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Sunday, April 26, 2009

Weekly Newsletter -- May 1, 2009 Gaga Over Green Shoots

The Well-Timed Strategy

                                                  

Economic & Stock Market Analysis for the Discerning Investor & Executive

www.peternavarro.com

Read it and Reap!

Week Ending May 1, 2009                                Volume14, Number 16

               

This Week: Gaga Over “Green Shoots”

Market Pulse

Last week’s Earth Day notwithstanding, “Green Shoots” is not some wheat grass concoction offered up at the health food bar.  Rather, it’s the term that seems to have spread like a virus across the financial press to describe some glimmer of hope on the horizon for the global economy.

Upticks in leading indicators like consumer confidence and the ISM index are offered in support of the green shoots hypothesis. The latest stock market rally likewise offers some support for the idea that the worst might be over.

The green shoots gaga notwithstanding, opinion remains split over whether the global economy has begun to improve or, alternatively, is simply seeing the pace of its deterioration slow dramatically. To sort that issue out, it's worth going around the globe and doing a quick check.

The consensus seems to be that China is exhibiting the most robust recovery. Much credit is being given to a massive fiscal stimulus package which was introduced months ago. (I wrote about this fiscal stimulus in a previous newsletter, and what was interesting at the time was how the Chinese were able to implement it even before the US had -- the theme being the "student learns from its master." So far so good, but the one caution on China is whether the government might be cooking the statistical books to hide a situation that may be worse than described in the press.

The consensus also seems to be that Europe is the sick man of the globe. Of the major economies, Great Britain is the most pathetic. What I find so funny about the whole situation, in a darkly comic way, is how a country which is home to both the Economist magazine and the Financial Times -- the two premier financial publications in the world -- can mismanage its economy so thoroughly. Its balance sheet is right out of a Stephen King novel.

As for the United States, the jury has to be still very much out. Yes, the fiscal stimulus is on its way. And yes, the housing market seems to be stabilizing. But one must continue to wonder how a country with double-digit unemployment which continues to worsen can possibly turn itself around in the near-term.

These uncertainties are reflected in the technical characteristics of the stock market. Readers of this newsletter were in on the ground floor of the latest rally, but I did warn last week that the market's inability to decisively zoom past 8000 on the Dow is a big cautionary flag.

My bottom line here is twofold: let's look for some more green shoots in terms of the data and let's see if the Dow can put a couple of solid up days on the board and leave the 8000 level of quasi-resistance behind.

Last take: Last weekend’s newsletter added Bank of America to my buy list. If anybody over the weekend thought it was a good idea to put in a "buy at the market open at the market price" order on B of A, they likely would be in the red right now.  (NEVER use buy at the open market orders - trader’s tip)

In fact, Bank of America had a horrible week last week. This week may not be a lot better as a very contentious shareholders meeting is coming up. My rationale for going long Bank of America rests on the tremendous spreads I see mortgage originators capturing in the current mortgage market, and with its acquisition of Countrywide Financial, Bank of America is one of the biggest players in that space. If you want to play that phenomenon, a safer bet is probably Wells Fargo, which doesn't have anywhere near the balance sheet issues of Bank of America. As for Citi, I decided to bail on it, dumping my options, for a very small gain.  That said, I do believe “there’s gold in them thar mortgaging hills.”

11:22 am edt 

Saturday, April 18, 2009

Weekly Newsletter, April 24, 2009

This Week: The Technicals & Fundamentals of it

Market Pulse

Six straight weeks now of gains for the Dow and we are now back to, and just slightly above, the magic 8,000 level of resistance.  All technical indicators for DIA (the exchange traded fund for the Dow) reflect a bullish posture: The short term trend is up.  The 10-day, 21-day, and 50-day moving averages are rising.  The MACD is bullish, and DIA is clearly under accumulation.  The only technical danger sign is an overbought condition.

The underlying fundamentals provide a least some reflection of the technicals.  The most salient feature of the economy now is that it appears to be at least stabilizing.  Whether this turns out to be a chimera and a feint for another leg down in the business cycle will depend heavily on two factors.

The first factor is a continued rise in the unemployment rate both nationally and in key states like my own in California.  If the Golden State is the canary in that coal mine, you can see how this Second Leg Recession might develop.

In the Golden State, unemployment has reached the double digits and the state government is flirting with insolvency.  If voters fail to approve a set of ballot measures that will further indenture their children to the childish overspending ways of Governor Schwarzenegger and his Democratic captors, the state will have to engage in further layoffs and forced “furloughs” which involve pay cuts.  These layoffs and pay cuts will represent a further contractionary shock for the state, and plunge it deeper into the funk it is now in.  Writ large across America, this is one danger, particularly since California represents about 15% of our national GDP and can take down other states with it.

The second factor that will weigh heavily on the global recovery is, as I have said several times in this newsletter, the fate of Europe.  We hear less and less about Europe in the news, but troubles continue apace there and it is difficult to parse that situation.

For now, the markets continue to rise off the deck they had been knocked down to.  My portfolio continues to be dominated by a coterie of 2011 in the money or near the money Leap call options involving Citigroup, GE, Delta, and Intel.  This week, I also added Bank of America.

I’ve never been one to go for big name companies like these, but in these times, I believe they may represent historic value buying opportunities.  Because of downside economic risk and to have more capital to deploy, I favor call options rather than the stock shares themselves -- focusing more on capital gains than dividend income.  (The one position of the group I have the least confidence in is Citi, but I got the options cheap.  I also believe the market got it wrong on Intel this last week.)

As a final note, I put about a decent chunk of my retirement portfolio in the Nasdaq several weeks ago and believe that tech will outperform the non-tech economy over time.

10:40 am edt 

Friday, April 10, 2009

Weekly Newsletter -- Week Ending April 17, 2009
Market Pulse

Sorry for not sending the newsletter last week. Had a big trip back to the East Coast for a couple of speeches.

That said, we’ve got the Dow roughly back to where it was when I first said over a month ago that the Dow would fall from 8000 down towards 6000.  Well, it got as low as 6500 so that was a pretty good call.

And speaking of good calls, several weeks ago as the latest bottom was bottoming I speculated that taking some in- or near-the-money positions in January 2011 leaps in the likes of GE and Dupont might be prudent speculations.  So far so good on that.

As to why the market seems to be bullishly bouncing, the technical character of this market is now bullish, with Market Edge signaling an “Early Entry Buy” for the Dow and longs for both the S&P 500 and the Nasdaq.  Of the three, I like the Nazz the best and moved a chunk of my 401K into that a few weeks ago.

Our eternal question is whether the technicals are matched by improving fundamentals.  I think it would be most fair to say that while we are not seeing much improvement, we are seeing some stabilization in the economy. 

 
Still, big questions continue to loom as US debt levels will be soaring, Europe remains the weak global sister, and Asia is likely to escalate its beggar thy neighbor practices to boost its fortunes.

BUY DELTA
I’m introducing a new YouTube feature this week called “NavarroStrategies.”  The inaugural video analyzes the airline sector and concludes that Delta might be the best bet of a highly speculative lot. 

Check out this new feature at http://www.youtube.com/navarrostrategies.
Let me know what you think!!!!

Bottom Line
: If you did your homework while sitting on the sidelines in cash, now is the time to start cautiously building some positions….  I like GE, Intel, Dupont, and Delta for now plus the Nazz.  Just be ready to cut your losses and run quickly if it all starts to go to dung again.
9:08 pm 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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