Two Mitigating Factors In The Economy

  • May 27, 2003
  • Peter Navarro

Market Trend:
Top of trading range

Market Outlook: Cloudy with a chance of
dip

Macroplay of the Week: Two Pennies for
Your Thoughts —
(
GNBT |
Quote |
Chart |
News |
PowerRating),
(
TMTA |
Quote |
Chart |
News |
PowerRating)

The Broad
Market Outlook:

Last
week, we called a halt to the rally on Sunday,
and on Monday, the market unfortunately (if you were long) obliged.  Still, we
were impressed with the resiliency of this latest rally to the ongoing flood of
weak economic news. So while we believe the odds-on move is a continued bear
market — with intermittent rallies — we will be (mostly) in cash ready to ride
any bullish follow through.

Still and
all, if you have been regularly following this column, we can see our way to no
more than a slow rate of economic growth at best — and stagnation at worst. The
two mitigating factors are:


  1. A
    pump-priming by the Fed with liquidity the likes we have not seen in a long
    while; and


  2. The
    Bushwhacked (by Congress) tax cut that most economists see having some, but
    not enough, punch. 

On the
accelerating downside, Europe is about to experience a paroxysm of economic
stagnation bought about by the strengthening euro and the collateral
unwillingness of the European central bankers to lower interest rates and boost
liquidity in lock step with the US Fed. And lest Iraq recede to far into the
background, we should be aware that waging the peace is proving far more
difficult than waging the war — and this may ignite a renewed bout of Mid East
instability.

The Week’s
Macro Data Market Movers:

The
Macroeconomic Calendar


DAY


EVENT

Monday

  • A fitting tribute to
    our fighting men and women


Tuesday

  • New and Existing
    home sales

  • Consumer confidence

  • UBS
    Investor Optimism


Wednesday

  • Durable goods

  • Mortgage applications


Thursday

  • GDP

  • Jobless claims


Friday

  • Chicago PMI

  • Personal Income

  • Risk of Recession

  • Consumer sentiment

* Potential major market
movers in red

It will be a big week on the data front with consumer confidence ushering in the
week and consumer sentiment ending it. The big question is whether the recent
gains will hold or whether the war blush and gush will recede. We continue to
look for any cracks in the housing sector façade and Tuesday offers us yet
another look at its bulletproof vest with new and existing home sales while
mortgages aps hits Weds.

The ever-volatile durable goods will spark stupid media speculation but the
smart money ignores the report. On Thursday, look for the GDP to show growth
at less than 2%, with any upside surprise enough, just by itself, to push the
rally up. All in all, an eventful week as we roll into summer.


Art of the Macroplay:
Generex Biotechnology
(
GNBT |
Quote |
Chart |
News |
PowerRating), Transmeta
(
TMTA |
Quote |
Chart |
News |
PowerRating)


Several months ago, we indulged in what turned out to be some lucrative penny
stock speculation. In that vein (even as I remain short on the Cubes until QQQ
breaches $28.28), I offer two pennies for your thoughts: Generex is a small
Canadian biotech company that specializes in drug delivery systems and
technology. It’s a SARS play in that it just cut a deal with Antigen Express to
develop a SARS vaccine. Transmeta is a Santa Clara-based microprocessor producer
that also specializes in hardware and software to facilitate long battery life
in computers. The self-described “leader in efficient computing,” its new 1 GHz
Crusoe TM5800 process just found a new home in HP’s Thin Client t5700.

If you have a favorite
macroplay or stock you would like us to consider in this column, send an e-mail
to

peter@peternavarro.com or go directly to

https://www.peternavarro.com.  We’d love to hear from
you.  Â