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The Financials Pit Review

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For the week of March 17th, 2008

Tue, Mar 18 2008, 14:10 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

The stock market was struck by the news out of Bear Stearns; Wall Street’s biggest buyer of mortgage securities needs emergency funding to keep from going under.  Now it’s sold for $2 a share.  The Fed will provide up to $30 billion to JP Morgan & Chase Company to help finance the purchase of Bear Stearns.  This will also help the company from going bankrupt while they shop it around. 

The Federal Reserve, in its first weekend emergency action in almost 30 years, is in a struggle to prevent a meltdown in financial markets and decided to lower the central bank discount rate by a quarter point to 3.25 percent.  The Fed will also lend to about 20 firms that buy Treasury securities directly. I would look for the markets to change by week’s end but the long trades will show after the meeting.  Before the meeting I am short.

Currencies

Mr. Bernanke’s cuts have not been helping the dollar to say the least.  Today provides more intervention; the Fed reduced the rate on direct loans to commercial banks by a quarter point to 3.25 percent.  It will likely lower the target rate for overnight loans tomorrow to 2.25 percent.  Lower borrowing costs work against the dollar by making government issued fixed income securities less appealing to global investors. The rest is pretty much common sense on a day like today, but I would look for there to be currency intervention coming soon.  The dollar has to come back. The dollar fell below 96 yen for the first time in 12 years.  The dollar fell to as low as 95.76 yen, the weakest since Aug. 15, 1995, before trading at 96.71 yen at 8:38 a.m. in New York. 

Consumer prices in the Euro area 15 were up 3.3% in February from a year ago, up from a 3.2% gain in January and slightly more than expected.  The Euro naturally is up today but there is heavy speculation that the central banks may try to intervene soon to support the U.S. Dollar.

With crude down about $4.00 the Canadian is trading lower today.  Couple that with Friday’s news from Statistics Canada which reported that productivity was down .8% in the fourth quarter, the biggest decline in twelve years, blamed on the loss of manufacturing jobs.

This week it would be wise as they say to go with the flow.  STAY TIGHT WITH STOPS!  I would not be surprised by some intervening.

Published on  Tue, Mar 18 2008, 14:10 GMT