They don’t ring a bell at the top
Besides “buy low, sell high,†one of Warren Buffett’s most
endearing phrases is that “they don’t ring a bell at the top.†That’s certainly
true at one level, but last week certainly left a lot of investors with their
heads at least ringing. The roundhouse blow came from, who else, the Federal
Reserve. Sure, the Fed did exactly what was expected. They raised the ante
another 25 bps and signaled a possible pause. What was lacking was any
conviction in the pausing sentiment. And the accompanying data certainly didn’t
provide the Fed with any strong arguments for the prudent pausing course. So by
Thursday and Friday, it all came crashing down.
Loyal readers will know that this is the downturn that I have been expecting for
months now. Indeed, I rang the topping bell back in February based on the
gathering inflationary, rate hike, oil price shock storms. So this coming week
will be important because it will take the measure of this market. Does it rally
after a short downward feint? Or is this the start of a larger correction and/or
downward trend. You know where my sentiments lie. As for my cash, most of it is
on the sidelines as I closed every single stock I had last week and reopened my
short on
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PowerRating).
This Week’s Market Movers — Inflation Week
Hands down, the likely biggest market movers will be the producer price index on
Tuesday and the consumer price index on Wednesday. The risk here will clearly be
to the downside as thus far inflation has been pretty benign. What the markets
will abhor is any sign that inflation is showing up, particularly in the PPI,
which has remained fairly immune to its pressures.
One other report to watch will be new home sales on Tuesday. Again, the risk
favors the downside.
Peter Navarro is a business professor at the
University of California and the author of the best-selling investment book
“If It Rains in Brazil, Buy Starbucks.†His latest book is
The Well-Timed Strategy.â€