HAVE WE REACHED A BOTTOM? PART 2
The Well-Timed Strategy for Week Ending August 22nd
by Peter Navarro, Ph.D.
August 18, 2008

The Markets

So the NASDAQ is on a five week roll – but everything else seems to be going to hell in a hand basket.

The U.S. got a big inflation number – fastest growth in 17 years! In a shocker, Japan looks like it’s going into a recession – joining the Eurozone – while the U.K. is a basket case. Meanwhile, in the developing world inflation is a prairie fire driving central banks to raise interest rates – from Brazil and Mexico to Romania and Vietnam.

The only good news has been a fall in both oil and commodity prices – with the fall driven both by a slowing demand in a slowing global economy and a stronger dollar rising as interest rates threaten to fall in the Eurozone.

It’s hard to tell a bullish market story reading these tea leaves. In the best case scenario, the now almost certain global recession will wring inflation out of the economy fabric and we will avert stagflation. In the worst case, we wind up with stagflation as resource constraints and/or geopolitics cause oil to rebound.

My bottom line: I continue my cash call for a large share of the portfolio. I do aAllocate some of the portfolio to non-cyclical biotechs. My biotechs in the green are HALO, SNTA, MODG. I’m in the red on NGSX but it may have a good entry point now. I also added Micromet (MITI) on some news and analysis from Roth Capital.

I still like my Washington Mutual trade (WM). Recall that I got in around $4 and treat it like an option because downside risk is small.

And don’t freakout: I actually started building a position in Beazer Homes (BZH). Homebuilding is showing signs of a bottom and I’m going to ease in here. If it’s a false bottom, I’ll cut my losses quickly. (By the way, another housing pick might be Centex (CTX).

Presidential Politics

Well, our choice on foreign policy seems to be a bantam rooster and a loquacious chicken. The Georgia-Russia dustup reminds us how important the Oval Office is in times of crisis and once again just how bad Bushman handles global affairs.

To be clear, Georgia’s President got lured into a trap by the Russians and overplayed his hand by moving in force into South Ossetia – one of the biggest miscalculations of this century. Don’t play checkers in a chess world, particularly with chess master Russia.

If McCain had been in the White House, he might have overplayed his hand too – and provoked a really nasty conflict with Russia. Obama would have just looked weak in a situation impossible to win.

The bigger strategic issue here for us traders is whether Russia is going to gain a chokehold over all oil and gas flow from Central Asia into Europe. The world is screwed if Russia does.

As for trading this issue, I might start by looking again at some defense stocks.

Quick Takes

1. I got a lot of mail on my John Edwards take, all of it negative. Hey, I liked the guy and what he tried to stand for. It really is amazing how so many of us in the male gender do so much of our thinking below the waist.
2. The Financial Times finally ended its long running kowtow to China with an editorial that features this disgustingly accurate portrayal: “…the breathtaking cynicism of the Chinese authorities in declaring zones in three parks open for public protests and then persecuting, detaining or expelling from Beijing those who applied for permission to use them is a clear breach of promise made by China to help win the bid to host these [2008] Olympics back in 2001.”
3. I have previously opined on the lack of macroeconomic expertise in the Obama campaign but tipped my hat to his microeconomic advisors. For evidence of this, spend some time comparing Obama’s cap and trade policy to McCain’s. It’s Ph.D. stuff compared to Kindergarten.

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.