The Financials Pit Review: By PitGuru Kalvin O’Brian

The markets were strong last week; the Dow and the S&P were both up over 6%.  However, this is the first full trading week of the New Year and we are starting off down early.  Bonds have become an interesting story.  Owning 30 year bonds for less than 3% interest does not seem to be very appealing for investors.  Bonds dropped from a high of 141’24 on Wednesday to a low of 134’05 today.  I believe this could continue.  President-elect Barack Obama will be sworn in shortly and he is ready to start on his own economic stimulus package.  Barack’s package will include hundreds of billions of dollars worth of tax breaks for individuals and businesses.  Obama is asking that tax cuts comprise about 40% of the stimulus package.  If accurate, the estimated $775 billion would set aside more than $300 billion for the cuts.  Hopefully this one is more effective than his predecessor.  It appears the first half of 2009 will bring slumping corporate earnings.  This will be attributed to falling consumer demand, the Fed cutting interest rates to as low as zero percent, lowering cash flows after banks tighten to cope with the billions of dollars in real estate losses.  The expectation is poor to start off the New Year; however, Barack’s stimulus plan could have a different outcome than the Bush administration’s.  Only time will tell.  Until then, the first quarter will follow the path of least resistance: down.

Currencies

The dollar has climbed to the highest level in almost three weeks against the European currency.  The gains against the euro and yen were fueled recently in part to the speculation President-elect Barack Obama’s stimulus package will help revive the U.S. economy and recover from the recession.  The dollar should continue to strengthen in the short term.

Across the pond, housing issues are still at the forefront.  The average price of a house in the U.K. was down 16.2% in 2008; this marks the largest annual drop since records began in 1983.  The December manufacturing index in the U.K. indicated an improvement from 34.5 to 34.9; it was not enough, however, as this marks the eight consecutive month of contraction.

*Chart Courtesy of Gecko Software’s Track n’ Trade Pro

The Softs Pit Review: By PitGuru Jamie Fink

The holiday trading period has passed, and with the New Year traders are likely to approach the markets with gusto. Renewed interest in crude oil with the unrest in the Middle East will likely buoy other commodities. Cocoa fell sharply during holiday trading with thin markets leading to increased volatility.