HAVE WE REACHED A BOTTOM?
The Well-Timed Strategy for Week Ending August 15th
by Peter Navarro, Ph.D.
August 11, 2008

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.

THE CHINA EFFECT

Please see my latest You Tube report.

“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

The Market Edge Market Summary from www.marketedge.com 

CONTACT INFORMATION
Peter Navarro
Irvine, California USA
Email  |  Website

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.