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The Financials Pit Review

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For the week of August 25th, 2008

Tue, Aug 26 2008, 06:16 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

The S&P is going to have trouble breaking the 1300 mark. Bernanke spoke last week and the main message was the “FOMC is committed to achieving medium-term price stability and will act as necessary to attain that objective." Time will tell if this anti inflation rhetoric will have any substance. I found his comments un-electrifying at best. Typically, going into a holiday weekend, the markets are benign. However, I would not expect that to be the case this week. Crude oil is more active than the weather in Florida. The automobile situation in the U.S. is horrible and the big 3’s stock prices reflect it. However a small rally could ensue if the market believes Congress will support funding up to $50 billion in low-interest loans over three years to help them modernize their assembly plants and develop next-generation fuel-efficient vehicles. I will change my opinion of this market and go long if it breaks 1300. Until then I will be short during an unusually active week heading into the holiday.

Currencies

The dollar has continued to show strength vs. the euro based on beliefs that a drop in crude prices will support growth in the world's largest consumer of the fuel. Crude extended its biggest percentage decline in over three years. The greenback looks like it might have continued strength with lower crude showing it the way. The euro dropped against the yen before data expected to show business confidence in Germany, Europe's largest economy, fell to the lowest in almost three years. This could discourage the European Central Bank from raising interest rates. The U.K.'s Office for National Statistics revised its estimate lower to show zero growth of real GDP in the second quarter. From a year ago, GDP was up 1.4%. The September British pound continued its downturn. The Canadian dollar, which relies on commodities for about half its export revenue, appreciated 1.2 percent since Aug. 15 against its U.S. counterpart. A continued major sell off in crude could change that story so I continue to look for opportunities to be short the Canadian.

Published on  Tue, Aug 26 2008, 06:24 GMT