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Navarro's Market Rap: Bushonomics 101
I got a few nasty e-mails and some media complaints for being "partisan" in my criticism of how the Bush Administration and the Republican Congress are handling the Katrina Krisis. Let me simply point out that partisanship ain't got nothing to do with it. If you don't believe me, just check out the growing chorus of boos from the fiscal conservative Right about the same issue. e.g., Bush spending like a Democrat.
Exhibit A: "Bush has 'gone far above and beyond what the traditional federal response is' to a natural
disaster." Stephen Slivinski, the [Far Right] Cato Institute
Exhibit B: "…the Federal government is taking on
'a very broad and sweeping role. 'It's not the responsibility of the Federal government to rebuild every strip mall and office building." Pat Toomey, the [Far Right] Club for Growth
My non-partisan point is simply that Bush is spending like a drunken sailor not out of compassion but rather because he is sunk in the polls. Now, in the same breath, he is also promising no new taxes to foot what has now risen to a $200 billion Federal tab for Katrina. This cannot end well for either the economy or the markets – but a la Keynes, it might give us a short term boost.
One other note: In August, I warned that the Chinese alleged new and "flexible" policy on revaluing the yuan was a bunch of chop suey. Got flack on that too. But guess what. The warning was right on. The Chinese have no intention of leveling the trading field. Remember that on your next trip to Wal-Mart or the unemployment office.
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The Week Ahead:
Rate Hikes Ahead
So the Fed will slap on another rate hike this week and we'll see how the market absorbs that. The other big news will revolve around the latest housing data on Tuesday. Other than that, not a whole lot shakin'.
Peter's Portfolio: Hold'em and Fold'em
Holding: ARDI, ARTX, ASTM, CRDS, EGHT, LVLT, STEM, SVA, VRSO, VWPT, VION Trimmed ZILA by 75% to preserve gains as it begins to lose some steam. Holding CHIR 2007 45 calls.
ASTM and STEM are clearly losing steam and both are reaching my sell levels. CRDS and VRSO are two pennies plays behaving very nicely.
A Rain in Brazil Macroplay: Turns out that the one country that is really playing the China game well is Germany, which has a much better trade balance. They are selling China lots of capital equipment and services. I therefore will open some EWG next week. That's the ETF for Germany and its technicals look pretty sound.
Hedging Your Bets With Matt Davio: The Big Picture -- literally
NOTICE: Just as companies report their earnings, so does my Red Rock Fund. If you are an accredited investor and would like a copy of the latest report, please contact me at redrock@peternavarro.com. We are very pleased with our results year to date and would be happy to share them with qualified investors.
We had a very uneventful triple options expiration this past week on stocks, commodities, and futures. Volatility dripped down to an extreme low of 11.11 on Friday.
I just don't know what can make this market move either way. The bad news over the recent past has been handled with ease and efficiency and the supposed strong economy and strong profits based on low interest rates don't seem to move the market in a positive direction either. Instead, we continue to grind in place and pass time as we are definitely approaching a major market move, just a matter of which way and when the move comes. Let look, then, at four major market movers: Gold, Oil, Real Estate, and Bonds. In the charts below, you will see that the gold and bond markets are signaling the advent of inflation while the oil market has settled in to a high price and the real estate market is in decline.
Gold
Gold is up about 60% in past 3 years, and the US Dollar is down about 35%, and this chart suggests gold may be finally catching up in worth as a currency to the other Black Gold. So does this mean the government's inflation numbers are not as tame as they would like us to believe?
Oil
Take a look, then, at the oil chart. Will oil hold the $62-63 price range or will it break back to the 50 support zone? In one sense, it doesn't matter because either way that would be very bullish still for oil. Over the long term, also I believe energy and oil related names can be owned with oil holding above 50 a barrel.
Real Estate
Through my technician's eyes, the real estate chart below shows that a simple head and shoulder top is being put in. Interesting how the peak in these stocks happened in July of 05. Unless that top is taken out to the topside, I believe real estate has most likely has seen its better days. The parabolic push we saw from May to July is also a typical sign of topping action.
Bonds
This last chart suggests that long term bond yields may finally start rising soon. This would be bad news for both the housing market and more generally, the economy – not to mention the schleps holding bonds.
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