You Know Folks On The Street Are Getting Desperate When…

• May 19, 2003
• Peter Navarro

Market Trend:
Top of a trading range, likely to crest

Market Outlook:
Bearish

Sector’s Watch: Energy up,
Biotech Down

Macroplay of the Week: Short the
Cubes

The Broad Market Outlook:

Stick a fork in this rally. It’s
done. It’s a rally that has been driven by a technical momentum that is now
rapidly losing steam. That leaves only the economic fundamentals to provide
additional lift, and most of the fundamentals are pushing in the opposite
direction. The recent wave of terrorism certainly won’t be warming the cockles
of the market’s cold heart. Plus, you know folks on the Street are getting
desperate when they cite the prospects of another Fed rate cut because of
deflation as a bullish event. I guess things are so bad they are going to get
good.

Here are the bullish and bearish
cases. We heavily lean bearish until the S&P 500 convincingly blows through
overhead resistance:

Bulls	Bears
·        Consumer confidence is rising rapidly ·        Another round of mortgage re-fis will keep consumers flush to spend	·        Consumer confidence bounced after the Gulf war just like this and then went in the toilet ·        The economy cannot be sustained by massive amounts of mortgage debt
·        Business investment is beginning to show signs of stirring ·        Earnings were better than expected (make that not as bad as feared)	·        Business investment remains weak as kitten ·        Production is low, business inventories are building in the face of weak demand, and price deflation/stagnation means corporate earnings are stagnant or worse
·        The tax cut is a down deal and will provide a strong stimulus	·        The tax cut is stupid, stupid, stupid because it provides little stimulus and lots of future deficit problems. ·        The Federal tax cut will be more than offset by tax hikes and layoffs at the state level as states deal with huge budget deficits

 

·        The Fed is probably buying long bonds like they are going out of style, flooding the market with liquidity and driving the yield on the ten-year Treasury note to a 45-year low	·        The Fed’s bond binge is undermining the dollar and sowing the seeds of a future inflationary/stagflationary spike, a la Arthur Burns in the 1970s
·        A weak dollar will boost exports and multi-national profits	·        The positive effects of increased exports will be more than offset by foreigners bailing out of both the stock and bond markets ·        German and Italy are basket case and Japan is in the recessionary toilet so they won’t be buying much of our exports with their strong euros and yen ·        The full effects of SARS have yet to be felt
·        Terrorism is under control and the war is over	·        Terrorism is the multi-headed hydra that seems to grow two new ones for every one we chop off ·        An invasion of Iran will soon rear its ugly head while the House of Saud is a house of cards
·        Oil prices are moderating	·        Oil prices have fallen, but no where near as far as they should have

 

The Week’s Macro Data Market Movers: Nothing, Nothing

 

The
Macroeconomic Calendar

* Potential major market movers in red

Look for the Index of Leading
Indicators to confirm weakness — it’s been down for two straight months and fell
to a four-month low in March. Look for France to join Italy and Germany in the
jobless lines. Beware of any softness in mortgage applications in the face of
ever lower rates. A dip in jobless claims below 400,000 would provide a nice
upside surprise. 

Look for the downside surprise of
the week to be a treasury report that shows tax revenues were lower than
expected so the deficit will be higher.

Up —  The broad markets, led by Energy Sector last week. There might be more follow through in Energy
this week; use “OIH”the Oil Services ETF to trade this.

Down — Bio-tech last week. 

Macroplay of the Week: Short the Cubes

Short the cubes with a loose stop
if QQQ closes below $28.28 and maybe you’ve picked a short term top.

 

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. 

Peter Navarro is the author of “If It’s Raining in Brazil, Buy Starbucks”
and a general partner of Platinum Capital.  Platinum Capital is the
umbrella group for the Macrowave Investor Hedge Fund.  Platinum Capital
also now offers asset management services for individual investors.

[NOTE: Platinum Capital has
begun a new relationship with Schwab Institutional that allows us to manage
funds for individuals, including 401K and IRA accounts.  For information on how
to avoid the “mutual fund” trap, contact

peter@peternavarro.com] 

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