Financial Services, Investments, USA

North American stock markets closed the previous week on a down note. Dow Jones Indusrials lost 2.8% for a week and is down close to 15% year todate. Toronto market has lost over 1000 points and is down over 20% in the last two months. Major European and Asian markets are doing even worse. Closer to Baltics the Russian market is down 36% year to date. According to the Wall Street Journal foregn investors have pulled over 20 bln.$ from Russia.

The monies coming out of stock markets are gravitating towards bonds. The yields on government 10 year bonds are 3.7% in USA, 3.4% in Canada,4.06% in Germany and 1.43% in Japan. For the longest time it was benefitial for investors to borrow at a very low rate in Japanese Yen and invest in Europe for about 3% advantage in the rate of return. Besides the Euro was also strengthening . In the last couple of months the trend has changed. The Euro is down 15% against $US in just a few weeks. This move coinsides with quite significant drop in commodities such as crude oil which down over 35% from it's recent highs. The reasons are many. As difficult as current economic environment is in the USA in Europe things are even worse. The Discount Rate in the USA is 2% and is close to historic lows. In Europe it is 4.25% making it quite expesive for borrow there. It is interesting to note that the mandate of the Federal Reserve Board is sustainable economic growth with low inglation. In Europe the only mandate of ECB, European Central Bank is to fight inflation which is now well over 3% in Europe with ECB target below 2%.

Until recently the combination of high Euro and relatively high interest rates led to a signifiant slowdown in European economies. In my opinion the current difficult economic times will continue for a while until the major financial institutions around the globe get over tremendous liquidity crisis originally caused by deterioration of a housing market in the US. In my opinion the major banks in the US such as the Bank of America and JP Morgan Chase represent a very good value for long term investors. I also believe that the major pharmaceutical companies such as Pfizer and Johnson and Johnson also look interesting at these levels. I believe that US dollar will continue to strengthen against the Euro and test 1.40 level. I also expect the oil prices to continue to fall unless the unforseen event such as a hurricane in the Gulf of Mexico happens. I also expect the American economy outperforming Europe in a near future.