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The Financials Pit Review

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For the week of October 27th, 2008

Tue, Oct 28 2008, 06:38 GMT
by Kalvin O’Brian

Pit Guru

U.S. Economy

This week is all about the Federal Reserve and the election. Throw everything else out and just focus on the core element of what is going on in the stock market. It is fund selling versus buyers of unknown origin. The bottom in this market has essentially been tested three times now and there is little argument in my mind as to what will force substantially lower prices. One could argue the election results going Obama’s way would be bearish for the market, but I counter that logic with the idea that an Obama win is already priced in and that there is a “sell the rumor, buy the fact” effect about to happen here. Moreover, there is about an ugly of an employment situation out there as one could expect given the current financial climate – one could suggest that it can always get worse and that I would not disagree with. However, when it comes to bear market bottoms two things have repeated throughout history: one, the bottom always happens ahead of the fundamental change; and two, it happens quick and most people miss the move. The volume pendulum will swing to the bull side and upside volatility will be tremendous.

Currencies

Expect the strong stock market rally to pressure bond prices and the U.S. dollar. The Canadian dollar, Aussie dollar and Japanese yen are most susceptible to market reversals. The concern over European economics may delay that price reversal in some European currencies. When the Fed moves this week the rest of the world will follow suit. Look for a global 50 basis point cut and the dollar to fold after the announcement.

Published on  Tue, Oct 28 2008, 06:39 GMT