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CNN Saturday Morning News
Interview With Peter Navarro
Aired January 05, 2002 - 08:44 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: The economy is in a recession. It's the start of a new year, a good time to take another look at your portfolio, reevaluate your finances.
And joining us to talk about the economic outlook for 2002, as well as some hot stocks, is Peter Navarro. He's an associate professor of economics and author of this book, "If It's Raining in Brazil, Buy Starbucks." Peter, welcome.
PETER NAVARRO, ECONOMIST AND AUTHOR: Good to be here, Kyra.
PHILLIPS: Well, it's nice to have you here. And we have to talk about that title. And when I first saw the title, it grabbed my attention. Starbucks, I think that's -- you knew that was going to grab peoples' attention. As I was reading the book, I was understanding what you meant by that, and that is how news events really influence the movement of the market.
Let's talk a little bit about that, using that as an example.
NAVARRO: Sure, let's explain that. Brazil's the largest coffee producer in the world. If rain comes to break a drought in Brazil, those coffee beans are cheaper. So that when Starbucks sells us those $3 lattes, make a few pennies more. Their profits go up. And of course, stock prices go up on profits.
I could've called it more grimly, if there's a war in Afghanistan, buy defense stocks. If there's anthrax in Capitol, buy SureBeam Technologies. There's been a tremendous amount of stocks moving up and down on news lately. And that's what the book's all about.
PHILLIPS: OK, of course being in the media, I'm very excited that you're writing about this, because it is very important. Well, let's talk about this macro wave investor that you talk about throughout the book. Explain this logic?
NAVARRO: Well, here's the problem. Most -- the biggest mistake that individual investors make is they go out and find great companies. You can buy the best company in the world, but if it's in the wrong sector when the market's heading down, you'll lose all your money. And that's what people did back beginning in March of 2000.
The whole decline of the Nasdaq and the Dow basically were driven by macroeconomic events, interest rates basically going up. We had election uncertainties. We had an oil price shock, all these macroeconomic events right now. The peso crisis in Argentina. Yen falling in Japan. These things which you report every day, actually filtered down and affect each and every one of us in the stock market, in the homes we buy, in the interest rates we pay.
And what I try to do is cultivate a mindset, an attitude, to read the news, watch the news, and then take the next step and show how it affects stocks.
PHILLIPS: Interesting you just mentioned Argentina. That's been a big news item lately, too, talking about the turmoil in the government.
NAVARRO: Sure.
PHILLIPS: Something to watch there.
NAVARRO: Well, you know, the last stock market scare we had back in '97, '98 was triggered by a currency crisis in Thailand. I mean, that's the kind of thing where you can set these chains in motion and it goes right to the stock market.
PHILLIPS: All right, let's get into these principles.
NAVARRO: Sure.
PHILLIPS: I marked them in the book. I want to talk about the macrowave investor. You have these eight principles to follow. I picked two of them out here that I found interesting. Well, this one of course we all want to hear. "Speculate, but never gamble."
NAVARRO: See, a lot of people think that the stock market's a casino. And the difference between speculation and gambling is an important one. Gambling's like going to Vegas, playing the slots or playing roulette. You can win and you can have a great time winning, but over time, you will always lose. Why? Because the house has the odds against you.
Speculation is like poker. It's playing the game of poker when you can -- you only play the big hands. When you don't have a good hand, you fold, leave the ante on the table. That's speculation. The odds are in your favor.
So if you're going to be an investor, what you really want to do is watch the broad market trend. You don't want to buying stocks in a bear market. You want to watch the sector trend. You don't want to be getting into stocks when a sector's going down, even if the market's going up. And you want to buy the best companies in the world when all of those conditions are met.
PHILLIPS: It all sounds so easy. Number eight, I like this. You say, "Don't play checkers in a chess world." Explain to me what you mean by that?
NAVARRO: Well, people, they read or see the news and immediately, they go out and buy something based on the news. By that time, it's too late. Wall Street's already reacting. One example I give in the book, which I think is an interesting one, is when United tried to buy U.S. Air, everybody went out and immediately tried to buy U.S. Air stock, but it gapped way up and they wound up getting in at a high price and the thing went down.
The chess move was looking around and saying, "Well, Delta and American, we're going to have to counter that strategically by buying some airline of their own." And so you'd see, well Northwest Airlines was a target. And sure enough, a couple of days later, went up by 15 percent. So that's a chess move. And that's what I try to get people to do in the stock market. So much of their gut is wrong. It's perverse. Human nature always gets it wrong in the stock market until you cultivate this macrowave perspective.
PHILLIPS: All right, something else that grabbed within the book, and that right now everybody's talking about this, protecting their capital.
NAVARRO: Sure.
PHILLIPS: Huge. And you have a number of rules in here. Two of the rules that caught my attention, because one of them even goes against what my accountant had told me. "Number four, never, ever let a big winner become a loser."
NAVARRO: Well, how many people watching right now rode the tech boom up and then rode it back down without getting out?"
PHILLIPS: Because they let it stay there, right?
NAVARRO: I mean, there's a great example. Last week, the University of California, my place of employment, sued Enron for losing $145 million. And all I'm thinking to myself is how did these portfolio managers ride a stock from $90 down to 90 cents? So you got to know when to get in, but you also got to know when to get out.
PHILLIPS: Yes, don't get greedy. Number five: "never average down a loser."
NAVARRO: This is an interesting thought. You buy a stock at $50. You love it at $50, right. It goes down to $40, instead of going up. And you think, "Well, I'll buy some more at $40, so then I only have to get back to $45 to get out." I mean, what's the logic there? It's like I made a wrong decision, let's thrown some money down the same old rat hole. Everybody does it. Everybody shouldn't do it.
PHILLIPS: Great interview. Peter Navarro, this is such a great book.
NAVARRO: It was fun.
PHILLIPS: I've got to tell you, yes, there's a lot of financial books out there. This one really grabbed my attention. "If It's Raining in Brazil, Buy Starbucks." Thank you so much. NAVARRO: Nice to be with you.
PHILLIPS: It was a pleasure.
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