Navarro's Big Economic Picture
It's Worse Than the Bulls Thought

T.S. Eliot had it all wrong.  The cruelest month, at least for the stock market, is September; and this particular September is certainly getting off to a cruel start.

A lot of the bulls on Wall Street who have been begging for a Fed rate cut deep down in their hearts didn't really believe that the economy was in that much trouble. They just like seeing rates cut because they think the stock market will rally around the banner of these money. What a shock it was last Friday when the latest jobs report actually indicated rather strongly that the US economy is weakening rapidly. This shock cost the Dow over 200 points. Under other circumstances, the weak jobs report would have been bullish, as it would have given more support for a Fed rate cut.  Now, the concern shifts to whether a Fed rate cut would do anything to stem the negative tide.

As for the jobs report itself, it was indeed a horror show as an expected 105,000 job gain turned into an actual 4000 job decline in payrolls. So what if the unemployment rate didn't fall. This was a harsh reality for the markets to digest.

At this juncture, any talking head who views the recent market dips as that proverbial "buying opportunity" is either a fool or secretly loading up on his shorts. Clearly, the market worm has turned and stocks are in a technical downtrend. For those with weak stomachs for shorting, cash is king, at least for a month or two

This Week's Market Movers

This week's macroeconomic calendar is fairly robust. The two biggest potential market movers are international trade on Tuesday and retail sales on Friday. The trade report has been showing rising US exports, which is bullish. If that trend reverses, look out. As for retail sales, they have been on a roller coaster -- up in May, down in June, up a bit in July. Retail sales are important because they are an early leading indicator as to whether or not the consumer is finally being shut down by high gas prices and problems on the mortgage front.

Trade of the Week - 

Several weeks ago, I recommended shorting Germany (EWG). Add Mexico’s ETF to that list (EWW).  If the US economy is softening faster than previously thought, Mexico will be at the front lines of the ripple effects. Right now, EWW is technically weak and showing short sale signals.

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 features a clip from CNBC where I discuss the implications of the epidemic of defective Chinese goods for US-China relations and the upcoming holiday season. GO TO YOUTUBE

The International Scene - Technical Take

Every single one of the international ETFs in my tracker ended down on Friday and most are technical short sells.  That should tell you a lot about the weakening global economy.

“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
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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.