"Barron’s Goes Bullish, Part Deux" by Peter Navarro, Ph.D. FSO Editorial 07/14/2008

BARRON'S GOES BULLISH, PART DEUX
The Well-Timed Strategy for Week Ending July 18th
by Peter Navarro, Ph.D.
July 14, 2008

Barron’s continues to dig itself deeper into a bullish hole. Several weeks ago, Barron’s went bullish on the broad markets making the argument that a slowing U.S. economy eliminates the need for interest rate hikes by the Fed while a slowing global economy bursts the oil market’s bubble and brings a barrel back down to a c-note. Anybody who went long into that market on that advice is now underwater.

This week’s Barron’s cover story has effectively called a bottom in housing prices. The primary catalyst for this call is government intervention into the market – both a Congressional bailout of homeowners and a government takeover of Fannie and Freddie that will allegedly deliver lower mortgage rates. Well, I might not take the other side of that trades. But I’m certainly not going to bet the farm on housing stocks.

More likely than the Barron’s scenario, the housing market has at least another two legs down. (1) In the housing market, there is another wave of foreclosures coming as adjustables reset. (2) In addition, there a very pernicious effect now hitting the Sunbelt sprawl areas that no one anticipated. Higher gas prices that make more expensive commutes are being discounted in home prices. The worst part here is that a lot of homeowners who fled to the hinterlands and endure two to three hour commutes went because they couldn’t afford something closer in. Every buck increase in their gasoline bill is a buck not available for their mortgage.

As for my last take on Barron’s, there is much to learn from perusing Barron’s Report Card this week on page 19. In particular, in both of my investment books (If It Rains in Brazil… and When the Market Moves…), I warn about going long in a downward trending market. Well, of the roughly 60 stocks that Barron’s wrote bullish stories about, more than two-thirds went down.

Now here’s the really funny part. The report card story is pitched in such a way that Barron’s actually did “beat the bear” . The argument: Barron’s picks “only” lost 4.2% while the benchmark lost 4.5%. Forgive me, but as a big fan of Barron’s, this kind of stuff is just plain crap.

The fact is: Most of the best traders in the world right now do not live and think within the Wall Street equivalent of the Barron’s beltway. Good traders pay a lot more attention to the market and sector trends and don’t compete against the benchmark. They simply try to make money.

Nuff said. My cash call continues to hold. My major longs continue to be in biotech. Buys include HALO, MODG, NGSX, SNTA, and VVUS.

John McCain may be watching too many reruns of the Ali-Foreman fight in which Ali whupped Foreman via the “rope a dope” strategy. This last week, McCain found himself on the ropes getting hammered over everything from social security and the economy to medical reimbursements for Viagra but not contraception.

If there is a silver lining to this for any McCainites out there, it is that one of McCain’s top advisors, Phil Gramm, got the boot for saying the recession was in America’s head and that we are a nation of whiners. Gramm, as the econ cognoscenti know, is an unabashed supply sider who never saw a tax cut he didn’t like. Good medicine sometimes, but this guy is from the wrong century to deal with the complexities of today’s global economy. Ditto for McCain’s other dinosaur – Jack Kemp. Neither of these guys were ever the brightest bulbs, and McCain can do a lot better.

As for Barack Obama, his manna from heaven last week came from Jesse Jackson. You’d almost think the whole damn thing was staged because even Jackson must realize his loud vocal support of Obama would lose a lot more whites and jews than it would gain black voters (remember “Hymie town?)

Interestingly, the latest Newsweek poll shows the race in a virtual dead heat. This is consistent with my call in this newsletter that the race will be very close and that the VP choice will be critical. Latent racism will take its toll for Obama as will his obvious inexperience.

“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.

CONTACT INFORMATION
Peter Navarro
Irvine, California USA
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