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CNN Sunday Morning

Interview With Author Peter Navarro

Aired June 09, 2002 - 08:48   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: If you keep an eye on the markets, you saw the numbers take a bounce this week. For some time, it may be hard to understand what all those numbers mean. Well, our next guest says it's important to know because it does affect you, whether you invest or not.

Peter Navarro is author of the book, "If It's Raining in Brazil, Buy Starbucks." He's also been published in the Harvard Business Review, and he joins us from Anaheim, California. Good morning, Peter.

PETER NAVARRO, AUTHOR: Good morning, Kyra.

PHILLIPS: Good to see you again.

NAVARRO: Good to see you, and that was a great cartoon segment. You lifted my day.

PHILLIPS: Mike Luckovich is terrific. Got to love it, too, Rumsfeld asking him for a copy of his cartoon.

NAVARRO: Indeed. I want to ride on the tank.

PHILLIPS: Tell me about it. I'm still going to talk him into that. I bet you he'll get it, too.

You and I have been talking about this, this theory, well, I guess you could say, that you've been writing about -- well, we will get more into the specifics, but people who don't even care, don't even want to care, maybe because it's hard to understand. Why is it so important in your theory that everybody, no matter what, should follow the stock market?

NAVARRO: It's simple. The stock market is the perfect crystal ball to tell us about future economic conditions.

If you're a business executive, that helps you with the inventory and production decisions. If you're a worker, you might decide whether or not you want to go look for another job at this point or sit tight. If you're a homeowner, it's a question whether you want to refinance or whether you want to maybe go out and find a new home. So the market tells you what the economy is going to be doing, that's powerful moves, Kyra. PHILLIPS: Is there any way you can make it easy for us to understand? Someone -- OK, Peter, I get it, I've got to follow the market, but it seems so complicated to me. Is there a dummy's guide to follow the market?

NAVARRO: I think there is. Basically, at a first pass, what you want to look at is the broad market trend. In other words, whether the Nasdaq and the S&P 500 are going up or down.

Right now, we're in a down trend and what that is telling me, and should be telling everybody out there is that economic recovery we were hoping for is going to be weaker than expected and, in the worst case scenario, we might have a so-called double dip recession.

So watch the broad market trend. If you want to get a little deeper into it, then you begin looking at the sectors themselves, like autos and housing and semiconductors. These sectors basically provide you with a lot of information. Right now, autos, housing, semiconductors, retailing, these are the sectors that generally lead us out of recovery, but many of them are stalling right now.

Again, that's confirmation that we might be having a slower economic recovery or maybe the double-dip recession.

PHILLIPS: So let's say I was a top executive and I had never really followed the market. I've just been lucky with business. If I followed the market, how much better could my business be? If I didn't follow the market, what type of effects would I be seeing? I mean, could it affect my production?

NAVARRO: Well, as a business executive, if you don't follow the market, you wind up getting into several kinds of problems. One, for example, is you will build too much inventory in production because at the height of the boom, you just go crazy and you don't realize the recession is coming. But when we had the last recession, the stock market signaled it months and months beforehand.

The other kind of problem is you can get into is aggressive capital expansion program, and get caught when the economy goes down without enough revenues to cover that plan. On the other hand, right now, if you're in, say, one of the high-tech sectors, you can actually maybe pick up, acquire another company or rival or somebody in your supply chain at a very cheap price because stock prices are really low.

There are a lot of tactics and strategies involved if you follow the market. And that's what the piece in the "Harvard Business Review" is about.

PHILLIPS: That's right, follow the market cues, whether you like it or not, make yourself understand -- Peter Navarro, thank you so much. You can check Peter's book, "If It's Raining In Brazil, Buy Starbucks." I did read it, and you and I had a good discussion about that. I did learn about a lot -- Peter, thank you so much.

NAVARRO: You take care, Kyra. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com