Navarro's Big Economic Picture
The Big Ben Bush Bailout

It’s abundantly clear now that Fed Chairman Bernanke will expand the role of the Federal Reserve far beyond its charter to the become the lender of last resort to all of those poor saps and greedy speculators who loaded up on cheap adjustable mortgage rates to buy houses they either couldn’t really afford or which they wanted to flip for a fast buck.  It’s equally clear that President Bush will be doing everything he can to support the Bernanke move so as not to exit his presidency with a housing sector in collapse and an approval rating with a minus sign.

In the short run, the markets will eat this up.  Longer term, the US just seems to be digging a bigger hole for itself.  Cutting interest rates and increasing credit availability is just one more way of saying let the printing presses role and one big heavy foot on a dollar already suffering from chronic weakness.  At some point US centric investors are going to wake up and figure out that their dollar-denominated portfolios which seem to be going up really aren’t after currency effects are taken into account.  Of course the larger problem with the Ben Bush Bailout is inflation.

I’ve written extensively in this space as to why in today’s global economy, BOTH food and energy need to be factored into to the inflation equation and not simply treated as “not in the core.”  Energy prices are not in permanent price shock mode and based on the price of wheat these days and rising food demand in places like India and China, food may suffer the same fate.

My bottom line is the Ben Bush Bailout is not a move worthy of a country which claims to be based on free market capitalism.  It is a move which simply digs the US deeper into its hole of a declining economy and world power.

This Week's Market Movers

With a shortened week, look for the markets to be in hold mode until Friday when the jobs report flies.  It’s important now because any sign of labor market tightness or wage pressures will raise questions as to whether the Fed will cut rates this month – now apparently a near certainty.

Trade of the Week - The Barron's 400

No trade to recommend this week but I do recommend reading the article in Barron’s on the establishment of its Barron’s 400 index.  It’s in interesting clinic on fundamental (versus technical) stock picking methods.  Too bad they don’t have an ETF yet to trade it.

The China Effect

The China Effect is a video presentation that provides analyses of the major news events coming out of China as they affect world markets.   This week’s installment discusses piracy in the auto industry.  GO TO YOUTUBE.

The International Scene - Technical Take

While most of the international ETFs are still in the short category, virtually all of the shorts are near their sell stops technically and looking to reverse.  This on the basis of last week’s bullish moves globally on the Ben Bush Bailout news.  Stay tuned!

*Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

“Any trader or investor who ignores the power of macroeconomics over the world’s
financial markets will, sooner or later, lose more than they should—and if they are
trading on margin, perhaps more than they have.”
 -- If It's Raining in Brazil, Buy Starbucks

The Market Edge Market Summary from www.marketedge.com 

CONTACT INFORMATION
Peter Navarro
Irvine, California USA
Email  |  Website

DISCLAIMER: This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever. Trading and investing involves high levels of risk. The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The authors may or may not have positions in the financial instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future performance.