An Economic Colossus in Crisis

by Peter Navarro & Matt Daviofor
Online Trading Academy
http://www.tradingacademy.com/

Navarro's Market Rap: An Economic Colossus in Crisis

"No government anywhere in the world can go on taxing and spending as if its is still operating in yesterday's economy." … "If the United States is to remain an economic colossus, its fiscal authorities, like its central bankers, will have to become paragons of prudence and restraint, implementing policies that will put the nation in a position to bolster, not hamper, its competitive edge."

Richard W. Fisher, President and CEO, Dallas Fed

Two weeks ago, when I argued that the short side of the market indices now have a better risk to reward than the long side, I took a broadside from a few ungentle readers – and a public whipping on KNX for my bearish perspective. Well, excuse me. As the market got further unglued last week, I continue to believe this is the case and will judiciously add to my Nasdaq short.

And by the way, many analysts and pundits are blaming rogue remarks from the Dallas Fed President for last week's market fall. Guess what: It's not what he said. It's what he (and me) is seeing. With sustained energy and commodity price shocks and a rising structural budget deficit, we are being set up for a rerun of 70s style stagflation.

The Week Ahead:

A typically Meaningless Jobs Report.
Discriminating minds might find the Fed minutes to be an interesting read next week – what with all the Fed hoopla. That said, the big report of the week will likely be the trade report. Any unexpected increase in the deficit will lead to weaker dollar-more inflation worries and feed the inflationary worries scenario. Retail sales on Friday and the U Mich sentiment numbers are also always worth watching.

Peter's Portfolio: Shorts and Longs

My cubes short is now slightly in the green while SVA continues to ramp up – albeit with a little healthy profit taking last Friday. Still looking to add to ARDI this week. Watch it now because if it starts running up in anticipation of the Oct. 27 earnings call, you know that the insiders are making a buck.

Holding ARTX, ASTM, LVLT, EWG, and EWJ. Sure would like to get a little inspiration for a new stock but the fact that I ain't seeing anything is an indicator in and of itself….

Hedging Your Bets With Matt Davio: That Was Then…

To look forward, we sometimes need to look back. But one lifetime is not enough. Call me old-fashioned, but the years of the roaring '20s and the stock market and huge spending boom which preceded the 1929 top do seem to foreshadow the period we are living through now.

After the Tech and Internet Boom of the 1990s, the market peaked and the stock market bubble burst. We now remember 2000 ushered in a two year plus stock market slide, but nothing to rival the Wall Street Crash of 1929-1932. The generosity of our modern Federal Reserve has, so far, saved us from a slide into economic crisis. People have kept spending, using cheap borrowed money, and easy credit supported by rising house prices. As I write this, the property bubble is still growing, and our American dream of never-ending abundant times are still intact. In those older days of my grandfather's youth, people were also ambitious and optimistic. They traded up when possible, and borrowed money if needed, in order to improve the quality of their lives.

Within a few months, the economic climate had changed, and my grandfather lost his job, making it impossible to keep up the payments on a new car along with the new cars of many other unfortunates who also lost their employment and their regular wages. And with the job losses, the stock market crash of 1929 morphed into a severe downturn in the economy.



The slowdown was aggravated by a collapse in credit. In the roaring twenties, it was easy to borrow money, for building new homes or buying new cars. Some, like my grandfather who had worked as a mason, got credit beyond what that they could readily service. So when the work dried up, and money got tight, the payments became impossible. In the thirties, America became glutted with repossessed cars and houses for sale. Demand for new products faded, and the wheels of industry slowed to a crawl.

In Greenspan's case, the motion he is seeking is that of dollars, since the economists of our time bizarrely measure growth in our economy in terms of spending, not in the number of jobs being created domestically. Greenspan's wheel was set in motion in the 1990s and early years of this new century, when the Fed made repeated cuts in interest rates. Lower rates, have worked like the accelerators on the economic ...


Read the entire article at: FinancialSense.com
http://www.financialsense.com/editorials/odonnell/2005/1011.html