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The Financials Pit Review

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For the week of August 11th, 2008

Tue, Aug 12 2008, 06:38 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

Last week was crazy! However I am not. I do not believe that this market is going to stay bullish. I have heard some optimists say the almost 7 year bear market in the greenback is finally over. I don’t believe that this market has found a way to deal with the same problems it faced when the market was down. As far as I know America did not get rid of unemployment issues, falling property values or still elevated fuel costs last week. Oil is selling off but it is still overpriced in my opinion. The market showed strength but it looks more like a sprint than a distance run. The U.S Labor Department reported worker productivity was up an annual rate of 2.2% in the second quarter, slightly under expectations. The U.S Census Bureau released positive news wholesale sales were up 2.8% in June while inventories were up 1.1%. This did mark the largest increase in sales in almost 5 years. The positive greenback was the story fueling the market last week but this environment can change very quickly. I just want to remind my readers the U.S. budget deficit, which totaled $163 billion for 2007, is forecast by the administration to widen to a record $482 billion for 2009. I do not feel we are out of the woods yet.

Currencies

I believe it would be appropriate to start this week’s currency commentary on the dollar. Even though the dollar reached its biggest gain vs. the Euro in over 7 years it does not mean that it has escaped the shadows of the nation’s slowing economy, widening budget and trade deficits with negative inflation-adjusted interest rates. The war between Russia and Georgia spreading to a second region coupling with a major sell off in crude undoubtedly helped drive the Euro down. I believe that the dollar rallied also because the other currencies are facing problems in their own countries. Their problems are now starting to take a toll on their home currencies. It almost seems like it’s a battle for the best of the worst. I am interested in seeing how this week plays out.

With our neighbor to the north, Statistics Canada reported that the unemployment rate improved from 6.2% to 6.1% in July, but with an unexpected loss of 55,200 jobs. Continued sell off in crude and gold and I would grab a parachute, eh?

Published on  Tue, Aug 12 2008, 06:49 GMT