Hedging Your Bets With Matt Davio: Fade the Motormouth
I don't know if the market is going to go up or down tomorrow.  I just let the market show me what it wants to do. That's why I would never give forecasts on prices of stocks like the Motormouth on CNBC's mad money show did last week with his price of $350 on Google.

Sure, Google could hit that price -- or it couldn't.  But Motormouth also has no idea, and for a guy who claims to be working for the little guy, to stand on national TV and pump the heck out of an individual stock, well, that borders on the illicit in my book.  In this regard, do you think the little guy who bought Google at the open @ 224 on Friday is enjoying the 10 pt loss he has sustained?  Anyway, down off my 2-inch soapbox.

Now let's get to the heavy lifting with this question: Has the U.S. economy's rebound since 2001 been aborted, or is it only delayed? Our rigorous disagreement with the global optimistic consensus begins with four crucial observations:

1. In the past four years, the U.S. economy has received the most prodigious monetary and fiscal stimulus in history. Yet by any measure, its rebound from the 2001 recession is by far the weakest on record in the post-World War II period.

2. Record-low interest rates boosted asset prices and, in their wake, resulted in an unprecedented debt-and spending binge on the part of the consumer.

3. What resulted was a badly structured economic recovery, which - due to grossly lacking growth in capital investment, employment and wage and salary income - never gained the necessary traction to become self-sustainable.

4. Sustained and sufficiently strong economic growth implicitly requires a return to strong business fixed capital spending. We see no chance of this happening. Above all, the outlook for business profits is dismal from the macro perspective.

Housing Bubble Ruminations: Measured by their net worth (market value of household assets minus debts), American households have amassed unprecedented riches in the past few years, despite spending in excess of their current income as never before.  The first question springing to mind in the face of this "wealth miracle" is its cause or causes.  This leads immediately to the next question: whether or not this drastic increase in home prices relative to the consumer price index has to be seen as a "bubble," which sooner or later has to burst?

In old textbooks, you would read that higher saving increases capital value. But in the U.S. case, capital values have soared while personal and national saving has collapsed. What else, then, has the power to lift asset prices? 
Everybody knows the answer, but few want to admit it: Lured  by artificially low interest rates and easily available credit, private households have stampeded as never before into the purchase of homes, boosting their prices. Artificially low interest rates and easily available credit
are, actually, the key features that specifically define this asset bubble.

The Market Wrap: The US indices bounced around wildly this week -- first down, then a big up, then down again all for a slight up at the end of Friday's mess.  As a trader, the rise in volatility is welcomed. 

On a housecleaning note, we sold our shares of ALGN -- a trade we had discussed a few weeks back as earnings came out positive and the stock gave us the 20-30% gain we were looking for.  That was our goal and it came off a positive news report and in our belief it is always wise to sell news whether good or bad.

Navarro's Broad Market Outlook: Blame Korea for the Bear!
The worst part of last week was not the up, down, and up of it all.  It was all the bogus explanations for Friday's decline - with North Korean nukes taking the bulk of the blame.   For a foreseeable future of rising short term interest rate and inflationary pressures, a renewed upward thrust of oil prices, a budding trade war with China, and no sign that corporations are going to invest their earnings anytime soon, I've gone over to the dark side.  Me and Darth Vader gonna keep at least some shorts in the portfolio - with Lennar and Quiksilver my stocks of choice now.  Otherwise, I continue to pare my holdings down.  At these times, I increase my stock research to be ready for any new rally - however short-lived it may be.

David Aloyan is off this weekend!

Peter Navarro is a business professor at the University of California-Irvine (www.peternavarro.com).  David W. Aloyan is a managing member of Platinum Capital Management, and can be contacted for investment services at platinum@peternavarro.com.   Matt Davio is a managing partner at the hedge fund, Infinium Partners, and be contacted for hedge fund services at infinium@peternavarro.com.

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.