All of us at StockPreacher.com have been working tirelessly to keep our members up to date with breaking information from across the markets during this historic and troubled time. Our team has been expanding our information base as we have recruited analysts from around the world to provide current market forecasts and summaries of the days and weeks occurrences. There is an example of this on the left hand side of this report, titled: “Some Wisdom from a Reader: The world belongs to those who adapt.” It is written by Paul Ebeling Jr. better known as the Red Roadmaster, a US market analyst and commentator.
Before we can make a judgement decision as to what our financial future holds, we have to know two things: What has happened so far and where we currently stand financially. Investor sentiment has reached a level of pure panic. We have all just witnessed one of the worst weeks in the history of the global markets. First off: The Dow is off the rails and completely out of control. On Friday the Dow Jones Industrial average took us on a 1,000 point swing. This is the largest intraday swing in the history of the exchange. The index recovered from almost a 700 point drop, surging more than 300 points into the green, before finally closing down 128 points at 8,451. Like a tired, old accountant, filing his last quarterlies before declaring bankruptcy, the Dow’s tally at the end of the week was a loss of 18.2%. This is the steepest weekly decline since 1914. The TSX Composite lost 16% as oil and many other commodities plummeted. The volatility being displayed in these markets has reached levels never predicted.
The door to the credit market is temporarily shut. Government officials from around the world are doing their best to open it, but have yet to succeed. We are at a standstill because banks are afraid to lend money. There is next to no available capital and everyone seems to be waiting for the other guy to make the first move. If everyone waits, nothing happens. Demand for commodities has tail-spinned into an absolute nose dive. What correlates with a widespread decrease in commodities? The increase in value of the US dollar. The greenback is running high right now for a combination of reasons; none make much sense. The euro has fallen off because of a deteriorating economic environment. The Canadian dollar is losing its value at a feverish pace, declining multiple percentage points last week. To be more specific, the Canadian dollar had the largest single day and weekly decline in 37 years against the greenback. Look for Canada’s trade to increase with the decrease in value of the loonie. Although a correction in the commodity markets may occur, demand for many of these metals will continue to be very strong out of Asia.
Global demand for commodities is being cut off because there is no influx of capital. This will not be remedied until buyers feel protected and aren’t worried about sharing the same fate as the investment bank, Lehman Brothers Holdings Inc. This fear that is dominating the markets is justified, to a point. Investors are always most fearful and irrational right before things calm down and the markets turn around.
A market strategist from Wells Capital Management, Mr. Jim Paulsen made some very insightful comments recently. He stated that, “The US Federal Reserve and the US Treasury made things worse by every day coming out with a different emergency policy.” He went on to say that, policy makers should stand down for now and make the case that the series of rescue measures introduced need time to work. He then stated, “They’ve been looking like chickens with their heads cut off. It makes you wonder who’s even running this country. Is it policy leaders or the Dow Jones Industrial Average.”
As investors, we have to be concerned with the fact that banks are not lending to each other. This is a problem above all others. It is affecting every aspect of the market. The Group of Seven (consisting of the finance ministers from the United States, United Kingdom, Germany, France, Japan, Italy and Canada) met Saturday morning with President Bush at the White House. On Friday the G7 agreed on a framework for addressing the crisis, but gave no details as to exactly how they will go about averting a global recession.
Japanese Finance Minister Shoichi Nakagawa expressed hope that investors worldwide will ultimately be in favour of the Group of Seven Nations’ decisions on combating the global financial crisis.
Until liquidity comes back and capital is easily attained, the markets will underperform and rampant fear will be the norm. There is a light at the end of the tunnel. The old saying, ‘It’s always darkest before the sun rises’ is true. In the meantime, this volatility has provided opportunities galore. We encourage everyone to review their portfolios and make decisions as if you are the CEO of your own company – not just another irrational and scared investor.
All the best with your investments,
StockPreacher
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