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The Financials Pit Review

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For the week of September 29th, 2008

Tue, Sep 30 2008, 06:08 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

It appears that today will be decision day on the $700 billion bailout package and it will be interesting to see how long the House takes to vote. Bush’s speech the other day indicated that the agreement would give Treasury Secretary Paulson an immediate $250 billion to buy bad loans from financial companies, with the rest to be divvied out in stages. This new agreement also changes the Bush administrations original request for unrestricted authority to purchase troubled debt securities from financial companies hurting from the exorbitant amount of home foreclosures. While that issue continues to play out, Citibank scooped up Wachovia in the latest bank upset story to hit the airwaves. Federal regulators took control of Washington Mutual, the largest U.S. savings and loan, and sold most of it to J.P. Morgan Chase for $1.9 billion. The word to depositors was not to worry they were protected while news stories called it the largest bank failure in our history. I believe still that the markets are waiting for an agreement to rally. Short term I will be on board after the agreement is passed. However, it will be a quick rally. The long term effects to the consumer and their interests will be felt long after and there is still more potential to the downside.

Currencies

The Statistics Bureau in Japan announced that consumer prices increased. They were up 2.1% in August from a year ago, down from a 2.3% gain in July. In Tokyo, prices were up 1.4% in September from a year ago. The Yen was up slightly on the news but everything will continue to hinge on the news coming out of the US. Across the pond it appears to be more of the same. The housing and credit crisis is just as severe and the pound is down because of it. Bradford & Bingley is Britain's biggest lender to landlords. They should be taken over by another bank or nationalized soon under a U.K. government-backed plan to protect 21 billion pounds ($39 billion) of customer deposits. Ultimately, foreign currencies will take their cue from the strength in the US dollar as it continues its recent gains.

Published on  Tue, Sep 30 2008, 06:12 GMT