Use This Seven-Point Macrowave Checklist

  • May 3, 2004
  • Peter Navarro

Market Trend: Down


Market Outlook: Bearish

David’s Pick: Cash

Peter’s Picks: Cash, Short CACI

Sector Watch:

Up:
Personal Products and
Cleaning Products in the Consumer non-durables sector.

Down:
The broad
markets and Bonds.

Navarro’s Broad Market
Outlook:
CNBC Fiddles While the Market Burns


So
I turn on CNBC last Friday morning after Thursday’s market carnage, expecting
to get some hard analysis and a “reality check” from the Bully Boys and
economic analyst Steve Liesman is waxing eloquent on the Kentucky Derby.  All
that was missing was a fiddle and a toga for Steve as not Rome, but the stock
market, continued to burn that day.  Oh did I forget to add–worst couple of
days in years for the markets.

If you think the market is about to take off again, you might want to go over
this macrowave checklist of obstacles:



  1. Iraq and oil price shocks,


  2. A
    debasing of the currency through the Fed’s easy money policies,


  3. Structural
    budget deficits brought about by “re-elect me please” tax policies,



  4. Incipient
    cost-push inflation that is stagflationary and can’t be cured with interest
    rate hikes,


  5. An approaching end to the re-fi
    cycles that have been fueling “pedal to the metal” consumer spending,


  6. A
    possible ultra-collapse of the housing bubble, and


  7. The
    slamming of the brakes on the Chinese economy by “too much, too late” economic
    ministers who finally figured out what the world already knew. 


If you can weave a virtuous
bull market tapestry out of those disparate threads, you are more than welcome
to it.  In the meantime, shorting the bond markets and caressing your
cash seems a bit safer than, say, being fully invested long and holding in
this stock market.

^next^


  

The Week’s Macro Data Market Movers:


It doesn’t get much better
than this week if you are macro geeks like us and love to speculate how the
market will gyrate as the data turns. Here are the big traps ahead:

Both the bond and stock market will crash if productivity does a swan dive —
as it inevitably must.  Lower productivity means higher inflation and interest
rates.

Last month’s jobs report came in so far above expectations that it raised the
specter of diddling with the data for political reasons. Whether or not
there’s a little bit of “Rick, I’m shocked Casablanca-ing” of the data by the
bureaucrats, the Bushies will be looking for a number over 200,000 in jobs
created while the Kerryites will be ready to pounce on anything less than that
— with President Bush-Cheney already threatening to go down in history as not
only the first shared presidency but also the first since Hoover to experience
a net job loss.

As for what might bolster this market and stop the bleeding, well, it’s a new
month and in comes all that 401-K money. The Federal Reserve might signal
rate hikes are further off in the distance than they previously thought.  The
ISM, factory orders, productivity, and jobs might all come in somewhere near
a “Goldilocks” mean where the economic porridge is neither too hot nor cold
but just right.  Hey, if it happens, we can turn on a dime.  Can your
portfolio?

Sector Watch:

Up —   Personal
Products and Cleaning Products in the Consumer non-durables sector.

Down — 
The broad markets and Bonds.

David’s Pick: “CA$Hola”

 Although, I have been short
bonds and the Nasdaq for ‘04, cash remains king for the average investor.   


Peter’s
Picks: Cash, Short
(
CACI |
Quote |
Chart |
News |
PowerRating)


It shouldn’t surprise you
that I’m encouraging cash.  But there is also an interesting macroplay in the
works with CAC International.  This government contractor is at the center of
the firestorm over the torture and interrogation of Iraqi prisoners.  The
allegation is that it was the private contractors like CACI and Titan that
“were the ones most likely to order harsh treatment of prisoners.”  If this
turns out to be true, look for CAI to slide.  Of course, the kicker here is
that CAI descended into that firestorm with very strong technicals flashing
“buy” “buy” “buy.”  Will this scandal flip the company over?  You decide…

Aloyan’s Technical Take:

All three major indices
(Dow, S&P 500, and Nasdaq), finished the week in the red, and produced a
technically bearish “outside reversal week down.”  The NDX (Nasdaq 100) was
the relative strength laggard for the week, and year-to-date.

Our sector watch produced 95% of our sectors, and most all of the global
indices, on the downside—