The Well-Timed Strategy

Economic & Stock Market Analysis for the Discerning Investor & Executive

www.peternavarro.com

Read it and Reap!

This Week: Black Hole

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.

Wall Street Survivor

Wall Street Survivor is a great new trading tool where you can simulate your trades.  I’ve volunteered to provide weekly stock picks to teach macrotrading.  I’m taking a conservative approach – no short selling.  (Hey, hasn’t the Federal government made that illegal anyway?) 

My intent is to help beginning and intermediate traders.  Click here to see my previous stock picks and visit Wall Street Survivor.  (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 my own trading, I often remain on the sidelines in cash.) 

This week I recommend selling IFN, a previous pick for a “buy.”  The lesson of this trade is that when a pick starts to go South, quickly cut your losses.  The technicals deteriorated rapidly on this PLUS economic fundamentals point more and more to global recession.

Presidential Politics – Debate Draw

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

1. 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.
2. 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. 

Readers Write

I got a lot of mail last week knocking Martin Feldstein for his role at AIG. Silly me, I was not even aware of that. But here's a sample letter:

Peter,

Regarding your article "Global Economy inTatters"  Is it true that Martin Feldstein was the Chairman of AIG Financial Products, the premeditated weapon of mass destruction?  You've got to be kidding!!! 

that McCain chose him as economic advisor.... or did the boys embed themselves in McCain's campaign?  What do you suppose they promised 

McCain....   certainly they will have immunity from criminal 

prosecution or even inquiries into their global macination's  in the financial industry.... what do you think?

Nadia

And my favorite insult letter of the week from a Ron Paul supporter:

u've been the land of fruits and nuts too long. hillary-goat? worthless marxist witch. feldstein? another keynesian idiot. regards, john l. gaines,mi (no fruits or nuts here) ron paul rules!

And here is my favorite prognosticator of the week, Luke F.”

My predictions -

Drill baby drill wins out - as big oil gets the public and the Dems to say ok ok you can have US oil - We will even pay you to take it.

The oil policy for the US remains big oil - prices continually rise as china puts more cars on the road and becomes #1 car company in US

The Bailout of the Millennium turns the middle class into the working poor forever - or at least for the rest of my life time.

More people play the lottery - because its good to be rich and it really has the best odds for getting there

China owns more of the US than the US.

History says the world is flat, evolution didn't happen, GW was a great president

Idiocracy - the movie - is moved from fiction to non-fiction. 

If

No wait. Here is my favorite insult letter of the week:

Listen, you f**king idiot, Hank Paulson did not cause this problem and neither did George Bush.  I’m tired of reading your biased, idiot statements.  Phil

Please forward this newsletter to a friend!

The Well-Timed Strategy

Economic & Stock Market Analysis for the Discerning Investor & Executive

www.peternavarro.com

Read it and Reap!

This Week: Global Economy in Tatters

Market Pulse

Inquiring minds want to know -- will the biggest bailout in global history reverse the market's bearish trend?  That's not a bet I would want to take on the long side just yet.  Remember, this is a macroeconomic newsletter.  What I see is a global economy slowing on every major continent.

In Asia, Australia, Japan, Taiwan, and Singapore all face slowing growth.  Thailand is a basket case politically.  China faces the uncertain future of an economy no longer driven by Olympics expenditures and heavy exports to Europe and the US.

In Latin America, Brazil is going to take its hit from the bursting of the commodities market bubble.  Venezuela is turning into a basket case.  Bolivia is moving from the 21st into the 19th century.

In Europe, Great Britain, Spain, and Italy are the worst of it.  Germany, the biggest European engine, is facing possible recession.

The American bailout of its financial and banking sectors is not going to change any of that.  What this bailout does is heavily burden the balance sheet in the United States for whichever poor sap is elected president.  Just as I said, as it turns out quite presciently, that Ben Bernanke inevitably would be the fall guy for Alan Greenspan's housing bubble monetary policies, whoever the next president is going to be will be the fall guy for the biggest pair of the idiots who ever inhabited the White House and the Treasury Department.  And please, I do not want to hear from anybody who thinks Henry Paulson has saved America.  The guy is a loser.  The only thing he ever knew how to do is make money -- not policy.

Yes, the markets may get fast out of the gate early in the week.  Until I see a change in the macroeconomic fundamentals, however, cash remains king.

Wall Street Survivor

Wall Street Survivor is a great new trading tool where you can simulate your trades.  I’ve volunteered to provide weekly stock picks to teach macrotrading.  I’m taking a conservative approach – no short selling.  (Hey, hasn’t the Federal government made that illegal anyway?) 

My intent is to help beginning and intermediate traders.  Click here to see my previous stock picks and visit Wall Street Survivor.  (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 my own trading, I often remain on the sidelines in cash.

This week I recommend taking a position in PSL.  This is an exchange-traded fund that represents a basket of consumer staples.  Buying PSL is a sector rotation play that hedges against a bearish market downturn.  Consumer staples like food and beverages are “defensive plays” when the market trend is heading down.  Technical analysis supports the buy.  10-, 21-, and 50-day averages are up.  Stock is under accumulation and MACD indicates a bullish trend.    Recommend share: 2.5% of your portfolio.

Presidential Politics – A Bad Week for McCain

I continue to get complaints from readers that I should stick to discussions about the markets in what is, after all, a financial newsletter.  The problem with these complaints is that they ignore the incredible impact at the presidential election is likely to have on the economy and financial markets.

Perhaps what disturbs me the most about this presidential election is that none of the candidates for president or vice president on either side of the aisle appear to know very much about macroeconomics.  The latest crisis merely underscores that concern.  And I know some of you are tired of hearing me talk about Hillary Clinton, but she was the one candidate who seemed to have a pretty good grasp of these issue

On balance, the latest crisis clearly favors the Democrats.  Even if the Bush bailout does reverse the stock market trend, the Democrats can still argue that the only reason the bailout was necessary is because of the politics of the White House.  I'm not sure John McCain can dodge that bullet.

As a final comment, I'm glad that John McCain did jettison the bunch of losers he had running his economic team and brought in Martin Feldstein.  Feldstein is a class act, and we probably would not be in this mess now if he'd been chosen as the Fed chairman rather than Ben Bernanke.  The problem, however, with bringing in Feldstein now is he is a big fan of cutting taxes on the corporate sector -- which ain't going to fly with the electorate.

Quick Takes

1. Keep Going Dodgers, Go! 
2. California managed to “solve” it’s fiscal crisis by further burdening the out years.   Only Enron had more creative accountants.
3. Peggy Noonan’s musings in this week’s WSJ suggest she’s coming a bit unglued by the financial crisis.  The nature of the crisis is clearly out of her comfort zone.  If she can’t figure out the implications in politics, who can?
4. How bout some of that delicious baby formula from China?  Ummm good.  And isn’t China glad that the stock markets around the world are melting down so noone is paying attention to babygate.
5. Is Warren Buffet the only guy “buying low” now and getting good deals?

THE CHINA EFFECT

Please see my latest You Tube report. 

Readers Write

Nothing worth the space this week.

Please forward this newsletter to a friend!

The Well-Timed Strategy

Economic & Stock Market Analysis for the Discerning Investor & Executive

www.peternavarro.com

Read it and Reap!

This Week: Bail, Bail, Bail the Boat

Market Pulse

It remains extremely difficult to make money trading stocks on the long side of any major market.  From Europe and Latin America to Asia, major stock exchanges remain in a bearish downtrend.  In addition, both gold and oil are short sells – a bullish sign for those worried about stagflaflation.  The underlying problem is a global recessionary downshift compounded by an unresolved credit crisis that weighs like an anchor on the hopes of any quick recovery.  Meanwhile, after abandoning its principles on fiscal austerity and balancing the budget, the Republican Party has also become the party of bailouts – Bear Stearns, Fannie and Freddie, and maybe next Lehman and GM.  Cash remains king.

Wall Street Survivor

Wall Street Survivor is a great new trading tool where you can simulate your trades.  I’ve volunteered to provide weekly stock picks to teach macrotrading.  I’m taking a conservative approach – no short selling.  My intent is to help beginning and intermediate traders.  Click here to see my previous stock picks and visit Wall Street Survivor.  (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 my own trading, I often remain on the sidelines in cash.)

My Wall Street Survivor buy for the week is the India Fund (IFN).  This is a chance to introduce some global diversification into your portfolio.  Of all the major areas of the globe to trade, this is the only one flashing any kind of reasonable buy signals.  From a macro point of view, India is less dependent on heavy industry than, say, China and so its vulnerability to recession is less.  I recommend a 2.5% share of your portfolio.

Presidential Politics – Will Biden Drop Out?

Deep in the bowels of the Democratic Party, I’m sure there are a few Machiavellis trying to come up with an excuse for Biden to drop out of the Veep Stakes and let Hillary slip in.  If Sarah Palin has done anything, she has exposed the folly of Obama not opting for Hillary.  Hillary would eat Sarah for lunch in a debate while Biden is going to just look mean or impotent.  Hillary would also have secured some of the key battleground states that Palin has opened up for McCain – including Ohio and Florida.  So what excuse could Biden offer – some medical condition no doubt.  Oh, they are squirming in Blue State Ville.

Quick Takes

1. Go Dodgers, Go! 
2. As I said last week, California still hasn’t solved its budget crisis – and this WILL have macro implications for the country.  The longer this soap opera goes, the worse it gets.
3. Had to love the item about China buying off Costa Rica with some of its foreign reserves so Costa Rica would drop diplomatic recognition of China.  That’s a big smoking gun for the political use of China’s war chest of greenbacks.

THE CHINA EFFECT

Please see my latest You Tube report. 

Readers Write

Here’s a copy of the dumbest letter I’ve ever gotten.  It’s in response to my quick take on China imposing export restrictions on key raw materials to boost its steel and other industries.  With this kind of attitude, it’s a wonder anyone in the U.S. has a job.

Who cares what China wants to keep?  As long as they made it or it exists on their land, who Care's. Best pay attention to what you want to keep. Stay out of other countries affairs. That's just common since. You can't afford to buy it then don't.

Den S.

I also continue to get the occasional letter of outage for posting Monavie on my FREE website.  I like the product a lot, what can I say.  Plus, we live in a country where advertising and marketing is as common as wheat in Kansas.    Here’s a sample:

Get a grip buddy. Sure you believe in this nutritional path but to use your web site continue to offer free promo for his product is not ethical. If you want to endorse a product there is nothing wrong with that, but to continue to plug it is an affront to the intelligence of you audience. If you think something has value let your readers have the option of researching and deciding for themselves.

To continue to plug this product week after week diminishes you credibility. If Monavie truly has value the outcomes will be all the marketing it will need.

I urge you to keep Well-Timed Strategy on point.

DT

The Well-Timed Strategy

Economic & Stock Market Analysis for the Discerning Investor & Executive

www.peternavarro.com

Read it and Reap!

This Week: Global Downshift

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

1. Okay, the Dodgers got me back with their win streak. 
2. California still hasn’t solved its budget crisis – and this WILL have macro implications for the country.
3. 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. 

Readers Write

I got a lot of hate mail for voicing the view that putting a novice a heartbeat away from a guy closer to his death bed than the crib might not be the best move for the country.  Here’s a sampling of opinion.

Every time I decide to read your articles you become more brainless, especially when you add comments re Palin.  Why don’t you consider omitting your crappy comments and stick to something you know.

John C.

I do believe that Sarah Palin has more experience than Barak Obama the one term congressman.

Jim D.

The more I read and do my due diligence on Palin, the more I think they know, she wouldn't be running the Oval Office anyway. The powers at be will continue to, and that goes for both parties.

I am staying home on voting date. Lesser of two evils=evil.

The GOP is getting pretty darn low-life. Glad I became an Independent. I favored Ron Paul (he wasn't perfect, but understands Economics).

I.M.

AND here’s a missive from North of the border.  My response is simply that as the U.S. economy and stock market goes, so, too, likely will go Canada since we are so intertwined.

Hi Peter,
 
I recently saw you speak at a conference in Canada & have recently completed your book 'China Wars'. Both, I thought were exceptional.
 
I was wondering if you could give me your thoughts on the future of the Canadian stock market, (short, medium & long term) given that the majority of the index is made up of 30%Energy, 28% Financials & 23% Industrial Materials? Is cash king up here too?
 
I really enjoy your blog & any insight you could provide would be greatly appreciated.
 
G. S. 

Please forward this newsletter to a friend!