Calling a Stock Market Top

By: Peter_Navarro

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 latestbump 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.

Memo to Congress: Don’t give the captain of the Titanic another term.

Navarro on TheStreet.com
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Peter Navarro is the author of the best-selling The Coming China Wars, the path-breaking The Well-Timed Strategy, and the investment classic If It's Raining In Brazil, Buy Starbucks. Peter’s latest book is Always a Winner: Managing for Competitive Advantage in an Up and Down Economy.
Peter is a regular CNBC contributor and has been featured on 60 Minutes.  His internationally recognized expertise lies in his "big picture" application of a highly sophisticated but easily accessible macroeconomic analysis of the business cycle and stock market cycle for corporate executives and investors. He is a Professor at the Merage School of Business, University of California-Irvine and received his Ph.D. in economics from Harvard University.
Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at www.PeterNavarro.com.

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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