Why This Is A Gambler’s Market

• September 15, 2003
• Peter Navarro

Market Trend: Topping pattern
continues

Market Outlook: Extremely cloudy

Peter’s Pick: Cash

Peter’s Macro Market Outlook:

Last Friday, in KNX1070’s every-entertaining “Bulls vs. Bears” debate,
my antagonist du jour pronounced to the listeners that the market was
going to go up another 20% by the end of the year and that investing now in
QQQ, the Nasdaq 100, was “safe.” This is the kind of rhetoric that
gets me extremely nervous about a market that has had a very nice run since
March and, more importantly, has done so not so much because of the macroeconomic
data, but rather in spite of it.

My own view is that we are long overdue for a
pullback in the short run and that over the longer run, the eventual resolution
of the market trend will entail an epic battle between the double dose of the
Bush-Greenspan fiscal/monetary stimulus versus a significant and ongoing
structural deterioration of the US
economy. During such a battle, intelligent speculators who sit on the
sidelines will be castigated by the reckless gamblers if the bull eventually
triumphs. But it will be the intelligent speculators who have the last
laugh if the bear wins out But the bigger point in this observation is, as your
mama may have once opined, “it’s better to be safe that sorry” in this market.

As
for whether the bulls or bears will triumph, I’ll let you decide this week.
Here’s are the arguments:

	BULLS	BEARS
Consumers	Merrily, merrily, merrily, life is but a dream.	Tapped out, scared, re-fi money gone.
Business investment	Starting to loosen up	Waiting for Godot.
Government spending	Mega-dose of war/tax cut stimulus. Bush/Greenspan throw a hell of a party!	Economy on steroids will crash into wall of budget deficits/rising interest rates.
Net exports	Trade deficits don’t matter. Global economy is gathering steam.	China, India, et al kicking US butt as factories and software shops go idle. Japan remains a basket case.
Iraqi War	We won. Get over it.	Likely to exacerbate budget deficits, keep oil prices stubbornly high, depress consumer confidence.
Terrorism	In abeyance	Remains a threat and economic drag.
SARS	Licked	Sleeping til this winter’s flu season.
Corporate Earnings	Picking up.	Profitless recovery.
Unemployment	Cyclical. Will eventually pick up	Hollowing out of US manufacturing, software, and data processing base suggests long term structural unemployment.

The Week’s Macro Data Market
Movers:

The
Macroeconomic Calendar

Lots
of interesting reports out this week. Any one of them could trigger a
sell-off if they don’t meet expectations. Otherwise, look for the
reports to merely confirm the recovery and provide little upside fuel.

I
will keep a particularly close eye on the housing data. Housing stocks
continue to sizzle against the odds — assisted in part by the rally in the bond
market and fall in yields.

Up —
The Broad U.S. Markets —