Could This Be The Interview Of The Year?

• November 22, 2004
• Peter Navarro

The Big Picture Investor: Interview of the Year 

Navarro’s Broad Market Outlook: Renaissance Man

 

Barron’s:
Can the market keep delivering the goods here?

Arvedlund: We think the economy will experience a fairly sharp
deceleration next year, most likely in the second quarter or so.

Q: What will lead this slowdown?

A: We are now entering the fourth year of GDP recovery, and everything is
getting long of tooth. What will lead the deceleration will be the sectors that
have led on the way up. Automobiles will roll over. That’s already started.
Housing activity will simply stop increasing. When you take autos and housing
and marry them with all their vendors and suppliers, that’s about 10% to 20% of
the economy that’s going to be flat or down. Finally, consumers will start to
slow down their spending because they are tapped out after their debt binge.
Expect all the early cyclicals, and that includes retailers, to slow down or
roll over.

 

Cogitate if ye will with me on my nomination for best interview of the year in
Barron’s — with Richard Arvedlund of Cypress Capital Management. 

Mssr.
Arvedlund takes a very interesting and bearish look at the 2005 landscape.  The
one interesting bone of contention I have that all of us may want ponder is
Arvedlund’s forecast of interest rates: He actually remains a bond bull.  His
argument is that a soft economy will keep the long end of the yield curve down. 
Plus, even if the Chinese and Japanese start pulling out of the bond market to
finance U.S. budget deficits, he thinks it will only affect the short end of the
curve.

            Methinks he’s might
be far wrong on this crucial point.  Consider his view on the dollar:

 

Q:
What about the dollar?

A: The direction of the dollar is down.

Q:
How down is down? Is it necessarily a bad thing, or will it help the trade
deficit? That seems to be the new line of thinking.

A: It is not helping the trade deficit very much at this time, and we
suspect it is not going to help it in the future. I don’t know of anything we
export that would benefit very much, and we continue to be totally influenced by
oil imports. I don’t think Chinese imports will be affected at all by the weak
dollar. The dollar is declining because of our loose money policy, our terrible
fiscal deficit and our current-account deficit, all of which are heading the
wrong way. What will happen at some point is that foreigners will stop buying
our securities or at least buy less of them, and it will be witnessed in the
short-term bond market, which represents the bulk of their purchases. That is
where you will see the most damage.

How,
pray tell, can the long end of the bond curve not also be affected if the dollar
continues to weaken.  A weaker dollar is inflationary and that must raise
nominal interest rates at the long end.  Plus, prospects of a weakening dollar
will lead foreign investors to reduce their bond exposure along all points of
the curve.

Perhaps I quibble too much with the gentle-man.  But I do urge anyone who wants
an excellent take on 2005 and beyond to plug in to this article….Plus, his bond
bullishness provides a cautionary note to David’s RRPIX call to short the bond
market.  (See below)

Last take:  Prospects for a Xmas rally
were dimmed a bit by Alan Greenspan’s bearish remarks last week.  The three to
four weeks may be volatile as the bulls and bears fight it out.  But get ready
to get flat by Xmas (or before) and ride it out until the New Year.

 

^next^

Aloyan’s Technical Take: Is Greenspan pulling the plug again?
           

For
the week, all three major indices ended up finishing the week in the red, after
Friday’s sell-off:  the Dow closed down 82 points (.78%) at 10457, the S&P 500
was down 14 points (1.17%) at 1170, and the Nasadq closed down 15 points (.71%)
at 2071.  All three indices finally took a breather from their relentless
seasonal/election year rally.  This pullback could take the indices back down to
their 2004 downtrend lines with support around:  “Dow” 10220, S&P 1140, and
Nasdaq Composite 1970.   

My
sector breadth reading turned decidedly negative, with last week at a negative
71%; the Tobacco sector outperforming and Specialty Retail sector
underperforming.  My trend, momentum and breadth indicators are all in the early
stages of turning down into a correction.  My sentiment and economic/fundamental
indicators continue to remain bearish. 

I warned last week of the dangers of chasing this irrational market, and
Friday’s action demonstrated how quickly the tide can turn.  I have been
repeating over-and-over about the reckless fiscal and monetary policy brought on
by the previous and now current administration, with the aid of Sir Greenspan,
and the huge asset bubble (stocks, bonds, and real estate) created therewith. 
Record levels of debt recklessly spent, instead of being invested in education,
healthcare, social security, jobs, R&D, border security, just to name a few
productive areas.  Meanwhile, consumers act just as reckless.  Instead of using
the historical low interest rate environment to repair their balance sheets and
save, they bury themselves deeper in debt in an attempt to live their idea of
the American dream; with plasma televisions, Humvees, and homes that
their incomes won’t support with a future rise in interest rates.  I know, here
I go again. I have been warning you for quite awhile now, meanwhile stocks,
bonds, and real estate continue on their merry way up—