Wall Street Sector Selector North: S@P 500 South

Hi, Friends.

I was in London this week where I again experienced firsthand the record breaking weakness of the U.S. dollar. It’s now $2.08 for one British Pound which makes for $5.00 lattes and draft beers. A dinner practically requires a second mortgage on your house and a decent theatre ticket is north of $300.

I wistfully remember the time when you could get 2 British Pounds for $1.00! But such is the outcome of 26 year lows against the Pound and all time record lows against the Eurodollar.

The View from 35,000 Feet

It was a gloomy week in the markets as all major indexes were down with the S@P shedding 1.5% for the week. The weak dollar and the emerging sub prime woes were the catalysts along with mediocre earnings reports from Google and Caterpillar.

Sub Prime Morass Deepens

As we’ve been reporting for weeks, the sub prime lending morass deepens daily and this week “Gentle Ben” Bernanke, the U.S. Federal Reserve Chief finally stepped up to the problem in his testimony to Congress when he said there were going to “significant losses” in the sub prime sector and he quantified that statement with estimates of $50 to $100 Billion.

No kidding, Ben. This isn’t a surprise and finally the Feds are going to examine these volatile lending practices. Of course, this is after the two Bear Sterns hedge funds have gone belly up, and investors in one, the High Grade Structured Credit Strategies Enhanced Leverage Fund, received a troubling letter that said their fund had “vvery little value.” Don’t you just hate getting letters like that?”

And Barclays, the giant European bank is considering sing Bear Sterns for $400 Million for losses incurred in those funds while S@P downgraded some European collateralized mortgage obligations in Europe as the sub prime cancer spreads.

Again, and this is key, if the only people getting hurt by these loans were poor people living in poor neighborhoods, Wall Street and world stock markets wouldn’t care. But the “smart money” is up to their ears in these “securities,” and the evil winds of over-leverage and foreclosure are just beginning to blow.

Sector Spotlight

The Financials took a bath this week; the Russell and S@P swooned, real estate and home builders continued their long fall, and it was a good week for oil and precious metals.

We continue doing well with our Ipositions as earnings season continues this week and analysts predict a less than rosy set of reports.

I’m home for just a couple of days and planning to bike the river trail in Bend with my young son before heading to Nagoya next week. Enjoy some time with your family as summer is slipping by all too quickly.

Your partner in prosperity,
John Nyaradi
http://www.wall-street-sector-selector.com