Peter Navarro - If Its Raining in Brazil, Buy Starbucks

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To the wonderful women in my life,
Evelyn and Leslie. And to that mischievous
little prince named Alex.

Money supply, government deficits, trade deficits, inflation figures, the financial markets, and government policy. I look at all those things for the U.S. and key foreign countries as well. It is one big, three-dimensional puzzle. However, if you had a three-dimensional puzzle, you could eventually put it together. But this puzzle is not one in which you can spread out the pieces on a great big table and put them all together. The picture is always changing. Every day some pieces get taken away and others get thrown in.

Jim Rogers

The manuscript greatly benefited from the comments of Rafat Abbasi, Nick Bok, Art Jeppe, Merlin Rothfeld, Pedro Sottile, John Stocco, and Ed Urbano.

Keith Loh did a superb job assisting with the analytical framework and research assistance. Gregor Jovanovich went the absolute extra mile in reviewing the manuscript. eGooses Pej Hamidi provided many brilliant, wonderful, and valuable insights.

Finally, many thanks to McGraw-Hills Gary Burke and the dynamic editing duo of Stephen Isaacs and Jeffrey KramesJeff and Gary for making it possible and Stephen for his wonderful stewardship.

Any errors and omissions remain, of course, my own.

On March 10, in the year 2000, the Nasdaq stock market index burst exuberantly through the 5000 barrier and reached an all-time high of 5132. But even as the Nasdaq was reaching this historic peak, powerful macroeconomic forces were gathering to bring this raging bull to its knees.

The first macrowave blow struck was a regulatory one. It came during the weekend of April 2 when lawyers from Microsoft and the U.S. Department of Justice tried to hammer out an eleventh-hour compromise in the governments antitrust suit against the software giant. The talks collapsed amid arrogance and acrimony, and when the Nasdaq market reopened on Monday, it wasnt just the stock of Microsoft that went into the tank. The Nasdaq index plummeted a record 349 points.

The second macrowave blow came quickly on the heels of this Bill Gates debacle, and it was an inflationary one. On April 14, the Bureau of Labor Statistics released data indicating that the Consumer Price Index had taken an unexpected, sharp upward jump. This bleak macroeconomic news sparked a widespread market panic and caused the Nasdaq to plunge 355 points.

With the Nasdaq reeling, Federal Reserve Chairman Alan Greenspan came in with what, in hindsight, would be the knockout macrowave punch. On May 16, Greenspans Fed raised the discount rate by 50 basis points. This was not only the sixth Fed interest rate hike in 11 months, it was also the largest. For those traders and investors who had already suffered large paper losses but who still hoped against hope that the Nasdaq would shrug off its fears and quickly regain its lofty heights, this was a stake through the heart.

Indeed, the Nasdaq index would wind up falling over 2000 points in less than three short months. This massive, 40-percent decline not only erased billions of dollars in paper profits for millions of investors, it also completely wiped out thousands of investors who had ridden the Nasdaq wave up on a sea of margin buying and who had been caught without enough cash to cover their margin calls. In the process of this Nasdaq wipe-out, hearts were broken, homes were lost, dreams were shattered, and the biggest of chills descended over an entire generation of investors weaned on upward momentum and extravagant dot-com wealth.

Sad to say, the macrowave worst was still not over. Not by a long shot. For six months more, the market tried desperately to rallyeven as thousands of equally desperate traders and investors hung on for dear life. But every time the Nasdaq tried to pull its bloodied and beaten index off the canvas, another roundhouse macrowave punch would come along to slam it back down.