What Bernanke’s comments mean to traders
Well, so far we know that the new Fed Chairman Ben Bernanke is
at least translucent, if not transparent. His performance last Thursday before
Congress was very much unlike the typically opaque and inscrutable Greenspan. In
his testimony, Bernanke suggested that the Fed might build some pausing into its
interest rate hike routines, and the stock market soared, at least for a day. By
Friday, of course, it was back to some bearish business and the indices closed
near the flat line for the week, with the NASDAQ slightly down on Microsoft’s
stumble.
It’s nice to know that Bernanke is a bit more flexible that Sir Alan, but it
does make shorting this market a bit more risky. After all, if you can’t trust
the
Fed to go too far with its tightening and cause a recession, who can you trust?
The other news that caught my eye last week was an announcement by the Chinese
central bank that it was raising rates to cool down its overheating economy.
Unfortunately, it’s the wrong solution. The real problem now is that China is
overheating from an undervalued yuan. It’s not just that it guns the export
engine. To keep the yuan low, China must continually print domestic currency
that it can then trade for dollars and euros and yen as it pours in through
Foreign Direct Investment. Push will come to shove at some point — unless the
yuan is properly valued.
This Week’s Market Movers — In Like a Lion With the Big
Kahuna
The month of May will come in like a lion with reports on auto
sales, construction spending, and the ISM index on Monday and the Big Kahuna
jobs report on Friday. The risk with the ISM is to the downside as everyone
expects it to be robust. I continue to marvel at the fascination with the Jobs
Report as it is more of a lagging indicator. Still, it will provide some clues
to Fed policy through the wage inflation component.
Portfolio Shorts and Longs — Quick Hits
I did get in and out of some Jan 2007 calls on
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CELG |
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cashing in on the earnings news for a nice quick gain. I closed
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DVSA |
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it sunk below $10 and will wait till earnings come in before possibly reloading.
I likewise closed
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MEDX |
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later in the week.
I’m holding
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AKSY |
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PowerRating), a hemodialysis play; Acacia Research
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CBMX |
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genetics play; Spherix
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SPEX |
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PowerRating), a biotech sweetener play, Synergetics
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SURG |
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a glaucoma microsurgery play;
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SVA |
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PowerRating), the bird flu play; and Xoma
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XOMA |
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PowerRating).
None of them, however, are going anywhere.
I’m remain short
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QQQQ |
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PowerRating), although its safe to say my conviction was again
sorely tested last Thursday on the Bernanke bounce. I intend to cover my
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XLF |
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short next week with spreads now widening.
Last take: This is one of the more difficult markets in the last five years to
make a buck in either short or long. Know when to hold but know when to fold’em
too.
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€