Oil, Inflation and Financials, Oh My!

by Larry Levin

General inflation concerns, financials on the ropes again, declining Manhattan real estate values, and another spike in crude oil slammed the markets again today.

A story in the Wall Street Journal surely surprised everyone this morning. It said that Deutsche Bank is making deals to unload three of the seven skyscrapers it took back from New York developer Harry Macklowe in transactions that reflect a 20% to 30% decline from when they were purchased last year. Is Manhattan real estate actually falling? Keep an eye on that story to see if it actually develops into other real estate projects/areas.

The financials were very weak again today. According to the Financial Times, three major banks with the heaviest exposure to bond insurers, Citigroup, Merrill Lynch, and UBS could report further write-downs of $10 billion now that Ambac Inc. and MBIA Inc. recently lost their AAA credit ratings.

But this is after a downgrade of just one level. With the monolines losing their AAA ratings, they could be headed for a death spiral. As MBIA and Ambac continue to register losses while not doing new business, their ratings will continue to deteriorate until, ultimately, they reach junk status.

With each new downgrade, the banks will have to write down more and more of their assets. This is not a pretty picture and it's just the beginning. Many more write offs to come in the 3rd quarter as these insurance companies progress on the road to bankruptcy.

And just when you thought it was safe to enter the water, the oil shark comes back. Oil spiked again today (+$5.07) as the US dollar was crushed.

Tomorrow is rollover day. Please remember to trade the next month's contract, which will be September.

Real Time Trading Signals*for

Trade Date: 6/11/08

E-Mini S&P Trades*
(before fees and commissions):

1) Engf sell @ 8:40am at 1355.00 = +2.50 (1 lot)

2) OTF sell @ 10:10am at 1347.75 = +6.25 (1 lot)

3) Engf sell @ 2:10pm at 1341.50 = b/e (1 lot)

4) Algorithm trades (4) combined total +10.00

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 10:57am at 725.9 = -.6 (1 lot) -$60


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