If It Rains in Brazil, Buy Bunge Limited

• November 11, 2002
• Peter Navarro

Long Term Market Trend: Down

Short Term Market Trend: Down

This Week’s Market Outlook: Neutral

Media and Barron’s Watch: Ashes to Ashes
for
(
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Quote |
Chart |
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PowerRating)

David’s Picks: Pair Trading the Drug
Sector

Peter’s Picks: Bungee Jumping

The Broad Market Outlook: Two Big
Choices

“Remember, the key to winning in these
markets is not about picking tops and bottoms, but about risking capital only at
times when there is a relatively attractive reward-to-risk environment.” 
— D.W. Aloyan

Last
week we wrote that “Never before has a stock market rallied on such bad economic
news.”  This week we must write “Never has the market tanked on such ‘good’
news.”  The allegedly “good” news in question is, of course, the Fed rate cut of
50 basis points — which triggered a sell-off that caught a lot of folks by
surprise. So what’s going on? Let’s get back to First Macrowave Investing
Principles. We believe:

• The stock market is a leading indicator
  of future economic conditions, and

• In the short run, the market’s crystal
  ball can become clouded by technical considerations

From
these two principles, we make the following conclusions. As we have been saying
in this column,

• The recent relief rally had much more to
  do with a technical bounce from oversold conditions and a shift in funds from a
  panicked bond market, rather than a legitimate harbinger of economic recovery.

• The two possible reactions to the Fed
  rate cut could have been: (1) It’s going to work and things will be rosy! Or (2)
  If it cut rates by a whopping 50 basis points, the economy must be a lot worse
  than we thought so the rate cut may NOT work!  From the market’s reaction, we
  can assume the latter interpretation.

So where
does this all leave us? In a situation that frankly we thought would be
clarified by now, particularly in light of a Republican takeover of Congress, a
UN resolution that in effect green lights an invasion of Iraq, and a 50-basis
point rate cut by the Fed. 

Instead,
the crystal ball is anything but clear.  Moreover, the Nasdaq, in
particular, is in a trading range now which is too treacherous to dip your toes
into.  It’s still too high to offer much upside reward and still too
uncertain to risk any substantial short side exposure. Our conclusion is that the prudent investor
will go back to cash for a few days or perhaps even a few weeks, until we get
more signals.

The Week’s Macro Data Market Movers:
A Macro “Triple Witching”

The Macroeconomic Calendar

* Potential major
market movers in red

Our “Report of the Week” has to be retail
sales on Thursday. Watch for any effects of the West Coast dock strike as well
as waning consumer confidence. If Santa doesn’t give us a strong Xmas season
for retailers, the Grinch may give us a Double Dip Recession.

We will also be watching business
inventories, industrial production, and capacity utilization for any signs of
life in the moribund business sector — as well as for any possible rebound of
consumer sentiment (can’t get no worse!).

Macroplay of the Week: Bungee Jumping

“Up to 1 inch of rain that fell during
the weekend in central and northern Brazil will loosen soil packed too hard for
seeding by weeks of dry weather, meteorologists said. The moisture will allow
Brazil’s farmers to sow soybeans after eight weeks of delays threatened to
shorten the growing season and reduce the size of the crop, analysts said.”
— Bloomberg News

Bunge Limited
(
BG |
Quote |
Chart |
News |
PowerRating) is the largest
processor of soybeans in the Americas, the world’s leading oilseed processing
company and the largest producer and supplier of fertilizers to farmers in South
America. 

Brazilian growers are forecast to
gather 48 million metric tons of soybeans in 2003, up from 43.5 million a year
earlier — fueled by increased rainfall from El Nino. As Bloomberg News reports,
“Soybean-processing plants in Brazil, including those owned by Bunge Ltd. and Cargill Inc., were expected to more than
double soybean-oil exports to 5.25 million tons in the sales year that began
Oct. 1, compared with 2.26 million a year earlier, according to Agriculture
Department estimates.”

Now that rain
has come to break a drought in Brazil and opened the door to seeding, it may be
time to buy Bungee. This is all the more so because strong soybean demand is
now being pushed even higher by a modernizing China which is putting more soy
fed meat in the national diet.

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.