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This Week: Calling a Market Top – Feldstein for Fed Chair Stock market trend: Inflection Point – Likely Trend Reversal Market Pulse It ain’t over til it’s over, but as a speculating man, I’ve been betting that we’ve reached a market top in the U.S. and that that top may well be signaling the onset of a double dip U.S. recession in one to two quarters. Loyal readers will know that I took most of my profits off the table some weeks ago and went to a cash and hedged strategy. In this next phase, I will hold my long positions in my cycle-resistant biotechs but I am moving cautiously and in small steps towards a net short position on the broad U.S. market to try to capture some of what I believe will be a downward move (TWM is my favorite shorting tool for the broad market). That said, I don’t recommend this strategy for newbies – instead, newbies may want to consider simply a cash portfolio until this latest bump in the road sorts itself out. My bigger fear beyond a new bear market now is a double dip recession. Increasingly, I believe that the consumer won’t follow through on our investment-led recovery. I also think that Bernanke’s easy money policy is going to start a round of competitive devaluations globally that will be very destructive. Already the weak dollar is hurting countries throughout Asia and Latin America, from Columbia and Peru to South Korea and Taiwan – and the central banks in those countries are trying to prevent the dollar from eroding their competitive advantage. In the old days, Fed interest rate cuts simply stimulated domestic investment and had little ripple effect on the U.S. currency and U.S. exports. Today, with domestic business investment in the GDP equation increasingly offshored, interest rate cuts do little to stimulate that investment. Instead, modern Fed policy operates as a U.S. “beggar thy neighbor” policy via the declining greenback. To reiterate, that beggar thy neighbor policy is inflicting considerable harm in both Europe and Latin America. If the U.S. falls into a double dip recession – or even continues with very slow growth for another year (or more), that puts a very different spin on a lot of things, including the reappointment of Ben Bernanke. For the record, reappointing Bernanke is asinine. He helped create the original financial crisis with loose money. He has mismanaged the recovery. The “recovery” really isn’t going to be a recovery. Where’s Martin Feldstein when you need him? He’s the only economist I know who could assume the reins at the Fed and steer this sinking ship through the dangerous waters we are in. ©
2009
Peter Navarro CONTACT
INFORMATION 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. |
