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The Financials Pit Review

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For the week of October 20th, 2008

Tue, Oct 21 2008, 05:51 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

It is starting to feel like we are repeating the same week over and over and it is hard to call a bottom in the markets. However, according to a quote in the New York Times, Warren Buffet is announcing that now is the time to buy US stocks. I do believe that there are some value plays available at this time but I do not believe that everyone is comfortable enough to jump right in. There are still some concerns about the bailout; it is apparent early-on that no one really understands how the bailout will exactly work. Time will tell how things end up, but it appears that there is a trickle-down effect that may hurt smaller banks. Community banks that Federal Reserve Chairman Ben Bernanke calls a key link between financial markets and the U.S. economy face a longer wait for government aid than their bigger competitors. No new news in housing; starts were down 6.3% from August pace marking the slowest month in over 15 years. Housing starts overall are down 31% from a year ago. Consumer sentiment is also unsurprisingly lower. The University of Michigan’s index fell from 70.3 to 57.5 in October, the biggest monthly drop since the survey began. There appears to be another big week ahead for day traders; I would not be surprised to see 50 to 100 point days in the S&P this week.

Currencies

The other day Canada changed the accounting rules for banks in an effort to provide them more time to offset troubled assets before having to post them as losses. This was done to help stop a mass liquidation in the short term. This may cause some long term problems though, if it allows for the banks to ignore the losses. I do not see any reason to be bullish the Canadian, especially as the Bank of Canada may be poised to lower interest rates another half a point in an attempt to jump start the economy. The manufacturing sector has been faring poorly as the global slowdown continues and this will put pressure on the exporting nation and cause another round of selling in their currency.

The euro zone is also facing a struggle as the economic conditions for the European Union face the same hurdles as Canada does. A slip in manufacturing and consumer confidence will bring more pressure to the central bank to cut rates, especially as fuel costs fall and the possible easing of inflation turns the focus back to economic stimulation. The euro will continue to trade lower.

Published on  Tue, Oct 21 2008, 05:54 GMT