Peter Navarro's Thoughts

Market Pulse: Mixed Signals


There is no ambiguity left about the direction of this market - the trend is decisively down. This trend is consistent with all of the leading indicators featured in my Always a Winner forecasting model: Consumer confidence and housing sales are down. The long end of the yield curve is at historic lows. The one bright spot - the ISM Manufacturing Index - has now started to turn down.

On the net export component of the GDP equation, the stronger dollar will catch up to us soon in the form of slower growth. As for government spending, Congress is finally beginning to turn the spigot off - so that is contractionary as well.

On the broader macro front, the Chinese real estate bubble appears to be on the verge of collapse while the Chinese economy is faltering. Europe will be buying less of U.S. and Chinese exports so that will contribute to the global slowdown. Here in the U.S., voter concerns over the BP "sick to my stomach" spill, the debacle in Afghanistan, the specter of muni bond failures in key states, continued high unemployment, job and pension uncertainty, and a congress still intent on passing bad laws and higher taxes all add up to difficulties ahead.

The danger is not a double dip recession necessarily. All we need have for a vicious bear market is 1% to 2% GDP growth in the rest of 2010 and all of 2011.That is increasingly likely. What's a trader to do? In what may be a kamikaze move, I am slowly building a position in TBT to short the long bond in the belief that absent a Great Depression, TBT can't go much lower - and at some point because of sovereign debt issues, TBT must go higher.

I have also begun to nibble at the short side for gold. While it has been booming because gold has begun to replace the dollar as the de facto world reserve currency, gold can't keep rising when all the other metals and commodities are falling with a softening economy.

I continue to dabble in several small cap biotechs, including SNT, CYPB, and NRGX - but beware, NRGX is VERY thinly traded.

On a daily basis, I've also been posting some short term swing trades in videos prepared for TheStreet.com. These trades are strictly for pros, however, as they require sophisticated money management techniques and move quickly. (Please visit this link on a daily basis to follow these trades.)

I wish I had better news. Many of my readers are stuck in U.S.-centric long portfolios that are likely to bleed more over the next 3 to 12 months. That's why I always say cash is king when the trend is down - if you are not experienced enough to short (which is far more risky because markets move down a lot faster than they move up).
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