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The Financials Pit Review

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For the week of August 18th, 2008

Tue, Aug 19 2008, 06:35 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

It is pretty clear to see why the markets have not tested 1250 lately. The greenback has been on the rise and crude oil is falling back to earth at a solid pace. Along with the obvious, there has also been additional bullish news. According to Federal Reserve industrial production was up .2% in July. This was better than expected compared to a .4% gain in June. The New York Federal Reserve's regional index of manufacturing was also better than expected, increasing 2.77 to 4.92 in August. What does this mean? Well, this could be an amazingly bullish turn for the markets. However, there are still issues this market has to deal with. For example, in July US builders will begin working on the fewest houses in 17 years. Housing starts plunged 9.9 % to an annual rate of 960,000 according to a survey ahead of the Commerce Department report in August. Rising borrowing costs, record foreclosures, stricter lending rules and falling property values should further depress home sales throughout the rest of the year and into 2009. If that is the case, this market will have a two steps forward, one step back kind of action to look forward to.

Currencies

The strength in the dollar has taken it to an almost 6 month high against the Euro. Crude oil has taken its toll on the European and Japanese economies. The greenback has gained now for a fifth week against the Euro. As other countries continue to realize the effects they face from weaker economies, I would expect the dollar to continue to rally. There will be pullbacks along the way but I don’t think it’s a stretch for the US dollar to break 80.00 by December.

Our neighbor to the north has felt the effects of the lowering prices in crude oil and the meltdown in gold. Statistics Canada announced that manufacturing sales were up 2.1% in June, marking the fifth increase in the last six months. Looking ahead, this country will be hard pressed to even maintain its current position vs. the US dollar. I will take short positions in the Canadian.

Published on  Tue, Aug 19 2008, 06:38 GMT