A Post Rate Cut World

Here are the key issues I am following after the Fed Rate cut earlier this week:

• Dollar Devaluation: The US Dollar has taken a big hit on the back of the 50bp FF rate cut on Tuesday. For the first time in 30 years the loonie (Canadian Dollar) reached parity with the USD. The Euro broke through the key psychological level of $1.40 as it continues to rally against the dollar. The trade weighted dollar index dropped 1% to 78.5. Here are some other highlights from the dollar devaluation:
• Saudi Arabia: SAMA, Saudi Arabia's monetary agency, took no action after the Fed rate cut signaling that it might be considering dropping its peg to the US dollar. While this alone wouldn't crush the dollar there are concerns that sentiment is slowly switching among central bankers the world over how tied they want to be to a slowing US economy.
• Greenspan: Alan Greenspan has been hogging the spotlight with the release of his new book and his prognostications on the economy. According to Alan the odds of a recession are "somewhat more" than 1 and 3 even after the Fed rate cut. Alan also appeared
  on the Daily Show on the same day the Fed cut rates . . it yielded quite an interesting interview.
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• Commercial Paper: Many market participants have been tracking the commercial paper market to gauge the health of the credit markets in general. We have had 5 straight weeks of declines in commercial paper outstanding for a total decline of roughly 16%. The decline has been led by asset backed commercial paper (ABCP). After the declines slowed the past few weeks they picked up this week though the cause of the shift is largely due to a decline in supply instead of a decline in demand.
• Financials: In the face of strong headwinds Goldman Sachs put together a strong quarter, with a 79% surge in net income. Goldman is now the only major bank that is in the black on the year, up almost 3% on the year. Bear Stearns didn't fare quite so well, watching its net drop 61%. Its stock is off almost 30% on the year.
• GSE Portfolio Caps: President Bush and OFHEO reversed tack and allowed Fannie and Freddie to raise their loan capacity by 2% for a total increase of $34 billion. The change should help relieve some pressure on the mortgage market but isn't a quick fix.
  
• Middle East Sovereign Wealth Funds: Dubai purchased a stake in OMX and Nasdaq. Qatar purchased a 20% stake in the LSE. Abu Dhabi purchased a $1.75 billion stake in the management company of private equity firm Carlyle.
• Rally in the AAA ABX Indices: After briefly being down over 10% on the year the AAA ABX index has rebounded nicely off of its yearly lows.
  
• Stabilization in the BBB Rated ABX Indices: The BBB rated indices are still trading down 70% this year but look steady at current levels.
• Barack Obama's Rough August: Jim Simons and Mark Carhart aren't the only ones who had a tough start to August this year. If you track Barack Obama's likelihood to be the Democratic nominee for President on InTrade you may have noticed the Barack Obama had a rough start to August this year, falling from a virtual dead heat with Hillary Clinton into a distant second place.