The Financials Pit Review: By PitGuru Kalvin O’Brian
U.S. Economy The government takeover of Fannie and Freddie has now become a reality. This is clearly the largest step the US government has taken to thwart the largest surge in mortgage defaults in almost 30 years and the more than $500 billion of losses and write downs it has created. It was clear six months ago that the government was more than willing to step in after the Federal Reserve provided $29 billion of financing to prevent Bear Stearns’ collapse. Under this latest plan, the treasury receives $1 billion of senior preferred stock, with warrants representing ownership stakes of 79.9% of Fannie and Freddie. They will also receive annual interest of 10% on the initial investments. I would look for this market to be favorable towards the move but this doesn’t fix the problem it just transfers it. Some partially good news for the auto industry, the annual selling rate for autos in the US increased to 13.7 million in August up from a 16 year low. However, this acceleration was partially attributed to the heavy discounts and incentives dealerships have been offering. So we have the now routine mix of good news, bad outlook that we have been seeing these several months past. Look for the initial high to come smacking down to earth towards the end of the week.
Currencies The euro has continued its slide against the dollar for seven of the past eight weeks. The growth outlook has changed since the central bank held the main refinancing rate at a seven year high of 4.25. The euro has fallen more than 10% from the all time high set on July 15th. I expect the decline in the euro to continue as the situation overseas continues to feel the impact of the credit and housing issues that plagued the US. The yen has been just the opposite, gaining against the dollar for a third week. It also climbed to a one-year high versus the euro as the U.S. lost jobs for an eighth month and investors sold higher-yielding assets funded in Japan. Statistics Canada said that the unemployment rate remained at 6.1% in August with a gain of 15,200 jobs, more than expected. So far in 2008, the economy has added 87,000 jobs. The September Canadian dollar finished up a little higher on Friday and will be steady to higher through the week.
*Chart Courtesy of Gecko Software’s Track n’ Trade Pro
The Energies Pit Review: By PitGuru Joe Marshall
The trend for October crude oil is down with the most recent action looking weak. This move started with last Monday’s failed breakout above 118 and has sort of found a tight trading range between 105 and 109. This sideways action is just building for another sell off. All eyes have been on the weather and hurricane Gustov did not turn out to be what they thought it was going to be. A test of 100 dollars seems likely and there should be a good battle to hold. Rallies capped by 112.75 should turn back down. With the recent strength in the dollar, you can't expect crude to perform. Keep an eye on the dollar for a turn around.
The trend for October Nat gas is down with the most recent action looking neutral. Despite this market fighting to hold the seven dollar area, get ready to revisit it. It’s hard to say what numbers this sell off projects to, but seven dollars won't be the bottom. Again, weather started the latest drop early last week, but this market was looking for any excuse to take out the support at eight dollars. Look for another day or two of sideways to higher trade, and then you should get a sharp move down. Right now you are looking at rallies capped by 749 to turn back down; in the bigger picture 799 is the number.
The trend for October heating oil is lower. At some point soon this market will turn around and head higher, but that time is not now. Rallies just can't get the traction and that won't change this week.
