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The Financials Pit Review

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For the week of July 21st, 2008

Tue, Jul 22 2008, 06:08 GMT
by Joe Marshall

Pit Guru

U.S. Economy

Starting another trading week, I believe that one thing is becoming amazingly clear, things are worse than expected. I still have a hard time understanding things like how Citigroup losing $2.5 billion in the second quarter and investors were relieved because it was not as bad as estimated. I also read horrible things like how US business just saw its steepest quarterly rise in corporate bankruptcies in 2 years spiking to 17% in the second quarter this year and still last week the S&P 500 Banks Index surged 16% the biggest increase since March 2000? Now let’s add to that Freddie Mac, the second-largest U.S. mortgage-finance company, might halt purchases of home loans from banks and bonds backed by housing debt to shore up its capital amid record delinquencies. I have to honestly say that there is really no reason that this market should test the 1300 mark. The bottom line is as long as analysts continue to lower the bar the numbers will never appear to be as bad as expected. This does not mean that things are getting better. I am looking at these false rallies to go short.

Currencies

The ECB President announced he does not expect strong growth in the second and third quarters of 2008. The expectation for 2009 however is moderate growth. With the problems facing the US and the dollar I would look for the Euro to continue to climb and test 160 again.

Statistics Canada announced wholesale sales were not only up 1.6% from the previous month and up 2.9% from a year ago but were also stronger than expected. It still looks like there will have to be some serious help in the form of a crude and gold rally to get this currency above the 1.00 mark. Concerns over the largest export market – the US – slowing down and dragging Canada’s economic growth down too will keep some heavy pressure on the dollar.

Across the pond, the U.K's Office for National Statistics announced a budged deficit of 24.4 billion pounds in the April to June quarter. This was somewhat historic given that it was not only more than expected but it was the largest quarterly deficit since records began in 1946. The housing problems remain a key factor and concern in the United Kingdom and will keep the British Pound from rebounding quickly.

Published on  Tue, Jul 22 2008, 06:12 GMT