navarro

Beware of cheap Chinese products that can kill you. In the wake of last year's massive recall of deadly toys, this warning is proving once again to be all too true. In this latest case, the BBC and other news media reported this month the recall in Britain of hundreds of thousands of counterfeit Chinese chargers used primarily for Nintendo Game Boys but which also have application for mobile phones, personal digital assistants, MP3 players, and other game consoles.

The "cheap Chinese products" part of our warning is particularly relevant here because the chargers in question are retailing for less than half the price of the safe, legitimately branded chargers. Moreover, many of the chargers are being peddled over the Internet, where there is far less oversight than in more traditional outlets.

As for the "can kill you" part, you can be electrocuted by the faulty wiring, as a seven-year child was by a fake Chinese charger bought in Thailand. Alternatively, the charger can blow up in your face or simply burn your house down while you are sleeping at night. The problems range from detached wires to charger pins that don't fit properly into sockets and thereby overheat.

This incident is particularly troubling given the increasing reliance all of us have on electronic chargers. For example, in my own household, I can count no less than 12 chargers, for everything from iPods, mobile phones and Bluetooth headsets to, yes, my kid's Game Boy. That's a lot of chargers to be working overnight like ticking fire bombs.

The broader problem here is China's economic addiction to counterfeiting and piracy. In fact, China accounts for two-thirds of all the world's pirated and counterfeited goods. The long list of purloined products includes consumables like baby food, soft drinks and hard liquor as well as common household products such as makeup, perfumes and razors. It likewise encompasses big-ticket items like air conditioners and refrigerators. It extends even to the lofty elevator and the lowly toilet seat.

Here is one typical "ghost-shift" scenario of how such piracy occurs in what has become a global supply chain of piracy and counterfeiting. A factory in China is hired by a multinational to make 1,000 units of a product per day. However, rather than just run two regular eight-hour shifts to produce the contracted-for amounts, the factory also runs a third "ghost shift" then ships the extra 500 items out the back door.

For the full story, please follow this link http://atimes.com/atimes/China_Business/JH01Cb01.html




11:52 am edt 

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DISCLAIMER: This newsletter is written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.

DISCLAIMER: The newsletters and blogging on this page are written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.

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