How Do You Answer These 5 Questions?

  • March 29, 2004
  • Peter Navarro

Market Trend:
Correcting or Down

Market Outlook: Still a gamble and not a
speculation

David’s Pick: RRPIX

Peter’s Pick: Cash

Sector Watch:

Up:
Mostly upward bounces
throughout the sectors, but strength remains in the Real Estate sector.

Down:
The broad markets, led by
weakness in Drugs, Tobacco, and Energy.

Navarro’s Broad Market
Outlook: Baseball
Analogies


This week, I shall play
the role of baseball’s “middle reliever”
or “setup” pitcher for the column’s bullpen closer, David Aloyan. I will
simply ask whether you believe the answer is yes to any one or more of the
following questions.  If you do, then scoot right down to David’s discourse on
RRPIX and shorting the bond market.

Do you think that:



  1. The war in Iraq will
    continue to require large-scale military expenditures; the Bush tax cuts
    will not be repealed; Congress will not exercise fiscal restraint; and the
    structural budget deficits will not go away? 



  2. Commodity and oil price
    pressures will continue to grow and create “cost-push” inflationary
    pressures while the expansionary fiscal and monetary policies of the US will
    drive GDP growth and rising “demand pull” inflationary
    pressures?



  3. At some point, China
    and/or Japan will cut back on their purchases of US bonds and, more broadly,
    on their currency intervention policies, other foreign countries like Saudi
    Arabia holding large dollar reserves will start dumping them?



  4. Productivity rates will
    peak (or have peaked!) and will fall — perhaps dramatically?



  5. At some point, the
    Federal Reserve must begin raising short-term interest rates in response to
    all of these factors?

^next^

 

This Week’s Macro Data Market Movers: A Big
Week


OK, it’s a pretty big week on the data front.  Let’s see if consumer
confidence continues to spiral into the gas tank. It would be nice to get some
affirmation in factory orders and the ISM that the supply side of the economy
is still cranking — but any disappointment would be UGLY. The
only thing more interesting to watch than the housing sector for some kind of
short signal is the auto sector.  Let’s see how low interest rates are helping
Detroit (and Tokyo).

Finally, look for a little wobbly trading going in to Friday’s Jobs
Report. The buzz is that we’re going to get 130,000 new jobs created this time
as the tea leaves are looking good — but didn’t they say that last time?

David’s Pick:
Reiterate–Long “RRPIX” (Bearish Bond Fund)


A couple of week’s ago, I
brought this out as, in my opinion, one of the best reward-to-risk long-term
plays around. I have been adding to my short position in bonds using this 1.25
leveraged “bearish” bond fund (ProFund’s Rising Rates Opportunity Fund). I am
now pounding the table on this one! Again, if you have been reading my column,
you now that my broad outlook on the market is bearish for US equities, bonds,
and real estate, with my thesis being: Interest rates will experience an
upward shock when the artificial manipulation of the mid-to-long end of the
yield curve created by the “carry trade” and overseas intervention unwinds.
This will cause a sharp rise in rates (drop in bond prices) and reversal of
the downward interest rate trend—