All the major U.S. indexes finished higher for this week. The Dow Jones average finished up 3.6% for the week, Nasdaq gained 0.7%,while the S&P 500 ended up 1.7%. Europe ETFs as a group ended the week up by about almost 4%; Asia was up by about 1% and Latin America ended the week higher by about 0.5%. The strongest sector this week was retail ETFs, up by 7%, and oil ETFs finishing down about 10%.

Ben Bernanke offered little comfort to dollar bulls this week when he stressed that soothing the financial system was his “top priority”. This and some solid earnings from Wells Fargo sparked a sharp rally in U.S. markets (SPY) and global financials (IXG). Wall Street retreated early Friday after disappointing results from technology companies like Google (GOOG) and Microsoft (MSFT) and higher oil prices offset a more upbeat report from Citigroup (C). Merrill Lynch (MER) reported another ugly quarter and has now lost a total of almost $19bn over four straight bad quarters.

In the U.S, banks had lost half of their market value between a year ago and the end of last week, relative to the S&P composite index. The quality of the underlying collateral for much of the lending of previous years – housing – continues to weaken. The bellwether Case-Shiller 20-city index declined by 22% in real terms between its peak in mid-2006 and April of this year.

The controversy over the financial future of the two government-sponsored enterprises, Fannie Mae (FNM) and Freddie Mac (FRE), which have been financing about three-quarters of all US mortgages, panicked markets early in the week. Their total liabilities are a close to stunning 40% of U.S. gross domestic product.

One bright spot for America is that U.S. exports are indeed growing at annual rate of 20% and this is likely preventing the housing and credit crunch from driving the U.S. into a deep recession. 65% of the U.S. trade deficit is due to China trade imbalance and energy imports.

Economic data for the United Kingdom (EWU) showed that unemployment claims rose sharply last month, taking the jobless rate to 2.6 per cent. Wage growth remained muted and inflation hit its highest level for 16 years, leaving little prospect of near-term cuts in interest rates. UK advertising budgets are also being slashed.

A Merrill Lynch survey of global fund managers shows that emerging market equities (EEM) are less popular than American equities for the first time in over seven years. Only 4% are overweight emerging markets compared to 33% in May. Surprisingly, a net 7% of global managers are overweight the U.S. market (SPY).

The Thai market (TF) fell to a 15 month low as its central bank raised interest rates. The Bangkok SET index is down 24% since late May and part of the problem is political turmoil kept front and center by street protests. Russian (RSX) inflation is a bit out of control running at just under 18% during the first 6 months of this year while wage rates jumped 32%.

Van Eck launched the Market Vectors – Africa Index ETF (AFK) this week.. AFK seeks to track the Dow Jones Africa Titans 50 Index, a pan-African index that measures the stock performance of 50 companies that are headquartered in or generate the majority of their revenues in Africa. Market participants have either direct or indirect exposure to the following 11 markets in Africa: Angola, Democratic Republic of the Congo, Egypt, Equatorial Guinea, Ghana, Kenya, Mali, Morocco, Nigeria, South Africa and Zambia.

The index caps each country at 25% exposure upon quarterly rebalance, with top country allocations to Nigeria (25%), South Africa (25%), Egypt (13%) and Morocco (11%). Off shore-based companies also account for 25% as of the most recent rebalance. The investment is broken down among a number of different sectors; the largest include financials (40%), basic materials (18%), oil & gas (13%), telecommunications (10%), industrials (8%) and technology (7%).

According to a recent Goldman Sachs report, the number of people living on incomes of less than $1,000 dollars a year ($2.75 a day) has already dropped significantly from about 50% of the world’s population in the 1970s to 17% in 2000. According to our estimates, it could be as low as 6% by 2015.

Japan’s (EWJ) (JCS) central bank on Tuesday acknowledged the increasing impact of global problems on Japan’s economy, downgrading its growth forecast and raising its inflation n umbers.

The bank, which left interest rates unchanged at 0.5% said growth for the year ending March 2009 would be 1.2 per cent, below its April forecast of 1.5 per cent. Stripped of food and energy prices, Japan’s CPI was still falling in May, albeit by just 0.1 per cent.

Brazil’s (EWZ) real estate markets are surging ahead with $1 billion in commercial deals completed each quarter. While the US has an 80% mortgage penetration rate, in Brazil it is only 10%. Plenty of room to grow!

Though India (IIF) markets jumped this week, the India market has almost halved since the beginning of the year and was down 20% alone in June alone. The price of risk and the appetite for risk have diverged, higher oil prices have worsened its trade deficit and politics is in turmoil ahead of May 2009 elections. India imports 70% of its energy which makes its market very sensitive to oil prices. Well respected value private equity investors Wilbur Ross closed an $80 MM investment in India second largest airline this week. Great timing as usual.

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Carl T. Delfeld

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