If It's Raining in Brazil, Buy Starbucks (Peter Navarro) 0 comments

One of the main challenges that a stock market newbie faces is how to get acquainted with the general workings of the economy and its impact on the stock market. He is bombarded with endless streams of information every day: unemployment data, inflation risks, interest rates, budget deficits, trade deficits, commodity prices. How does that affect the stock market outlook?

Although I don't generally think market timing works, as I believe to a certain extent in the Efficient Market Hypothesis (prices already price in the future outlook), it is nevertheless important to understand qualitatively the relationships between the stock market cycle and the business cycle, and consequently how a fundamentals investor can shape his asset allocation in response to news and his overall reading of the future outlook of the market. This is where "Raining in Brazil" (shortform) comes in.

The author calls this "macrowave investing": understanding the links between major economic events and the movements in individual stocks, and explaining how these forces impact specific sectors of the stock market. There are three parts to the book. The first part introduces the general macroeconomic events that can affect the economy and a history plus description of tools and philosophies employed by governments to stabilise the economy. The second describes some investing principles that a "macrowave investor" (basically a sector investor) should follow, and lists many useful investing guidelines/advice. The last part elaborates more on the intracacies of key macroeconomic events, such as recession, inflation, budget and trade deficits, and even natural disasters.

The author's description of the various macroeconomic factors is quite good and concise, a good grounding for those with no previous economic education. The investing guidelines basically can be simplified down to four words:"buy with the trend". What I have found most interesting is one chapter in Part 3: Stocks to Pedal During The Business Cycle. This chapter illustrates the general business cycle, how the stock market cycle ties in with it, and what stocks to buy during each stage of the cycle. It has given me insight into sector allocation, and I have observed how well this description has panned out over the last two years as the economy recovered then stabilised. Technology stocks spearheaded the initial price surge as the economy recovered, as consumer demand rebounded. This was followed by capital goods (eg. machinery) because there was heavy investment in them to increase production to cope with consumer demand. This inevitably led to strong demand for basic materials like oil and metals, and then rising margins in these industries due to tight supply. The entire process is described in the book.

Again, this book is available in libraries so users can just check up its availability on the NLB Catalogue.