Navarro
Navarro’s Market Rap: A Short Story…
Here’s the hypothetical: You’ve got your entire portfolio on the line and have to pick the market short or long over the next quarter. If you get the direction wrong, you go bust. What would you do at this point in time?
Under that scenario, I’d have to take the short side. My conundrum is that the market continues to hold up under the twin onslaughts of an oil price shock and rising short term interests — but for how much longer? Both of these factors have played a hand in all of the last six recessions. What makes anyone think — besides Alan Greenspan — that the markets can continue to take this kind of abuse?
So…my call is to short SPY
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PowerRating), and/or QQQ. If the rally ain’t over yet, it will be soon.
The Week Ahead: Nada
The housing reports will come on the scene but they are unlikely to hold much sway no matter what they say. Confidence will be down sharply but people will sluff it off as a side effect of Katrina. So…you’ll have to find something else to move the markets and since it is unlikely that there will be any good news, the best we can do is cruise and the worse is fall back.
Peter’s Portfolio: Trimming Shears
I’ll go short one or more of the market indices next week. In the meantime, last week I got out my trimming shears. I cut
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PowerRating),
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PowerRating) — each of which had been in the green but was falling back to flat. I cut my last slice of Zila and all of VION for a nice gain while taking my medicine with STEM, which I sold on the brief rally of the week.
Holding:
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PowerRating) (nice technicals),
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ASTM |
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EGHT |
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PowerRating) (small gain with nice technicals),
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PowerRating) (ditto), and
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PowerRating), which is starting to attract institutional buyers and turning out to be one of my better calls of the year.
My Germany exchange trade fund
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Looking at EWJ as a possible — Rising Sun rising again.
Hedging Your Bets With Matt Davio: The Big Picture — literally
FED HAWKS AND DOVES
Hawkish or dovish ? Reflation or deflation? These are the questions, and it is the lack of clear-cut answers that causes the Fed’s conundrum. Indeed, the stretch, the intensity of the pull from each direction, has never been more intense, than it is right now.
Hawkish is the rate hike, leaning into the wind of dovish hope. Hawkish is the implication that the Fed will continue to raise rates at a measured pace. Hawkish is the implication that a potential rise in inflation pressure, emanating from rising energy prices, could be dealt with ala an appropriate policy response. In other words, if inflation gets loose thanks to energy, the Fed reserves the right to raise rates by more than a measured pace. Hawkish is the thought that unfortunate developments (ie: the single worst natural disaster in the nation’s history) does not pose a more persistent threat.
Hawkish 4 … Dovish 0.
But, hold the press, the doves are making a strong comeback bid, amid the later-news-wire revelation that the Fed was not unanimous in its decision to raise interest rates.
There was … gasp … a dissenting voice. This holds out hope to the doves, yes?
Hope, that the Fed will be swayed away from further rate hikes, thus rekindling reflationary sugar-plums dancing in the heads of global equity and housing markets … if … the Fed is beginning to shift towards the dovish side, right ? Wrong. Hawkish wins — but confusion is about to reign.
GOT GOLD?
We continue to keep the technical spotlight on the evolving upside breakout in gold and mining shares relative to the broader US stock market. Indeed, this is usually an ominous sign for US stocks. We need only two words, a question, we ask you … “Got Gold†?
Gold is rallying in USD terms … and gold is rallying, at the same time, against almost every other currency in the world … … while … the Philly Gold and Silver Index (XAU) is beginning to outperform the underlying bullion market … … and … the AMEX Gold Bug Index (HUI) of unhedged gold-specific mining shares is leading the XAU higher, while outperforming bullion by a greater magnitude than is the Philly index.
AND NOW … the icing on the cake … gold, along with both hedged, and unhedged mining shares, are breaking out, and outperforming the broad U.S. stock market… … implying a secular, big-bigger-picture dynamic, as per the continuation of the new bull market in gold, versus all paper currencies, specifically the monetarily reflated U.S. equity market ‘paper-currency’ as a whole.
Got gold ???
GOT HOUSING STOCKS? HOPE NOT…
The September home builders survey reported that current U.S. sales activity stayed strong, although the more forward-looking component weakened markedly. The survey was taken in early September, but the results did not include responses from Katrina-hit areas. Builders cited rising buyer resistance to high house prices as a key drag on sales. As we have noted in recent months, home affordability has sharply eroded due to surging house prices, particularly for first-time buyers. Bottom line: although historically low mortgage rates will cushion the downside, a slowdown in housing activity is likely, and it should help to cool consumer spending as well.
Housing: Cracks In The Foundation
Peter Navarro is a business professor at the University of California-Irvine (www.peternavarro.com). Matt Davio is a managing partner at the hedge fund, Red Rock Capital Fund. For investment management services, contact Matt at redrock@peternavarro.com . Contact Peter at peter@peternavarro.com
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.